Hart: School Bd. Will Address Financial Transfers Debate

After Budget Deliberations

By John Voket

It has been nearly a month since local Board of Education members heard from Newtown’s municipal auditor that, in his opinion, the board is in violation of state statutes as well as its own policies in its financial practices. And it has been more than five months since Chairman William Hart was first warned about one of the same internal issues regarding a board violation of its own year-end transfer policy in a September 2 memo from then-vice chair Kathryn Fetchick.

While Ms Fetchick has since left the Board of Education, and was subsequently seated to fill a vacancy on the Legislative Council, the issue of whether the school board remains in violation of state law over its adoption of “encumbrance based” financial reporting practices, and in violation of its own policies, remains unresolved.

Despite numerous messages and e-mails from Newtown’s Board of Finance and finance director, a legal opinion from the town attorney, observations from Connecticut’s Office of Policy and Management, and comments from the auditor, the school board decided on January 6 that it would move discussion on possibly reverting back to the “transfer based” financial reporting practice to its finance subcommittee.

The school board’s decision to “pilot” an alternative system of financial reporting was put into practice for the entire 2009-10 fiscal cycle, in part, to relieve the board from having to review and approve what are called “macro” transfers between lines and departments in its nearly $70 million budget.

Instead, the new policy would leave all “macro” and “micro” transfers under the discretion of school district administrative staff. While the board would monitor and receive reports on encumbered funds, or money earmarked for specific purposes at the beginning of the fiscal year, at year’s end, it would only consider and approve a single omnibus transfer covering any or all lines that might be in deficit.

But about a week before the school board met and formalized the encumbrance practice into policy, Ms Fetchick contacted Mr Hart and copied Superintendent Janet Robinson and board secretary Debbie Leidlein via e-mail.

“There is a problem with the year-end financial report that we approved at our last meeting,” she wrote. “There were no transfers to indicate where the money came from to pay the accounts in deficit. Additionally, the fact that there were no transfers shown on our reports in the latter part of the year is in direct conflict with our current financial policies. I think we need to discuss this at our next board meeting.”

That discussion never occurred, however, and the new policy was adopted after a motion and assurances from board member Lillian Bittman that the move away from transfer reporting and approvals was thoroughly researched and endorsed by the school board’s finance committee almost a year earlier in October 2009.

An Unrecorded Meeting

The meeting of the school board’s finance committee, at which members reportedly first recommended a switch in financial practices, was never publicly warned. That means the statutorily required notice of the meeting and its agenda was never made public.

Additionally, no minutes from that meeting were ever taken or filed, another violation of state Freedom of Information law. Both violations were confirmed by the board’s administrative secretary.

In December 2010, Ms Leidlein, who was by then the new school board vice chairman, received a copy of the audit noting the statutory and policy violations.

According to a recorded transcript of that December 7 meeting, and confirmed by Ms Leidlein, the moment her requested agenda item was introduced, school board member Andrew Buzzi countered with a motion to table any discussion on the matter until the board received an official presentation from the auditing firm. A vote of 6-1 supported tabling the agenda item with only Ms Leidlein opposing.

Then, a few minutes later, Ms Leidlein asked Mr Hart if she could ask school Business Manager Ron Bienkowski about the audit recommendations, but her request was dismissed and a motion to adjourn the meeting was made and seconded — eliminating any possibility of Ms Leidlein getting any questions answered on the record that evening.

Today a number of issues remain unresolved, including:

*Whether or not the board needs to show where money in the 2009-10 budget came from to cover several budget lines that were left in deficit as the board closed out and approved the year-end financial report.

*Whether the board will accept the auditor’s conclusion that its switch from approving transfers regularly within the fiscal cycle is a statutory violation.

*Whether the board will go back and retroactively “fix” the 2009-10 financial reports, to comply with its own policy on approving the origin of funds for transfers covering certain deficit accounts.

The Budget Takes Priority

Mr Hart told The Bee this week that he is committed to addressing all these issues once his board closes its 2011-12 budget talks.

“I think we can get it on the agenda after the February 11 end to budget deliberations,” Mr Hart said February 2. But before the policy can be addressed, or any vote is proposed to “fix” reported shortcoming in the 2009-10 budget action, Mr Hart said school Mr Bienkowski and town Finance Director Robert Tait will meet to be sure everyone is in agreement as to how the school board can move forward.

Regarding the end of year deficit lines, Mr Hart pledged to make them whole, “per the policy that was in effect last year. We want to make sure we do it right,” the school board chairman said. “And if we have time, I also want to run it by [finance board chairman] John Kortze.”

In regard to making final and appropriate decisions about how the board will move forward handling financial management and oversight in the future, Mr Hart explained the decision to move the matter back to his board’s finance committee saying, “It was appropriate we do the homework.

“Trust me, I want to get this done and get back to focusing on other important things.”

Mr Kortze said that the school board should heed the advice of the auditor.

“[The auditor] reminded the Board of Education that municipal accounting is different from corporate accounting in that the board must approve transfers before they are made, or at their next meeting immediately after emergency transfers are required,” Mr Kortze said.

It was also confirmed by Mr Tait that as of the January school district finance report, the school’s business office was actively doing transfers. But he said those transfers are “within object codes,” so they do not rise to the level of requiring approval by the school board.

Mr Kortze pointed out that those transfers still add up to “hundreds of thousands of dollars” of money moving around without discussion or oversight at the board level because the board is not reviewing financial reports.

Mr Hart also said that as far as the legality of the board’s reporting policy is concerned, “We’ll debate whether it’s a legal issue.”

At least one member of the board, Andrew Buzzi, himself an attorney, believes the board’s reporting policy resides in a legal “gray area” and that there are alternate valid interpretations of the applicable state statute. Documents supporting Mr Buzzi’s view can be found online at NewtownBee.com.