cohoes city school district - budgeting · july 2016 dear school district officials: ... budgeting....

Division of LocaL Government & schooL accountabiLity

o f f i c e o f t h e n e w y o r k s t a t e c o m p t r o L L e r

report of Examination Period Covered:

July 1, 2012 – June 30, 2015

2016M-111

Cohoes City School District

Budgeting

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

INTRODUCTION 2 Background 2 Objective 2 Scope and Methodology 2 CommentsofDistrictOfficialsandCorrectiveAction 2

BUDGETING 4 Unrestricted Fund Balance 4 Budgeting Practices 5 Reserves 7 Recommendations 8 APPENDIX A ResponseFromDistrictOfficials 9APPENDIX B AuditMethodologyandStandards 12APPENDIX C HowtoObtainAdditionalCopiesoftheReport 13APPENDIX D LocalRegionalOfficeListing 14

Table of Contents

11Division of LocaL Government anD schooL accountabiLity

State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability July 2016

DearSchoolDistrictOfficials:

AtoppriorityoftheOfficeoftheStateComptrolleristohelpschooldistrictofficialsmanagetheirdistrictsefficientlyandeffectivelyand,bysodoing,provideaccountabilityfor taxdollarsspent tosupportdistrictoperations.TheComptrolleroverseesthefiscalaffairsofdistrictsstatewide,aswellasdistricts’compliancewithrelevantstatutesandobservanceofgoodbusinesspractices.Thisfiscaloversight is accomplished, in part, throughour audits,which identify opportunities for improvingdistrictoperationsandBoardofEducationgovernance.Auditsalsocanidentifystrategiestoreducedistrict costs and to strengthen controls intended to safeguard district assets.

FollowingisareportofourauditoftheCohoesCitySchoolDistrict,entitledBudgeting.ThisauditwasconductedpursuanttoArticleV,Section1oftheStateConstitutionandtheStateComptroller’sauthorityassetforthinArticle3oftheNewYorkStateGeneralMunicipalLaw.

This audit’s results and recommendations are resources for district officials to use in effectivelymanagingoperationsandinmeetingtheexpectationsoftheirconstituents.Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontactthelocalregionalofficeforyourcounty,aslistedattheendofthis report.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

2 Office Of the New YOrk State cOmptrOller2

Background

Introduction

Objective

Scope andMethodology

Comments ofDistrict Officials andCorrective Action

The Cohoes City School District (District) is located in the City of CohoesinAlbanyCounty.TheDistrictisgovernedbytheBoardofEducation (Board),which is composed of seven electedmembers.The Board is responsible for the general management and control of theDistrict’s financial and educational affairs.The SuperintendentofSchoolsistheDistrict’schiefexecutiveofficerandisresponsible,along with other administrative staff, for the District’s day-to-daymanagement under the Board’s direction.

TheDistrictoperatesfiveschoolswithapproximately1,900studentsand360 employees.TheDistrict’s budgeted appropriations for the2015-16schoolyearwere$40.3million,whichwerefundedprimarilywithStateaid,realpropertytaxesandgrants.

Theobjectiveofourauditwas toexamine theDistrict’sbudgetingpractices to determine if District officials properly managed fundbalance and reserves. Our audit addressed the following related question:

• Did the Board and District officials properly manage theDistrict's fund balance and ensure reserve balances and budget estimates were reasonable?

We examined the District’s budgeting practices, fund balance andreservesfortheperiodJuly1,2012throughJune30,2015.

We conducted our audit in accordance with generally accepted governmentauditingstandards(GAGAS).Moreinformationonsuchstandards and the methodology used in performing this audit are includedinAppendixBofthisreport.

TheresultsofouraudithavebeendiscussedwithDistrictofficialsandtheircomments,whichappearinAppendixA,havebeenconsideredinpreparingthisreport.Districtofficialsgenerallyagreedwithourrecommendations and indicated they planned to initiate corrective action.

