cazenovia central school district · following is a report of our audit of the cazenovia central...

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 ExaminationPeriod Covered:

July 1, 2014 — June 30, 2015

2015M-327

Cazenovia Central School DistrictFinancial Condition

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

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

FINANCIAL CONDITION 4 Recommendations 7

APPENDIX A ResponseFromDistrictOfficials 8APPENDIX B AuditMethodologyandStandards 11APPENDIX C HowtoObtainAdditionalCopiesoftheReport 12APPENDIX D LocalRegionalOfficeListing 13

Table of Contents

11Division of LocaL Government anD schooL accountabiLity

State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability February 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.

FollowingisareportofourauditoftheCazenoviaCentralSchoolDistrict,entitledFinancialCondition.This auditwas conducted pursuant toArticleV, Section 1 of theStateConstitution and theStateComptroller’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 Cazenovia Central School District (District) is located in the Towns of Cazenovia, Fenner, Georgetown, Lincoln, Nelson andSullivan in Madison County and the Town of Pompey in Onondaga County.TheDistrictisgovernedbytheBoardofEducation(Board),which is composed of seven elected members. The Board is responsible for the general management and control of the District’s financialandeducationalaffairs.

The Superintendent of Schools is the District’s chief executiveofficerandisresponsible,alongwithotheradministrativestaff,forthe District’s day-to-day management under the Board’s direction. TheAssistantSuperintendentmanagestheDistrict’soverallfinancialoperationsandoverseestheBusinessOffice.

TheDistrictoperatesthreeschoolswithapproximately1,500studentsand about 240 employees. The District’s budgeted appropriations for the2015-16fiscalyearare$26.9million,whicharefundedprimarilywithrealpropertytaxes,Stateaidandgrants.

The objective of our audit was to evaluate the District’s financialcondition.Ourauditaddressedthefollowingrelatedquestion:

• Did theBoard andDistrict officials adequatelymanage theDistrict’sfinancialcondition?

We examined theDistrict’s financial condition for the period July1,2014 throughJune30,2015.Toanalyze theDistrict’shistoricalfundbalance,budgetestimatesandfinancialtrends,weextendedourscopeperiodbacktoJuly1,2011.

We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information onsuch standards and the methodology used in performing this audit is includedinAppendixBofthisreport.

The results of our audit and recommendations have been discussed withDistrictofficials,andtheircomments,whichappearinAppendixA, have been considered in preparing this report.District officialsgenerally agreed with our recommendations 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)thataddressesthefindingsandrecommendationsinthisreportmustbepreparedandprovidedtoourofficewithin90days,withacopyforwardedtotheCommissionerofEducation.Tothe extent practicable, implementation of the CAPmust begin bytheendof thenextfiscalyear.Formore informationonpreparingandfilingyourCAP,pleaserefertoourbrochure,Responding to an OSC Audit Report,whichyou receivedwith thedraft audit report.TheBoardshouldmaketheCAPavailableforpublicreviewintheDistrictClerk’soffice.


Financial Condition

TheBoard andDistrict officials are responsible formaking soundfinancialdecisions in thebest interestsof theDistrict, the studentsitservesandthetaxpayerswhofunditsprogramsandoperations.Itisessentialthatofficialsdevelopreasonablebudgets,developlong-term plans and manage fund balance responsibly and in accordance with statute to ensure that sufficient funding will be available tosustainoperations,addressunexpectedoccurrencesandsatisfylong-termobligationsorfutureexpenditures.TheBoardisauthorizedtoestablishreservefundstofinancefuturecostsforavarietyofspecifiedpurposes. Establishing and funding reserve funds helps provide the Districtwithanaddeddegreeoffinancialstabilityandcanprovideofficials with additional budgetary options in difficult economictimes.

In recentyears, theDistricthasstruggledwithfinancialchallengesandadeterioratingfinancialcondition.Wereviewedbudget-to-actualresults for fiscal years 2011-12 through 2014-15 and found thatthe Board adopted budgets with realistic revenue and expenditureestimates. However, the Board has relied on appropriated fundbalance as a financing source in the annual budgets, causing theDistricttoincurplannedoperatingdeficits1inthegeneralfund.Asaresult,theDistrict’stotalgeneralfundbalancedeclinedbymorethan$3.3million(57percent)overthepastfouryears.

1 Aplannedoperatingdeficitoccurswhenaboardpurposelyadoptsabudgetinwhichappropriationsaregreaterthananticipatedrevenues,withthedifferencetobe funded with appropriated fund balance or reserves.


