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June 21, 2007

Accurate Financial Statements Could Have
Prevented Program Cuts at North Babylon

Inadequate Internal Controls Also Cited

Inadequate monitoring of finances at the North Babylon Union Free School District resulted in cuts to school programs which could have been prevented if the district properly accounted for $2.8 million in State aid, according to an audit released today by State Comptroller Thomas P. DiNapoli.

“Important student programs were cut because the school district did not have a handle on its finances,” DiNapoli said. “Taxpayers expect the school district to have an accurate picture of the school’s budget. But taxpayers in North Babylon did not get that accurate picture. The resulting program cuts were not fair to taxpayers, not fair to teachers and especially not fair to students.”

Auditors found the district failed to properly record $2.8 million in State aid as revenue for fiscal year 2003-04. Instead, the district recorded the funds as revenue for fiscal year 2004-05. This error caused the district to significantly underestimate its projected year-end unreserved fund balance for June 2004, believing it had $4.2 million when $7 million was actually available. District officials also underestimated the projected unreserved fund balance the following year.

As a result, the district used inaccurate information to develop its budgets for 2004-05 and 2005-06, significantly underestimating the amount of funds available to the district. After the district’s first 2005-06 budget proposal failed in May 2005, the district cut $500,000 in programs. The second budget proposal, which increased taxes by 6.5 percent, passed in June 2005.

The unreserved fund balance is uncommitted and available for use by the district in the next fiscal year and, therefore, could affect tax rates. By law, school districts can hold no more than two percent of the next year’s budgeted appropriations in unreserved fund balance. Poor accounting and monitoring practices caused the district to hold five percent of its budget in unreserved fund balance in June 2004, which was more than twice the legal limit.

The excess unreserved fund balance was discovered by the district’s independent auditor in October 2005. To reduce the fund balance, the district appropriated a portion to reduce the tax levy and transferred part of it to reserve funds.

Auditors also identified several weaknesses in the district’s financial operations. The district:

  • failed to publicly advertise bids for approximately $364,000 in contracts for such services as installing a new boiler and providing security guard services;
  • awarded eight professional service contracts totaling $803,838, without seeking competitive proposals;
  • processed purchase orders after services were provided without necessary approvals;
  • lacked written payroll policies and procedures, and systems to independently verify the accuracy of payrolls; and
  • improperly maintained individual time records.

District officials generally agreed with the audit’s findings and recommendations. Corrective action the district is taking includes: making the position of treasurer full-time; limiting the number of purchase orders dated after an invoice is received; and developing a procedures manual for payroll activities. The district’s full response and the auditor’s response to the district’s concerns are both included in the audit.

The district’s 2007-08 operating budget is about $102 million and approximately 5,100 students attend schools in the district.

Click here for a copy of the audit.



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