The Board has the responsibility to initiate corrective action. Pursuant toSection 35 ofGeneralMunicipalLaw,Section 2116-a(3)(c)ofNewYorkStateEducationLawandSection170.12oftheRegulationsoftheCommissionerofEducation,awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendationsinthisreportmustbepreparedandprovidedtoourofficewithin90


days,withacopyforwardedtotheCommissionerofEducation.Tothe extent practicable, implementation of the CAPmust begin bytheendof thenextfiscalyear.Formore informationonpreparingandfilingyourCAP,pleaserefertoourbrochure,Responding to an OSC Audit Report, which you received with the draft audit report. TheBoardshouldmaketheCAPavailableforpublicreviewintheDistrictClerk’soffice.


Budgeting

Aschooldistrict’sfinancialcondition isa factor indetermining itsability to fund public educational services for students within the district.Districtofficialsareresponsibleformanagingfundbalance,whichrepresentsresourcesremainingfrompriorfiscalyears.Adistrictmay retain a portion of fund balance within the limits established by NewYorkStateRealPropertyTaxLaw(RPTL).Developingaccuratebudgets is an effective way to ensure fund balance is reasonable.

Accordingly,itisessentialthatDistrictofficialsdevelopreasonablebudgetstobalancerecurringexpenditureneedswithrecurringrevenuesources while providing desired services on a continuing basis and managefundbalanceresponsibly.Adistrictcanalsoestablishreservestorestrictareasonableportionoffundbalancetofinancefuturecostsfor a variety of specified purposes.District officials should ensurethat reservefundbalancesdonotexceed theamountsnecessary toaddresslong-termobligationsorplannedexpenditures.

TheBoardandDistrictofficialsdidnotproperlymanagefundbalanceor ensure reserve balances and budget estimates were reasonable. For the2012-13through2014-15fiscalyears,theDistrict’sunrestrictedfundbalance exceeded the statutory limit, ranging from5.5 to 7.6percent of the ensuing year’s budget appropriations. During this same period, theBoard significantly overestimatedDistrict expendituresbyacombinedtotalofapproximately$7.2million,whichresultedinannualoperatingsurplusestotalingapproximately$2.1million.

In addition, theBoard appropriated approximately $1.1million offundbalanceduringtheseyearstofinanceoperationsbutnoneoftheamountsappropriatedwereused.Furthermore,despiteexperiencingoperatingsurpluses,Districtofficialsincreasedtherealpropertytaxlevy by an average of approximately $397,000 each year. Finally,the District’s retirement contribution reserve had a balance of more than$1.6million.BasedontheDistrict’saverageannualretirementcontributionofabout$579,000,itscurrentbalanceissufficienttopaythese costs for almost three years.

TheDistrictmay retain a portion of fundbalance, butmust do sowithin the limits established by RPTL, which currently limits theamount of unrestricted fund balance that the District can retain to 4 percentoftheensuingfiscalyear’sbudgetedappropriations.

For the 2012-13 through 2014-15 fiscal years, unrestricted fundbalance increased by $704,300, or 30 percent, and exceeded the

Unrestricted Fund Balance


statutorylimiteachyear,rangingbetween5.5and7.6percentofthenextyear’sbudget.AsofJune30,2015, theDistrict’sunrestrictedfund balance totaled approximately $3 million, or 7.6 percent ofthe ensuing year’s budget, which exceeded the statutory limit byapproximately$1.5million(Figure1).

Figure 1: Unrestricted Fund Balance at Year-End2012-13 2013-14 2014-15

Total Unrestricted Funds at Year-End $2,375,619 $2,189,660 $3,079,919

Ensuing Year’s Budgeted Appropriations $39,577,256 $39,563,149 $40,290,105

Unrestricted Funds as Percentage of Ensuing Year’s Budget 6.0% 5.5% 7.6%

Figure 2: Planned Deficits vs. Results of Operations2012-13 2013-14 2014-15 Totals

Appropriated Fund Balance (Planned Deficit) ($175,000) ($488,826) ($451,939) ($1,115,765)

Results of Operations $431,231 $828,655 $880,159 $2,140,045

Total Budget Variance $606,231 $1,317,481 $1,332,098 $3,255,810

Districtofficialsareresponsibleforpreparingandadoptingreasonablebudgets based on historical or known trends for appropriations and revenues.Inpreparingthebudget,itisessentialthatDistrictofficialsuse the most current and accurate information available to ensure that budgeted appropriations are reasonable and not overestimated. When fundbalanceisappropriatedtofinanceoperations,thebudget’stotalestimatedrevenueswillbelessthanthetotalappropriations,andthusanoperatingdeficitwilloccuriftheactualrevenuesandexpendituresare in line with the budgetary estimates.

