By Hank Russell
The New York State Comptroller’s Office recently released an audit showing that the Merrick Union Free School District’s Board of Education and district officials failed to properly manage the district’s fund balance and reserves.
According to the audit, both board members and district officials “consistently appropriated fund balance that was not needed and overfunded reserves, primarily through transfers of surplus fund balance.” although they reduced the surplus fund balance from 19% as of June 30, 2015 to 8% as of June 30, 2023. (The fund balance is the difference between revenues and expenditures accumulated over time.)
“These practices lack transparency, circumvent the statutory limit on surplus fund balance and can result in taxpayers being taxed more than necessary,” the audit stated.
The audit also found that the board and district officials overestimated appropriations by an annual average of $1.7 million (3.3%) and, as a result, consistently appropriated an average of $1.6 million of fund balance that was not needed. In addition, they could not demonstrate that the unemployment insurance and repair reserves, with balances totaling $2.9 million, were reasonably funded.
According to Section 1318 of the New York State Real Property Law, surplus funds cannot exceed 4% of the school’s budget. Any fund balance in excess of 4% must be used to reduce the real property tax levy for the following year or fund needed reserves. “To properly manage fund balance, the board and school district officials should develop and adopt reasonably estimated and structurally balanced budgets based on historical data or known trends in which recurring revenues finance recurring expenditures,” the audit stated.
Other findings included that, over the last four years, the board and district officials overestimated appropriations for services for students with disabilities by an annual average of $296,875 (or 149%) for a cumulative total of approximately $1.2 million. During the same period of time, they also overestimated contributions to the employee retirement system by an average of $273,737 (or 58%) and for health insurance plans (an average of $341,840 annually, or 7%).
As part of its review, the comptroller’s office made the following recommendations to the district:
- Adopt a plan to continue reducing surplus fund balance to comply with the statutory limit. Surplus funds may be used for reducing district property taxes, funding one-time expenditures and needed reserves that are not already adequately funded, and paying off debt.
- Develop and adopt budgets that include reasonable estimates for appropriations and the amount of fund balance that will be appropriated and used to fund operations.
- Develop, adopt and periodically update a comprehensive written reserve fund policy that addresses the objective of each reserve, rationale for funding levels and conditions under which reserves will be used and replenished.
- Review all reserve balances to determine whether the amounts reserved are necessary and reasonable. Reduce overfunded reserves to reasonable levels in accordance with applicable statutes.
In response to the audit, Dr. Dominick Palma, Merrick’s superintendent of schools, noted that, after a previous audit in 2016, “the district initiated steps to reduce the unassigned fund balance which, as you noted in your report, has seen the balance trending towards the statutory limit. In accordance with your recommendations, the district reallocated the available fund balance to appropriate, and authorized, reserves for specific expenditures.” He also pointed out that they unassigned fund balance as of June 30, 2024 was 4.3% of the budget.
But Palma disagreed with the auditor’s claim that the district did not yet complete a plan to keep the surplus fund balance within the legal threshold. He said the assistant superintendent for business presented such a plan to the board, which was presented on November 14, 2023.
“This report details each current reserve, ideal balances and future recommendations,” Palma wrote. “A copy was provided to your team during fieldwork.” He added that the plan will be updated each year and will seek adoption by the board at next month’s board meeting.