The Roosevelt Union Free School District (District), located in Nassau County, is governed by the Board of Education (Board) which comprises five members appointed by the New York State Commissioner of Education. The Superintendent of Schools (Superintendent) is the chief executive officer of the District and is responsible, along with other administrative staff, for the day-to-day management of the District under the direction of the Board.

The District’s reported operating and other expenditures for the 2005-06 fiscal year totaled about $59.7 million for the general fund, $1.2 million for the school lunch fund, and $5.2 million for the special aid fund. The District’s expenditures are funded primarily with revenues from real property taxes and State aid. The District currently employs approximately 500 employees and its annual payroll is approximately $30 million.

The District has struggled with fiscal issues for many years. In March 2002, after persistent concerns with Board governance, facility conditions, student performance, and financial condition problems at the District, the State Legislature formally removed the previous Board and authorized additional oversight by the Commissioner of Education, including the appointment of a new Board. The Legislature passed legislation¹ that provided deficit financing of about $5.8 million to improve the District’s operations and to liquidate the accumulated deficit. Further, the legislation provides for the District to receive an additional $6 million in State aid annually to improve student performance.

On September 14, 2006, the Commissioner of Education requested that we audit the District in response to questions that his staff had raised concerning the District’s finances. On September 25, 2006, we initiated the audit.

Scope and Objectives

Our audit objectives included evaluating the District’s revenues and expenditures for the year ended June 30, 2006, and providing an independent review of the 2006-07 budget. We examined the financial condition and budgeting practices of the District for the period of July 1, 2004 to November 30, 2006. Our audit addressed the following related questions:

• What was the District’s financial condition at the end of the 2005-06 fiscal year?
• Are the revenue and expenditure projections in the 2006-07 budget reasonable, and is the budget structurally balanced so that recurring costs are financed with recurring revenues?
• Were financial controls overridden?

Audit Results

District officials have not taken appropriate action to address recurring deficits in the general fund. As a result, the District has continued to experience annual operating deficits and is now in severe fiscal stress. We estimate that the District could potentially end the 2006-07 fiscal year with an accumulated, unreserved, unappropriated general fund deficit of almost $12.3 million.

The recurring general fund operating deficits and the resulting cumulative general fund deficit create a constant strain on current resources. During the 2005-06 fiscal year, District officials “borrowed” $16 million from the capital projects fund and “loaned” it to the general fund to pay operating expenditures.² While the general fund has since repaid the capital fund, such borrowing creates a situation where the District is not funding current expenditures with current revenue. The District’s significant borrowing from the capital projects fund to pay operating expenditures illustrates the problems that the District is having paying its bills, as a result of District officials’ poor fiscal management.

For the fiscal year ended June 30, 2005, the District reported an unreserved general fund balance of approximately $1.2 million. During fiscal year 2005-06, the District’s general fund incurred an operating deficit of about $5.7 million and recorded adjustments of about $1.7 million. As a result, on June 30, 2006, the District’s accumulated unreserved general fund deficit was approximately $6.2 million.

In reviewing the budget for the 2006-07 fiscal year, we conclude that due to over-budgeted revenues and under-budgeted expenditures, the District will potentially incur a $6.1 million operating deficit as of June 30, 2007.

Very poor budgeting and financial management practices have been the primary cause of the District’s deteriorating financial condition. For example, in recent years, the District has appropriated much of its anticipated fund balance, even after being warned against this practice by the Office of the State Comptroller. In addition, the District has made repeated errors in budgeting for State aid revenue and personal service expenditures.

Our audit also revealed that the District has a lack of expenditure controls, such as weaknesses in the purchase order system, purchasing and procurement controls, use of the financial accounting software package, and the claims auditor function. These weaknesses have allowed the District to over-spend budget line items and incur expenditures without prior approval. However, in November 2006, District officials appointed a purchasing officer to address some of the weaknesses. In addition, District officials told us at our exit discussion that they no longer “allow” the approval of purchase orders if funds are unavailable, and that staff have been instructed not to pay a bill if funds are not available in the line item to which it is coded. We did not verify this additional information provided.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their comments, which appear in Appendix A, have been considered in preparing this report. District officials generally agreed with our recommendations and indicated that they planned to initiate corrective action.
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¹.2002 New York State Law Chapters 33 and 72

².Local Finance Law Section 165 prohibits school districts from using the proceeds from debt for expenditures other than the stated purpose of the issuance.