The Southold Union Free School District (District) is governed by the Board of Education (Board) which comprises five elected members. The Board is responsible for the general management and control of the District’s financial and educational affairs. 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.

Scope and Objective

The objectives of our audit were to examine the District’s management of its financial resources and controls over purchasing for the period July 1, 2004 to April 30, 2006. Our audit addressed the following related questions:

• Did District officials take adequate measures to address the deficit in the capital projects fund?

• Did District officials prepare and adequately monitor realistic budgets for fiscal years 2004-05 and 2005-06?

• Do internal controls over the purchasing function ensure the District is meeting its procurement needs in the most economical way possible?

Audit Results

We found that the District’s 2004-05 budget was inaccurate and resulted in the over-expenditure of appropriations in the amount of $746,326. This over-expenditure was financed with appropriations from the District’s reserved and unreserved fund balance.
We also found that the District’s financial position has been overstated for at least six years. The District financed a 1996 capital project’s excess expenditures with moneys from the general fund and other capital projects. Because there no longer is any mechanism to recover these funds from the capital fund, the general fund will never collect this accounts receivable. Therefore, carrying this receivable in the general fund causes the fund balance in the general fund to be overstated by $762,000. The District has not addressed this issue which has existed since June 30, 2000. As a result, the District’s actual financial condition is much less healthy than is shown in its accounting records. The District’s true fund balance as of June 30, 2006 is closer to $600,000 than the reported $1.36 million.

During the fiscal year ended June 30, 2006, actual general fund revenues of $20 million exceeded expenditures of $19.9 million, resulting in a $126,396 operating surplus. Although the District’s budget for the 2005-06 fiscal year included an appropriation of $175,000 of fund balance, the District did not need to appropriate any of the June 30, 2005 fund balance in the 2005-06 fiscal year.

In addition, we found that internal controls over the purchasing function did not ensure that the District is meeting its procurement needs in the most economical way possible. The District did not publicly advertise for bid – as required by law and District policy – contracts for repairs to the heating, ventilation, and air conditioning system totaling $30,188; purchases of cleaning supplies totaling $27,726; pavement repairs costing $23,000; and the lease-purchase of computer hardware and software licenses totaling $18,805. Also, the District had not entered into written agreements with three of six professionals that we reviewed.

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 take corrective action.

Complete Audit in PDF