BOF Asks Reversal On New School Financial Reporting Practice

By John Voket

Stating from the onset that they have no intention of dictating to the school board and administration how to spend taxpayer dollars, Newtown’s Board of Finance nonetheless voted unanimously September 13 to request school officials reverse their recently adopted change in financial reporting practices.

The primary motivation for the request was to ensure the district not only conformed to state statutes and local charter stipulations, but to also maintain maximum accountability for the district’s $67 million budget on a monthly basis.

Six days earlier, the Board of Education voted 5-2 to formally change its financial reporting from a transfer-based system to an encumbrance-based system. Supporting school board members agreed with the motion made by Lillian Bittman that the move would provide greater transparency and promote more easily understandable district financial documentation.

The school board’s newly adopted system, however, would only require the reporting of transfers in the event of an emergency, or a mistake. Otherwise, according to school board member David Nanavaty, the only transfers that would be required to be discussed and endorsed publicly by his board would occur during the final meeting at the end of each fiscal year.

Until the school board’s September 7 decision, the district had, for the previous year, tried out an encumbrance-based bookkeeping practice. Mr Kortze noted, however, that documentation provided to the school board the evening of their vote, and following the finance board a week later, showed that transfers were routinely made throughout the pilot program at the “micro” level — transacting deep within the minutiae of larger budget categories, which were being managed with the encumbrance-based system.

Finance board Chairman John Kortze, Vice Chairman James Gaston, along with members Harrison Waterbury and Joseph Kearney, all voiced concerns in support of their vote. Michael Portnoy and Martin Gersten were not in attendance.

Nothing Wrong With Encumbering

Neither the finance board nor town Finance Director Robert Tait suggested that encumbering funds within the operating budget was improper or inappropriate. Mr Tait said both encumbrances and transfers are a routine part of the management of the town-side budget.

But all did agree that state statutes appear to mandate any transfers be discussed and approved by the school board before they are put into effect, except in the event of an emergency, when Mr Kortze said, reading from the statute, that any emergency transfer is required to be discussed and approved as soon as possible after the transaction occurs.

Referring to the newly adopted school board practice, Mr Kortze challenged his board to “consider how [encumbrance-based reporting] is less clear, less transparent, and possibly in violation of the statutes.”

“Encumbrances and transfers are two separate things,” Mr Kortze said. The finance chair added that having the ability to flag and discuss transfers in district financial reports immediately after they occur would have helped his board understand the reason why a lead teacher was approved for Head O’ Meadow School without discussion or approval by the school board, and without being budgeted.

“This was a contractual issue and should have been discussed in public,” Mr Kortze said. He said the encumbrance-based reporting also keeps sums of money authorized for transfer at the micro level by school administrators out of the public eye, as well as off the Board of Education’s agenda, where it might also come to the attention of taxpayers.

“It strikes me as odd that with a budget that prepared [for the next fiscal year] in October, you wouldn’t want to discuss transfers until the end of the year,” Mr Kortze said.

Mr Gaston, who is an attorney, said that “the clear inference of the statute is transfers are required.” Mr Gaston supported his assertion pointing out that the statute also stipulates specific directives in the event of an emergency.

“If you don’t have to do transfers, why would there be emergency stipulations in the [statute]?” Mr Gaston asked rhetorically.

Mr Kortze then referenced several other areas in the state statutes, including 7-345 which he said provides any Connecticut municipal Board of Finance the authority to have access to school district finances, including its administration of transfers. He then quoted from Section 6-90(c) of the Newtown Charter, stating that a Board of Finance “shall keep under its review the spending of any town department,” and further stated according to Charter passage 8-02, that such a review would encompass “any department that appropriates funds from the annual budget.”

Fast Track Minutes

Earlier in the meeting, Mr Kortze also reported to the board that he had requested of school board Chairman William Hart that the district adhere to, and whenever possible, expedite, the public filing of meeting minutes and motions beyond what might be required in state Freedom of Information law. Referring to School Superintendent Janet Robinson, Mr Kortze said that “Janet made a comment that motions are in the minutes, but the FOI states that information from meetings must be made available within seven days, and votes within 48 hours.”

The finance board chair suggested the school board conform to FOI directives that stipulate minutes should also include supporting data, correspondence, and reports that are made or collected in the course of each school board meeting, and that few, if any past board of education minutes provide that collateral documentation, although it is required.

Mr Kortze also reported that as of earlier that day, the necessary software and authorizations had been completed providing the town finance director with read only access to the school district’s financial system. The finance chair said now that the town was permitted access, he would develop a series of questions regarding the district’s financial activities to date.

In related discussion, Mr Kortze pointed out that school board bylaws require an annual audit. And he confirmed with school board members who were in attendance Monday evening that no evidence of an audit had been presented to the school board for at least two-and-a-half years.

Mr Tait told The Bee following the meeting that the school district is audited as part of the community’s overall annual audit, but he was unclear as to whether this fulfilled the requirements laid out in the school board’s bylaws. During the meeting, Mr Kortze did point out that the last municipal audit flagged the school district’s financial practices.

Audit recommendations to the district’s business office included requiring a supervisor’s review of all bank reconciliations with an accompanying signoff provided; a recommendation that all accounts payable invoices received after year end be reviewed for proper recording in financial statements; and recommending the creation and regular updating of an accounting policies and procedures manual as both a reference for exiting staff and as a training manual for new hires.

The auditors also recommended that cash management policies and periodic review of procurement procedures related to grant allocations be documented. “This will allow for the proper and consistent approach to compliance with cash management requirements,” the audit states.