School officials acknowledge some criticisms, say others are misplaced
A just-released audit from the state Comptroller’s Office criticizes financial practices of the Bethlehem Central School District, saying gifts were given to employees in violation of the state constitution, best practices in purchasing services were not followed and that the district has improperly maintained a reserve fund for the better part of a decade.
In response, BC officials have both acknowledged some of the recommendations and dismissed others as shortsighted or misplaced.
The audit covers the period from July 1, 2009 to Aug. 4, 2010, and examines internal controls over budgeting and purchasing. Auditors spent eight weeks over last summer at the district, mostly poring over financial records.
Gift cards and meals on the public dime
Perhaps the most direct criticism in the report focuses on a May 14, 2010 staff recognition dinner at Normanside Country Club, during which 26 gift cards totaling $1,300 were handed out to retiring employees. Since they are not mementos and have cash value this was an improper action, according to the Comptroller’s Office, as were free or discounted dinners for the 151 attendees.
`Because the staff recognition dinner was not held pursuant to a collective bargaining agreement, the District had no authority to pay all or any portion of the cost of the meals consumed at the dinner and improperly expended $2,974 for that purpose,` the report reads.
BC Superintendent Michael Tebbano said this annual dinner had been held for years to recognize retiring staff and faculty, who received the free meals and gift cards. In an interview today, he acknowledged the event did make a gift of public funds, but also defended the recognition ceremony as a modest measure that would be found at most any organization.
`I think it was a relatively minor way of saying ‘thank you’ to people,` Tebbano said.
He also objected to the audit targeting such a small part of the nearly $90 million budget, and one that he said holds a value beyond dollars and cents.
`I take great umbrage in the way this was done,` Tebbano said.
He said no dinner was held this year, and retirees will be instead acknowledged at the Board of Education meeting tomorrow night and presented with certificates and BC Eagle pins. Such tokens of nominal value are allowed under state law.
District savings structure said to be unlawful
Though it focused on a 13-month period, the audit also identified a fund balance established by the district in 2003 as improperly formed. It was in this year the district formed a Tax Reduction Reserve to the tune of $2.7 million, intended to be used to offset an expected reduction in tax receipts due to a major shift in the assessment of PSEG’s property.
The issue is state law dictates such a fund can only be formed through the sale of facilities, and this one was funded by payment in lieu of taxes receipts. District Chief Business and Financial Officer Judith Kehoe acknowledged that’s the case but said the fund saved taxpayers from a crippling tax hike as the district lost over $3 million in tax revenue.
`Apparently, that wasn’t known when the reserve was set up,` said Kehoe.
Tebbano noted that the existence of the fund balance has been well publicized since its formation.
`The community benefited from this,` he said. `At the time we assumed the process was legal and everything was above board.`
In its response to the audit recommendations, the district requested the state relax restrictions on how such funds can be established.
Besides the formation of the fund, the issue is that the money should have been applied to the unrestricted reserve fund. State law stipulates that can only be 4 percent of the total budget, and money in the Tax Reduction Reserve would push it well above that mark.
The reserve was already planned to be exhausted in the coming year’s school budget.
BC fires back on fiscal practices critique
BC officials `vehemently object to` a third set of criticisms set forth in the audit dealing with the district’s purchasing practices.
The comptroller’s report cites BC for awarding contracts to two companies owned by district employees and for not following competitive bidding guidelines.
BC made an order for custodial and maintenance uniforms and an order for `scrubber batteries` during the audited period from companies owned by district workers for about $5,000 and $800, respectively.
`When District employees have an interest in contracts with the District, there are increased opportunities for favoritism, extravagance, and/or fraud. There is an increased risk that taxpayers’ interests will become secondary,` the report reads.
Kehoe said that in these instances the orders were placed with companies owned by part-time district employees, and after bids were solicited from other sources. The orders were placed with the lowest bidder, she said.
Similarly, the report states the district did not seek out competitive pricing on over $700,000 of purchases during the audit period, the largest being the purchase of general liability insurance.
Kehoe said BC had worked with its carriers to compare quotes for this and the other services identified in the report, but had not issued formal requests for proposals.
`That’s typically the way insurance is procured. … I don’t know if they fully understood that,` she said.
Kehoe said the auditors made several positive comments about the district’s business office practices, including the wide use of competitive requests for proposals and the level of documentation and internal controls, but these were not included in the report.
The comptroller’s office launched a rotating, statewide audit of school districts in 2004. BC was last audited in 2007, when auditors identified issues with the district’s internal auditing structure and payroll.
The district is also reviewed by an independent auditor and by agencies like Standard and Poor’s. Tebbano argued that BC has set a high bar for transparency, especially in the amount of information that’s on the district website.
`We accept the recommendations from the comptroller, and are moving forward,` he said `The little bit of things we have done aren’t major crimes.“