Purpose of Audit

The purpose of our audit was to evaluate the District’s financial operations and use of fund balance for the period July 1, 2012 through July 31, 2013.

Background

The Mattituck-Cutchogue Union Free School District is located in the Town of Southold in Suffolk County. The District is governed by the Board of Education comprising seven elected members. The District’s budgeted expenditures for the 2012-13 fiscal year were approximately $38 million, funded primarily with real property taxes.

Key Findings

• Over the last three fiscal years, the District’s budgeting practices generated more than $5 million in budget surpluses. To reduce fund balance and stay within the year-end statutory limit for unrestricted funds, District officials transferred moneys to the District’s reserves and repeatedly appropriated fund balance to reduce the tax levy. However, because of the District’s surpluses, the fund balance appropriations over the three years went unused. These practices gave the appearance that the District’s unrestricted fund balance was within the legal limit, whereas in fact it exceeded that limit each year.
• The Board has not adopted a policy or plan for accumulating and using reserves funds and District officials did not provide any calculations or justifications for the funding levels of the various reserves. Amounts retained in three of the District’s four reserves, totaling approximately $5 million, were excessive and were not used.
• District officials incorrectly reported the reserve funds’ cash balances as "unrestricted" rather than "restricted" in the District’s financial statements. The District’s four reserve funds had a combined balance of $5.6 million at June 30, 2013. However, District officials reported a restricted cash balance of $0 on its financial statements.

Key Recommendations

• Develop a plan for the use of surplus funds in a manner that benefits taxpayers. Such uses could include, but are not limited to, increasing necessary reserves, paying off debt, financing one-time expenditures and reducing District property taxes.
• Review all reserves and determine if the amounts reserved are necessary, reasonable and in compliance with statutory requirements.
• Report reserve fund moneys separately from other general fund moneys as restricted cash.