Figure 1: General Fund Operating Results and Fund Balance

2011-12 2012-13 2013-14 2014-15

Beginning Fund Balancea $5,828,638 $4,801,115 $3,925,126 $2,805,298

Plus: Operating (Deficit) ($1,027,521)b ($875,986) ($1,119,828) ($279,448)

Ending Fund Balance $4,801,117 $3,925,129 $2,805,298 $2,525,850

Less: Restricted Fund Balance (Reserve Funds) $2,773,224 $2,197,565 $1,850,238 $1,757,610

Unrestricted Fund Balance $2,027,893 $1,727,564 $955,060 $768,240

Less: Fund Balance Appropriated for the Ensuing Year’s Budget $1,050,000 $1,118,000 $750,000 $250,000

Less: Encumbrances $62,987 $95,624 $120,101 $124,611

Unassigned Ending Fund Balancec $914,906 $513,940 $84,959 $393,629

Ensuing Year’s Appropriations $25,552,252 $26,419,662 $26,495,954 $26,858,858

Unassigned Fund Balance as a Percentage of Ensuing Year’s Appropriations

3.6% 1.9% 0.3% 1.5%

a Includes prior period adjustmentsb The Board appropriated fund balance of $1,050,000 in the 2011-12 budget, resulting in this planned operating deficit.c New York State Real Property Tax Law limits the amount of unassigned fund balance a school district can retain to no more

than 4 percent of the next year’s budgetary appropriations. Appropriated fund balance, encumbrances and amounts reserved for insurance recovery and tax reduction are subtracted from year-end unrestricted fund balance to arrive at the portion of fund balance subject to the 4 percent limitation.

TheDistrict’sunassignedfundbalancedecreasedto$84,959atJune30,2014,whichwas0.3percentof2014-15appropriations,wellbelowthestatutorylimitof4percent.AlthoughtheDistricthada$279,448operatingdeficitin2014-15,itendedtheyearwithunassignedfundbalanceof$393,629,or1.5percentof2015-16appropriations.Thisincreaseintheunassignedfundbalancewaslargelyduetoa$500,000decrease in the amount of fund balance the Board appropriated at the endof2014-15comparedtotheprioryear.

Districtofficials stated thatdue todecreases inStateaid2 revenues and to the property tax cap,3 it was necessary to appropriate fund balance anduse reserves inorder to avoidmaking significant cutsto educational programs and staffing levels.District officials have

2 NewYork State implemented a gap elimination adjustment (GEA) beginningin 2010-11 that reduces school aid in order to help balance the State’s budget. AccordingtotheNewYorkStateEducationDepartment,theDistricthasabsorbedatotalGEAofapproximately$6.8millionfrom2010-11through2014-15.

3 In2011,theNewYorkStateLegislatureenactedalawestablishingapropertytaxlevylimit,generallyreferredtoasthepropertytaxcap.Underthislegislation,thepropertytaxleviedannuallygenerallycannotincreasemorethan2percentortherateofinflation,whicheverislower,withsomeexceptions.Schooldistrictsmayoverridethetaxlevylimitbypresentingtothevotersabudgetthatrequiresataxlevythatexceedsthestatutorylimit.However,thebudgetmustbeapprovedby60 percent of the votes cast.


calculated property tax cap limits and determined the annual taxlevieswithoutoverrides.The tax levyhas increasedapproximately$1.6millionfrom$15.6millionin2011-12to$17.2millionin2015-16, stayingwithin the limits prescribed by the tax cap legislation.Theaverageannual increase in the tax levyduringthisperiodwasapproximately$387,000,or2.4percent.

At over $8million and 33 percent of total general fund revenues,StateaidisasignificantfundingsourcefortheDistrict.WereviewedtotalStateaidrevenuesfrom2011-12through2014-15.Duringthisperiod, State aid was fairly level4 (increased by $139,858, or 1.7percent) while expenditures increased by $744,821 (2.9 percent).Therefore, theDistrictusedavailable fundbalanceand reserves tomakeupthedifference.Districtofficialsrecognizedtheycouldnotsustain the level of appropriated fund balance and reduced the amount offundbalanceappropriatedfromahighof$1.1millioninthe2013-14budgettoalowof$250,000inthe2015-16budget.Thefollowingfigureshowsthegapbetweentotalrevenuesandexpendituresoverrecent years.

