Audit Objective
Did the Newburgh Enlarged City School District (District) Board of Education (Board) and officials effectively manage fund balance and reserve funds?
Audit Period
July 1, 2019 – June 30, 2024
Understanding the Audit Area
A key measure of a school district’s financial condition is its level of fund balance, which represents the difference between revenues and expenditures accumulated over time. School districts may retain a portion of surplus fund balance,1 up to 4 percent of the budget, for unexpected occurrences and fluctuations in cash flow. School districts may also establish reserves to restrict a reasonable portion of fund balance for a specific purpose, in compliance with statutory directives.
The District’s fiscal year 2023-24 surplus fund balance and reserve funds totaled approximately $18.1 million and $66.3 million, respectively, as of June 30, 2024.
Audit Summary
The Board and District officials overestimated certain appropriations, underestimated certain revenues, as well as made unbudgeted year-end transfers totaling $67 million, which collectively reduced the effectiveness of managing the District’s financial condition. The Board and District officials also made it appear they needed more funding to meet operational needs than was needed by appropriating fund balance to balance the budget but generally did not need the appropriations. Because realistic budgets were not adopted, the Board and District officials accumulated significant fund balance. The variances between the budgets District officials presented to taxpayers and the District’s actual operational results during the audit period were approximately $87 million. As a result of these practices, the Board was not as transparent with taxpayers as they could have been during the budget process.
- Of the $67 million in year-end transfers, $50.6 million went to the District’s reserves. In some circumstances, the year-end reserve transfers totaling $8.8 million were also not approved by the Board before the transfer was made. However, to help promote transparency, anticipated funds to be placed in reserves should be included in the annual budget.
- District officials did not establish a rationale for funding District reserves. Also, by transferring surplus funds, officials reduced the surplus fund balance in all five years reviewed to make it appear officials were not retaining more funds than statutorily permitted.
- The District consistently overestimated general fund appropriations by an average of $4 million in each of the five fiscal years we reviewed, for a cumulative total of approximately $20 million.
- The District underestimated revenues in three of the five fiscal years reviewed by an average of approximately $8.6 million for a cumulative total of approximately $25.7 million.
- The Board did not effectively manage the District’s fund balance over the five fiscal years reviewed, resulting in $41.5 million in operating surpluses, which increased surplus general fund balance to approximately $18.1 million as of June 30, 2024.
- The Board appropriated $8.6 million of fund balance and reserves that was not needed because of the District realizing operating surpluses. Therefore, the District did not use fund balance and reserves appropriated in four of the five years reviewed to fund operations.
- The Board did not properly manage five reserve funds totaling $24.3 million. These funds were unused and/or likely exceeded the amount reasonably needed by the District based on our review of applicable statutes, eligible liabilities, a historical cost trend analysis and their use.
- The Board did not develop a written multiyear financial plan or comprehensive capital plan. Without such plans, the Board cannot assess expenditure commitments, revenue trends, financial risks and the affordability of new services and/or capital improvements.
The report includes seven recommendations that, if implemented, will improve the District’s financial management. District officials disagreed with certain aspects of our findings but indicated they have initiated or plan to initiate corrective action. Appendix D includes our comments on issues raised in the District’s response letter.
We conducted this audit pursuant to Article V, Section 1 of the State Constitution and the State Comptroller’s authority as set forth in Article 3 of the New York State General Municipal Law (GML). Our methodology and standards are included in Appendix E.
The Board has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report must be prepared and provided to our office within 90 days, pursuant to Section 35 of GML, Section 2116-a (3)(c) of the New York State Education Law and Section 170.12 of the Regulations of the Commissioner of Education. To the extent practicable, implementation of the CAP must begin by the end of the next fiscal year. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. The CAP should be posted on the District’s website for public review.
1 For guidance on fund balance classification and reporting, see https://www.osc.ny.gov/files/local-government/publications/pdf/gasb54.pdf.