Duringthe2012-13through2014-15fiscalyears,theBoardadoptedbudgetsthatincludedtheuseoffundbalancetofinanceoperations.AlthoughtheBoard’sadoptedbudgetsincludedtheappropriationoffundbalanceduringthosethreefiscalyears,theDistrictexperiencedannualoperatingsurplusestotalingapproximately$2.1millionoverthisperiodanddidnotusetheappropriatedfundbalancetofinanceoperations(Figure2),resultinginoperationsvariancesofover$3.2million.

Basedonthe2015-16adoptedbudget,theDistrictbudgetedsimilarlyto previous years and most likely will not use the $399,560 itappropriatedinfundbalance.Therefore,theDistrict’sfundbalancewilllikelycontinuetoexceedthestatutorylimit.The2016-17budgetfollowedthesamepattern,andiftheresultsofoperationsduringthefiscalyearfollowthesametrendsasinpastyears,theDistrictmayrealize an additional operating surplus.

Budgeting Practices


TheDistrictexperiencedsignificantoperatingsurplusesbecausetheBoard overestimated appropriations by an average of 6 percent in theDistrict’s annual budgets each year, while generally providingrealistic revenue estimates. We compared the District’s budgeted appropriationsandactualexpendituresforthe2012-13through2014-15fiscalyearsandfoundthattheDistrictoverestimatedexpendituresbyacombinedtotalofapproximately$7.2millioninthesebudgets(Figure3).

Figure 3: Overestimated ExpendituresFiscal Year Budgeted

AppropriationsActual

ExpendituresOverestimated Appropriations Percentage

2012-13 $38,713,159 $36,638,661 $2,074,498 5.7%

2013-14 $40,192,141 $37,291,626 $2,900,515 7.8%

2014-15 $40,332,352 $38,123,871 $2,208,481 5.8%

Total $119,237,652 $112,054,158 $7,183,494 6.4%

Whilethetotalannualexpenditurevarianceswererelativelysmall,rangingfrom5.7to7.8percent,inaggregatetheycontributedtoa73percentincreasetototalfundbalance(from$3.8millionin2012-13to$6.7millionin2014-15).Theoverestimatedexpendituresgenerallyoccurred throughout general fund budget lines during these years. However,wefoundcertainaccountswereoverestimatedduringallthree years.

Forexample,healthinsurancecostswereoverestimatedbyacombinedtotalofmorethan$1.2million(7percent),NewYorkStateTeachers’Retirement System (TRS) costs were overestimated by a combined totalof$882,942(12percent)andheatingandelectricitycostswereoverestimatedbyacombinedtotalof$589,334(36percent).Theseare items that should be budgeted accurately.

Subsequenttoourfieldwork,wereviewedtheDistrict’saccountingrecordstodetermineifthesebudgetpracticescontinuedin2015-16.As ofMarch 31, 2016,District officials had expended 78 percentof available appropriations for health insurance, 72 percent ofavailable appropriations for electricity and 32 percent of availableappropriations for heating. In addition, officials have recorded theDistrict’s TRS expenditure. For 2015-16, the District expendedapproximately$155,000morethanestimatedinitsoriginalbudget.

Asaresultofthesebudgetingpractices,theBoardadoptedunrealisticbudgets,appropriatedfundbalancewasnotusedtofundoperationsand incurred annual operating surpluses that made it appear the District needed toboth raise taxesanduse fundbalance tocloseprojectedbudget gaps.However, because theDistrict experienced surplusesandappropriatedfundbalancethatwasnotused,unrestrictedfundbalanceexceededthestatutorylimitallthreeyears.


