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Many schools have amassed excess funds, state says

New York State comptroller, Thomas DiNapoli, announces

New York State comptroller, Thomas DiNapoli, announces that the state completed an audit with the Lindenhurst school district. (Feb. 4, 2010) Credit: James Carbone

Public schools from Bridgehampton to Hewlett-Woodmere and around the state have braced for tough economic times by amassing $615 million in excess funds, according to State Comptroller Thomas DiNapoli, who wants to channel more of the money to tax relief.

At an Albany news conference Tuesday, the state's chief fiscal watchdog called on lawmakers to authorize new "tax stabilization reserves" that could be applied to budgets each year so that property taxes would be raised no more than 2.5 percent.

The recommendation for tax stabilization - along with dozens of other proposals - follows completion last week of a monumental audit that covered 733 school districts and BOCES statewide.

Nearly 40 percent of those districts had excess reserves, the comptroller reported. The $615 million is slightly more than half of the $1.1 billion that Gov. David A. Paterson has proposed cutting in school aid to help close a state budget deficit.

The audits were launched in 2005, following revelations that Roslyn school officials embezzled $11.2 million.

DiNapoli, whose parents grew up in Roslyn, said his office would follow up this year with another 150 district audits - less than last year's 200, but more focused on combating financial waste.

"Trust me, if this could happen in Roslyn, it could happen anywhere," he said.

DiNapoli added, however, that the great majority of school officials were honest. Tuesday's report was accompanied by a list of 39 districts that got clean marks from state auditors, 12 on Long Island, including Half Hollow Hills.

"Not that people didn't always trust us, because I think they do, but to some extent, I think this helps restore public confidence," said Sheldon Karnilow, the Half Hollow Hills superintendent.

Under state law, districts can allot no more than 4 percent of their budgets to reserve funds that don't have specific purposes - a restriction many financial experts consider too narrow.

Last year, DiNapoli criticized Middle Country for such a reserve fund that in 2008 was equal to 6 percent of its budget. Valley Stream 24 maintained a reserve of $3.09 million, he said, three times that allowed. School officials disagreed with DiNapoli's assessment; Middle Country district leaders accused the state of disregarding their need to prepare for unforeseen financial emergencies.

Among the comptroller's recommendations Tuesday:

Districts should start preparing now through multiyear planning for the end of federal stimulus aid in 2011-12 - the "financial cliff."

State lawmakers should help districts weather difficult times by authorizing new types of reserves for stabilizing taxes and for covering bonded debt, pensions and health benefits.

The state Education Department should design a model contract for school superintendents - one school boards could draw upon to avoid awarding inappropriate perks.

Legislative representatives were noncommittal Tuesday, saying DiNapoli's recommendations were under review.

Robert Lowry, deputy director of the State Council of School Superintendents, who attended Tuesday's news conference, said in an interview that any state move to authorize tax-stabilization reserves could help districts build adequate "rainy day" funds.

Lowry noted, however, that state lawmakers have failed to act on another DiNapoli recommendation to authorize reserve funds covering retirees' health benefits. The comptroller first urged this two years ago, repeating the proposal Tuesday.

Lowry blamed inaction partly on the state's precarious fiscal condition, partly on inertia.

"It's sort of like fixing your roof," Lowry said. "When it's sunny, you don't need to, and when it's raining, nobody wants to be outdoors."

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Some local districts where audits found potential fraud:


Findings: After reviewing 57,000 checks over eight years and tens of thousands of computer records, auditors identified $11.2 million used by school employees, their friends and families for personal benefit, according to the 2005 audit.

Outcome: Six people, four of whom worked for the district, pleaded guilty. Former superintendent Frank Tassone was released earlier this month from prison, eight months earlier than his minimum sentence of 4 to 12 years.

William Floyd

Findings: In 2006, auditors identified $6.4 million in inappropriate and unapproved spending, including $1.1 million in apparent misappropriations by district managers for their own personal benefit; $2.1 million of questionable or poorly controlled payments, including no-bid contracts and payments made without contracts; and $3.2 million for seven administrators’ contracts and salaries that were not approved in advance by the board.

Outcome: Before the audit, five top officials were arrested for theft or malfeasance. Auditors noted that after wrongdoing surfaced, district officials made several improvements to strengthen controls, such as segregating duties in the business office, ensuring the board receives regular financial reports, and ensuring the board reviews all payroll increases before they become effective. District officials said yesterday “the Comptroller conducted a follow-up audit of the William Floyd School District in July of 2009. We are awaiting the results of that report before commenting.”

Central Islip

Findings: The district racked up more than $130,000 in expenses that were excessive, questionable or paid out with little oversight, according to a 2005 audit which criticized the district’s spending on travel, meals, phone and Internet service for board members and school officials.

Outcome: School officials acknowledged many lapses but blanched at the audit’s severe language, noting the district had reformed many spending policies. The board approved policies governing travel, cell phone and credit card use where none had existed before. It also has discontinued reimbursing board members and school officials for Internet service, mileage and phone expenses. — COMPILED BY JOIE TYRRELL

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