The Region 4 Board of Education (BOE) received results of its Fiscal Year (FY) 2019–’20 (‘20) audit at its April 1 meeting, learning that although much progress has been made in terms of the district’s financial practices, some issues remain with year-end closing practices.

Michael VanDeventer, a partner from the auditing firm Mahoney Sabol, presented the results.

“There were significant improvements that were noted in the overall district’s closing procedures for Fiscal Year 2020,” said VanDeventer, adding that the material weakness in the procedures identified in the prior year’s audit for FY 2018–’19 (‘19) had been removed.

“However, there were still...certain matters that were previously incorporated into that material weakness that we did include in the current year finding,” he continued. “[W]e did identify a number of audit adjustments that ultimately, collectively we deem to be a significant deficiency in internal control over financial reporting.”

VanDeventer defined a “significant deficiency” as an issue that is “less severe than a material weakness but is still important enough to merit the attention of those charged with governance, which would be the board.”

The audit adjustments included accounting “for certain interfund transactions and balances” and properly recognizing “grant revenues based on allowable expenditures incurred within the Education Grants Fund,” according to a presentation on the ‘20 audit from Mahoney Sabol.

The auditing firm also identified some errors in postings to the general ledger, relating to the education grant fund and the health insurance fund. Adjustments were also recommended related to entries for the General Fund and conversion entries for the government-wide financial statements.

Based on these findings, the district is required to submit a corrective action plan with the State of Connecticut’s Office of Policy and Management.

Staff Changes in the Finance Office

After a board member’s question related to improvements to the district’s financial practices since the findings of the FY ‘19 audit, Superintendent of Schools Brian White referenced the staff turnover in the finance office.

White said that “significant mid-year adjustments” had been made, “with better controls and better oversight.”

VanDeventer provided information at the meeting regarding when action was taken to address issues identified in the FY ‘19 audit.

“I was happy to see the significant improvements that were made in connection with the closing of fiscal year 2020 general ledger and again, a lot of that stuff was probably corrected toward the end of Fiscal Year 2020 into Fiscal Year 2021,” said VanDeventer.

Robert “Bob” Grissom assumed the position of finance director for the Regional 4 School District on Jan. 18, after the former finance director resigned after four months in the position.

Grissom spoke at the April 1 meeting about the changes and training that has occurred in the finance office since he started, saying, “I think we’re really well positioned going into year-end, so that when we get to the closing process, it’s going to be another step in the right direction.”

Other FY ‘20 Audit Findings

VanDeventer also provided information related to the school cafeteria fund, which in prior years ran at a deficit, and the health insurance fund, which in prior years had been severely underfunded.

The school cafeteria fund balance was $98,940, an increase of $72,720 from FY ‘19. Cafeteria operations were subsidized by $320,000 in current year budgetary transfers, according to Mahoney Sabol.

VanDeventer stressed the importance of continuing “to monitor the activity within the cafeteria fund to ensure that ultimately any deficits are subsidized by the operating budget.”

The health insurance fund had an ending net position of $889,555, with a current year increase of $1,464,660. This is attributable to an increase in contributions, as well as a positive claims year, according to VanDeventer.

There is also a budgetary surplus of $306,440 in unassigned funds, based on revenues of $44,965 and a savings of $261,475 from lower expenditures and transfers out in the ‘20 budget.

These unexpended funds are attributable to the closure of schools by the state last March, due to the COVID-19 pandemic, according to White.

With the “shutdown, many of our operations were altered,” said White, by email after the meeting. “This resulted in an atypical budget surplus in Region 4.”

There were “savings in transportation costs and other purchased services [and] savings in salaries due to the cancellation of spring athletics and extracurricular activities, in addition to savings in other areas of our budget,” he continued.

The FY ‘20 audit also showed a deficit in the Capital Nonrecurring Fund of $165,034. This is a decrease from the $429,729 deficit reported in the FY ‘19 audit, which was publicly reported by Mahoney Sabol in May 2020.

The district has been making steady progress in reducing the capital deficit, using unexpended funds from FY ‘19 and ‘20 to pay it down. A capital reserve payment in the amount of $35,000 was also budgeted for the fund in FY ‘21.

The district must comply with state statute that limits the amount transferred to the capital fund to one percent of overall budget expenditures, according to VanDeventer.

A projected $23,794 deficit in the capital fund is projected for the end of FY ‘21, according to White, at the meeting.

Return of ‘20 Surplus to Chester, Deep River, Essex

There was lengthy discussion at the April 1 meeting on whether to return the full FY ‘20 budgetary surplus to Chester, Deep River and Essex, or to take $5,389 of the surplus and apply it to the deficit, as recommended by White.

The $5,389 figure was developed taking appropriations made earlier in the year into account and in accordance with state statute.

The board ultimately voted to approve returning the full budgetary surplus of $306,440 to Chester, Deep River and Essex. These funds are to be returned to the towns based on the FY ‘20 Average Daily Membership, with Chester receiving $73,239; Deep River, $107,530; and Essex, $125,671.

White concurred with the board’s decision, saying, “I think, in the spirit of what we’re talking about, I do believe that at the end of this fiscal year, we should have adequate funds to eliminate that deficit by way of a transfer, so I would support that option of the $306,440. I think we’ll be able to get there either way.”