Despitetheseoperatingsurpluses,Districtofficialsincreasedtherealpropertytaxlevybyanaverageofapproximately$397,000eachyear,anincreaseof3percent.TheBoard-adopted2015-16taxlevytotaledapproximately$14.7million,whichrepresentsa1percentincreasefrom thepreviousyear, and therewasnoproposed increase in thetaxlevyforthe2016-17fiscalyearbutalsonodecreaseinthelevyfunded by the excess balance on hand. Furthermore, theDistrict’spractice of appropriating fund balance in the budgets each year that isnotneededtofinanceoperationsis,ineffect,areservationoffundbalance that is not provided for by statute and a circumvention of the statutory limit imposed on the level of unrestricted fund balance.

WhenDistrictofficialsestablish reserve funds, it is important theydevelopaplanforfundingthereserves,determininghowmuchshouldbeaccumulatedandhowandwhenthefundswillbeusedtofinancerelated costs. Such a plan should guide the Board in accumulating and using reserve funds and would help inform District residents about howtheirtaxdollarswillbeused.Fundingreservesatgreaterthanreasonablelevelsessentiallyresultsinrealpropertytaxleviesthatarehigher than necessary.

The District did not have a formal plan for funding reserves,determining how much should be accumulated and how and when thefundswillbeusedtofinancerelatedcosts.From2012-13through2014-15,District officials increased thebalance in the reservesbymore than $2.2million, or 555 percent.As of June 30, 2015, theDistricthadfivereserves(capital,compensatedabsences,retirementcontribution, tax certiorari and unemployment insurance) totalingapproximately$2.6million.

We analyzed the balances of the reserve funds and found that the balances for the capital, compensated absences, unemploymentinsuranceandtaxcertiorarireserveswerereasonable.However,theamountretainedintheretirementcontributionreservewassignificantlymore than the amount necessary to pay employee retirement costs eachyear.Thisreserve’sbalanceasofJune30,2015wasmorethan$1.6million.However, theDistrict’sexpenditurespaid to theNewYork State and Local Retirement System (NYSLRS) for 2012-13,2013-14 and 2014-15 averaged about $579,270 each year, or 64percent less that the reserve balance. Based on the District’s average annualretirementcontribution,itscurrentbalanceissufficienttopaythese costs for almost three years.

Districtofficials toldus that they funded this reservebasedon thethree previous year’s expenditures to theNYSLRS.TheDistrict’s2015-16retirementcostswerefundedthroughanappropriationfromthe reserveandDistrictofficialsused reserve funds topay for this

Reserves


expenditure.Furthermore,theDistrict’s2016-17budgetincludesanappropriationfromthereservetofundthisexpenditure.

TheBoardestablishedthisreserveinAugust2014intheamountof$1.635million.However,DistrictofficialsrecordedthisamountasthereservebalanceintheaccountingrecordsasofJune30,2014andreportedthisamountontheDistrict’sfinancialreportsasofthisdate,eventhoughthereservewasestablishedafterthe2013-14fiscalyearended.

HadDistrictofficialsnoterroneouslyreportedtheretirementreservebalanceinthismanner,theDistrict’sunrestrictedfundbalanceattheendofthe2013-14fiscalyearwouldhavebeenapproximately$3.8million,or9.7percentoftheensuingyear’sappropriations(insteadofthe5.5percentshowninFigure1),furtherexceedingthestatutorylimit. By recording the reserve in the accounting records before it was established,theDistrict’sunrestrictedfundbalanceappearedtobe43percent lower than it actually was that year.

Districtofficialsdidnothaveaplanforthereservefundsthatincludesthe types of reserves established, how reserves will be funded orthebalancestobeaccumulated.Asaresult, theBoardandDistrictofficialsmayhavemissedtheopportunitytousefundbalanceasafinancingsourcetofundone-timeexpenditures,fundneededreservesorreducethetaxlevy.

