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October 5, 2007

DiNapoli Audit: Elmsford School District Must
Improve Accounting for Tax Settlements

Elmsford Union Free School District did not comply with generally accepted accounting principles (GAAP) and state law when it set aside 13 times the amount of money needed to settle tax certiorari proceedings, according to an audit released today by State Comptroller Thomas P. DiNapoli.

“Understandably, Elmsford wanted to save for a rainy day. But state law limits the amount of money school districts can set aside. These limits ensure taxpayers don’t pay more than they should,” DiNapoli said. “Prudent use of taxpayer dollars is essential when property taxes continue to rise across the state.”

The district set aside $6.7 million in June 2006 to pay potential judgments and claims against property tax assessments during the 2006-07 fiscal year. Actual payments ultimately totaled only $506,000. From 2002 through 2007, the district set aside anywhere from $3.8 million to $6.7 million annually, when the average amount the school had to return was just $719,000. These excess funds should have been allocated to the following years’ budgets to save taxpayers money.

In New York State, a property taxpayer has the option to implement a tax certiorari proceeding when the taxpayer has been denied a reduction in property tax assessment. In doing so, the taxpayer challenges the assessment on grounds of excessiveness, inequality, illegality or misclassification.

School districts can set aside funds for tax certiorari payments by formally establishing a reserve fund, but the amount of money reserved must be reasonable. The Elmsford school district did not formally establish a reserve fund. Instead, it set aside money by encumbering funds on its financial statements. The amounts encumbered were excessive.

At the time of the audit, under state education and real property tax laws, school districts could not have an unreserved fund balance of more than two percent of the upcoming year’s budget. By setting aside such large sums for tax certiorari proceedings, the district circumvented this requirement.

The audit recommends that district officials not encumber funds for tax certiorari judgments. Rather, a reasonable amount should be set aside in a reserve fund designated for this purpose.

The audit also found that the district did not properly safeguard computerized data. District officials agreed with the findings of the audit and the district’s full response is included in the audit.

Click here for a copy of the audit.


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