4 TotalStateaidwas$8,233,646in2011-12,$7,835,855in2012-13,$8,069,582in2013-14and$8,373,504in2014-15.

Overthelastfourfiscalyears,theDistrictdevelopedrealisticbudgetestimatesbasedonknownorhistoricalexpenditures.Asaresult,theannual operating results were very close to budget estimates – the averagerevenuevariancewas1percentandtheaverageexpenditurevariance was 1.9 percent. In addition, the Board uses multiyear

$22,500,000

$23,000,000

$23,500,000

$24,000,000

$24,500,000

$25,000,000

$25,500,000

$26,000,000

$26,500,000

$27,000,000

$27,500,000

2011‐12 2012‐13 2013‐14 2014‐15 2015‐16(budgeted)

Figure 2: Revenues vs. Expenditures

Revenues Expenditures


financial planning during the budgeting process, and it routinelyupdatesthefinancialplantoprojectfinancialresultsintofutureyears.TheDistrictalsosetasideover$4.2millioninavarietyofreservefundspriorto2011-12andusedabout$2.5millionfromreservestohelpfundexpendituresinthefaceofitsfinancialchallengesthepastfouryears.However,Districtofficialsdidnot includereservefundappropriations in the annual budgets. Instead, the budgets showedthat the District would rely on unrestricted appropriated fund balance tofinanceitsoperations.Byincludingprovisionstousereservefundsintheproposedbudgets,theBoardcanincreasethetransparencyofthe budget process and District residents will be aware of the Board’s plansforexpendingmoneyfromthereservefunds.AsofJune30,2015, theDistricthadabout$1.76million remaining in its reservefunds,whichwillhelpprovidetheDistrictwithanaddeddegreeoffinancial stability and give District officials options for financingassociatedexpendituresinfutureyears.5

District officials have also begun exploring cost-saving measuresto reduce the dependence on using fund balance. The District has reduced staffing throughattrition and eliminationofpositions.Forexample,theDistrictreducedstaffingbyninepositionsinthe2014-15fiscalyear,savingapproximately$403,000comparedtotheprioryear.Districtofficialsalsohopetogenerateadditionalcostsavingsthrough improvedenergyefficiencyas a result of a capital projectwhich includes replacing windows and a boiler for the heating system. Atthetimeofouraudit,theprojectwasstillongoing.Therefore,noenergy cost savings had yet been recognized.

TheBoardandDistrictofficialsshould:

1. Continuetoexploreandpursueopportunitieswheresavingscould be achieved and avoid overreliance on appropriated fund balance.

2. Includereservefundappropriationsintheannualbudgets,iftheyanticipatetheuseofreservefundsasafinancingsourcein the ensuing year.

Recommendations

5 The District’s reserve funds include an employee benefit accrued liabilityreserve($754,682),retirementcontributionreserve($494,624),liabilityreserve($250,000),workers’compensationreserve($159,804),unemploymentinsurancereserve($65,000)andtaxcertiorarireserve($33,500).


APPENDIX A

RESPONSE FROM DISTRICT OFFICIALS

TheDistrictofficials’responsetothisauditcanbefoundonthefollowingpages.


APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

Toachieveourauditobjectiveandobtainvalidevidence,weperformedthefollowingprocedures:

• WereviewedandanalyzedtheDistrict’sfinancialrecordsandreportsforallfunds,includingannualbudgetdocuments,budgetstatusreportsandgeneralledgers.Weanalyzedthetrendintotalfundbalance,includingtheuseofappropriatedfundbalanceandreservesinthegeneralfundfortheperiod2011-12through2014-15.Wealsocomparedtheunassignedfundbalancetothe ensuing years’ budgeted appropriations to determine if the District was within the statutory limit.

• WeinterviewedDistrictofficialsandreviewedBoardminutestogainanunderstandingoftheDistrict’sfinancialmanagementprocedures,includingtheinitialbudgetingprocess,monitoringthebudget,establishinglong-termplans,usingfundbalanceandusingandfundingreserves,aswell as for determining the cause of the fund balance decline.

• We reviewed reserve fund expenditures for 2014-15 to determine if they were for properpurposes.

• We reviewed the June 30, 2015 interfund loan balances, interviewedDistrict officials andreviewedfinancialreportstoverifythattheloanscouldberepaid.

• We calculated the results of operations over the last four years by comparing actual revenues toactualexpenditures.Wedeterminedwhethertheannualoperatingdeficitswereplannedorunplanned.

• Wecomparedgeneralfundadoptedbudgetstoactualrevenuesandexpendituresforthefiscalyears2011-12through2014-15todetermineiftheDistrict’srevenueandexpenditurebudgetestimates were realistic.

• WeverifiedcostsavingsreportedbytheDistrictbyreviewingselectsalaryexpendituresforeliminatedandconsolidatedpositions.Weusedpersonnelandpayrollrecordsandexpenditurerecords,andwemadeinquiriesofDistrictofficialstoverifythecostsavings.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperform theaudit toobtainsufficient,appropriateevidence toprovidea reasonablebasisforourfindingsandconclusionsbasedonourauditobjective.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

cazenovia central school district · following is a report of our audit of the cazenovia central...

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