TheBoardshould:

1. Develop a plan that details funding levels and planned uses of reserve funds.

TheBoardandDistrictofficialsshould:

2. Usesurplusfundsasafinancingsourcefor:

• Fundingone-timeexpenditures;

• Fundingneededreserves;and

• ReducingDistrictpropertytaxes.

3. Ensurethatreservesareproperlyestablishedpriortofundingthem.

4. Adoptrealisticbudgetsforexpenditurestoensurethatthetaxlevyisnothigherthanrequired

Recommendations


APPENDIX A

RESPONSE FROM DISTRICT OFFICIALS

TheDistrictofficials’responsetothisauditcanbefoundonthefollowingpages.


APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

To accomplish our audit objective and obtain valid audit evidence, we performed the followingprocedures:

• WeinterviewedofficialstogainanunderstandingoftheDistrict’sbudgetingprocess.

• We reviewed the results of operations and analyzed changes in fund balance for the general fund for the audit period.

• We compared the adoptedbudgets to themodifiedbudgets and actual operating results todetermine if the budget assumptions were reasonable.

• We reviewed the appropriation of the District’s reserves and fund balance for the audit period.

• WereviewedrevenuesandexpendituresbasedontheDistrict’sbudgetcategoriestoidentifysignificantrevenuesandexpendituresandanalyzetrends.

• We tested the reliability of the accounting records by reviewing bank reconciliations and comparedthemtotheannualfinancialreportsfiledwiththeOfficeoftheStateComptrollerandtotheDistrict’sindependentlyauditedfinancialstatements.

• We reviewed budget and revenue status reports.

• WereviewedBoardminutesandinterviewedofficialstodeterminetheextenttowhichDistrictmanagementwasinvolvedinfinancialmattersbydeterminingiftheyreceivedandreviewedfinancialreports,analyzedtheneedforandestablishedreservesorotherwisemonitoredtheDistrict’sfinancialcondition.

• We reviewed Board minutes and resolutions to verify the establishment of reserve funds.

• We reviewed the balances of the reserves for reasonableness.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperformtheaudit toobtainsufficient,appropriateevidencetoprovideareasonablebasisforourfindingsandconclusionsbasedonourauditobjective.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjective.


APPENDIX C

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

OfficeoftheStateComptrollerPublicInformationOffice110StateStreet,15thFloorAlbany,NewYork12236(518)474-4015http://www.osc.state.ny.us/localgov/

Toobtaincopiesofthisreport,writeorvisitourwebpage:


APPENDIX DOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerTraceyHitchenBoyd,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:[email protected]

Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties

BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:[email protected]

Serving:Allegany,Cattaraugus,Chautauqua,Erie,Genesee,Niagara,Orleans,WyomingCounties

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOne Broad Street PlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:[email protected]

Serving:Albany,Clinton,Essex,Franklin,Fulton,Hamilton,Montgomery,Rensselaer,Saratoga,Schenectady,Warren,WashingtonCounties

HAUPPAUGE REGIONAL OFFICEIraMcCracken,ChiefExaminerOfficeoftheStateComptrollerNYSOfficeBuilding,Room3A10250VeteransMemorialHighwayHauppauge,NewYork11788-5533(631)952-6534Fax(631)952-6530Email:[email protected]

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:[email protected]

Serving:Columbia,Dutchess,Greene,Orange,Putnam,Rockland,Ulster,WestchesterCounties

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThe Powers Building16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:[email protected]

Serving:Cayuga,Chemung,Livingston,Monroe,Ontario,Schuyler,Seneca,Steuben,Wayne,YatesCounties

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333E.WashingtonStreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:[email protected]

Serving:Herkimer,Jefferson,Lewis,Madison,Oneida,Onondaga,Oswego,St.LawrenceCounties

STATEWIDE AUDITSAnnC.Singer,ChiefExaminerStateOfficeBuilding,Suite170244 Hawley Street Binghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313

cohoes city school district - budgeting · july 2016 dear school district officials: ... budgeting....

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