Audit Objective
Determine whether the Freeport Union Free School District’s (District) Board of Education (Board) and District officials properly managed fund balance and reserves.
Key Findings
The Board and District officials did not properly manage fund balance and reserves. Because they consistently and significantly overestimated appropriations, it appeared the District needed to use appropriated fund balance and reserves to close projected budget gaps totaling $51.4 million for fiscal years 2019-20 through 2022-23. However, none of the appropriated fund balance or reserves were used.
The Board and District officials’ consistent practice of appropriating fund balance that is not needed circumvents the statutory limit on surplus fund balance and maintaining unreasonable reserve balances results in real property tax levies that are higher than needed to finance expenditures. The Board and District officials:
- On average, annually over estimated appropriations by $18 million (10 percent), and annually appropriated $12.8 million of surplus fund balance and reserves they did not need or use to finance operations.
- Maintained original and recalculated surplus fund balance as much as three times the statutory limit.
- Maintained three reserves totaling $37.2 million without demonstrating they were reasonably funded. For example: retirement contribution reserve has about $18.9 million, enough to pay annual expenses for almost 13 years.
Recommendations
The audit report includes five recommendations, which if implemented, will improve the District’s management of fund balance and reserves.
District officials disagreed with certain findings in our report, but indicated they plan to initiate corrective action. Appendix B includes our comments on certain issues raised in the District’s response.