This story has been updated with a new comment from the Derby mayor.
DERBY — The state education department’s office of internal audit released a summary Monday of its review of the Derby school district’s most recent budgets.
That review included “alliance district” grant money from the state given to the schools through the city the 2017 – 2018 school year.
The letter does not shed new light on budget problems that engulfed the city this year, but it confirms the explanation city finance officials have offered the public.
It also confirms that the school district received all the money it was due from the city and state during the 2017 – 2018 fiscal year, and that the school district spent the money as expected.
The letter lists a “corrective action plan” that is the same as suggestions made by an independent auditor.
The letter is embedded at the bottom of this article.
Background
The state education department initiated a review of the books after Derby officials revealed extensive budgeting problems in May as members of the Derby Board of Apportionment and Taxation were finalizing the 2019 – 2020 budget.
Derby officials explained the city had mistakenly double counted alliance district money from the state as revenue in three separate budget cycles, creating a multi-million dollar hole in the Derby budget.
The problems were identified, along with a host of other issues, in an audit that was received by City Hall in April. Click here to read it.
In order to close the budget hole, the tax board voted to increase taxes by 2.5 mills — an additional $325 in property taxes for a single-family house assessed at $130,000.
City officials are also planning to restructure debt, sell properties, and reduce pension contributions, along with other measures, to get the city back in decent fiscal shape.
Meanwhile, the school district, which has not received additional local dollars from the city for two years, recently cut two teaching positions and is asking all employees to take a one-day furlough during the upcoming school year.
The Letter From The State
Derby schools receive millions in state aid each year, including the state’s “alliance district” grants. The alliance money is extra funding that must be used for state-approved school reform programs and initiatives.
The state education department’s Office of Internal Audit reviewed the Derby school district’s documentation of all appropriations and expenditures for the fiscal years 2017 – 2018 and 2018 – 2019.
The review included “the receipt and reporting of grant funds,” including the alliance district grant for the 2017 – 2018 fiscal year.
The letter details the 2017 – 2018 budget review, and concludes that the city gave the school district $18,389,806 as promised when the tax board adopted a budget on May 30, 2017.
“In addition, total grant funds of $4,524,786.78 were transferred from the City’s bank account to the BOE’s bank account and were expended by the BOE,” the letter confirms.
The Office of Internal Audit (OIA) does point out that upon its review, “OIA could not distinguish grant funds from operating funds” in school district bank account statements because the school district lumped all money into one bank account. That’s a no-no in the accounting world.
OIA had to dig deeper to conduct the review.
“OIA relied on the BOE’s general ledger for the operating budget and grant budget details of expenditures,” the letter states.
The Office of Internal Audit notes the school district is correcting the problem by establishing a separate bank account for grant money.
“Grant funds and operating funds will be maintained separately in the BOE’s bank accounts and transactions will be recorded in the BOE’s general ledger system as they occur,” the letter states.
In an email response to a Valley Indy question, Peter Yazbak, a spokesperson for the state education department, explained why separating the funds is important.
“The appropriation the BOE receives from the city’s general fund is separate from the Alliance District grant and other grants the school district receives. For accounting purposes and to avoid accidental co-mingling of funds those two revenue sources should be kept in separate bank accounts,” he said.
The letter also notes the city’s mistake regarding the “overestimate” of alliance district money.
The letter notes alliance district money appeared twice as revenue in the 2017 – 2018 budget: once under the line item “education block grant” and then again under the line item “ECS alliance grant.”
It should have only been listed once.
However, the letter notes that the city’s mistake “did not affect the BOE’s operating budget/expenditures nor their grant related budget/expenditures for 2017 – 2018.”
“City personnel has corrected their budget revenue process so that estimated Alliance District grant funds will not be reported twice for budget purposes,” the letter states under the “corrective action plan.”
“The BOE/school district received all the money they were supposed to receive and spent it properly,” Yazbak said. “The town overestimated grant revenues from the state when they were doing their total budget for all municipal departments including the district/BOE. The city didn’t short the district/BOE any funding, i.e. the city’s overestimate of grant revenues resulted in a shortfall in city revenues – not a shortfall in BOE revenues.”
In an emailed statement Tuesday, Mayor Rich Dziekan pointed out the faulty “booking” of grant money in the Derby budget goes back to 2016, prior to his election as mayor.
“The Internal Audit Office of the State Department of Education found that the City transferred all of the budget and grant monies to the local Board of Education. I look forward to working with the Superintendent and the local Board of Education to ensure that protocols are established to avoid similar problems in the future as had been recommended by the City’s auditor in past years,” Dziekan said.
He said the school board “also needs to adopt sound fiscal accounting policies that eliminate these issues.”
EDITOR’S NOTE: Mayor Dziekan contacted The Valley Indy Wednesday saying he did not intend to be critical of the board of education in his statement Tuesday. He noted the school board and the city have already worked together to use a separate account for grants, as recommended in the OIA letter. “I look forward to continued cooperation between all boards and city staff to ensure corrective measures are taken to prevent future errors,” he said.
“The City has already started to institute some of the corrective actions and will not rest until all necessary steps are taken,” Dziekan said.
CSDE Letter to Derby by The Valley Indy on Scribd
