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October 13, 2012

County school board accepts 2012 audit, asks Congress not to cut federal aid

RICHMOND — The Madison County School Board voted 5-0 Thursday to accept its 2012 financial audit.

The 113-page report was presented by Myron Fisher and Kenny Keener of Baldwin CPAs.

The job of the auditors is to render an opinion on financial statements by determining if they are presented fairly and if all the material respects the generally accepted accounting principals, Fisher said.

“Our opinion is: yes they are. There is nothing there that should be changed or presented any differently to be in accordance with those principals,” he said.

The CPAs went over the report’s highlights with the board.

The district has around $191.6 million in total assets, which include land, buildings, buses and “things that you buy that are of capital nature,” Fisher said.

Minus the district ‘s $112.7 million in liabilities, the district has $78.9 million in “what we will call ‘equity,’” he said.

The equity is $1.9 million more than what was reported last year, he said, meaning the district has gained more assets than liabilities compared to two years ago.

All of the report’s amounts are in agreement with what was in the annual financial report (AFR), Fisher said, which was presented to the board a couple months ago by Debbie Frazier, the district’s chief financial officer.

Part of the audit report revealed how much the district would need to cover if no state funds, or on-behalf payments, were available.

 On-behalf payments are what the state pays to cover a portion of items like employee retirement and medical benefits. The amount was around $14.6 million last year, the report showed.

The district’s general fund budget does not include on-behalf payments because the finance team is not notified by the state until “sometimes up into September,” Superintendent Tommy Floyd said.

“Every year we don’t know what that number is … We don’t plan for it, because we can’t. It’s just the way we have to do it,” Floyd explained later in the meeting to clarify why there are discrepancies between budgeted amounts and actual dollars.

The AFR always compares the differences between the fiscal years, excluding on-behalf payments, Fisher said.  

After on-behalf actual balances were applied to the budget, the district came out around $1.4 million under budget on top of maintaining a $5.4 million contingency fund, according to the report.

“Your plans are to not spend that, and you didn’t spend that for this past fiscal year …  I think that’s worth pointing out,” Fisher said.  

The district has maintained a similar contingency fund since when Baldwin CPAs completed an audit a couple years ago, Fisher said. “It’s grown over the years a bit, but it’s been that for quite some time.”

The district’s total unassigned balance of around $5.67 million is within $573 of June 2011’s balance, he said. “You’ve been able to maintain that. I think that’s a good indicator, from a financial health standpoint, of the district.”

The district’s bonded debt obligations for construction projects reduced by around $5.2 million from $115 million to $109.7 million over the past year.

“The $5.2 million is about what you’re paying in principal every year on that debt,” Fisher said.

The district did not acquire any new debt, he said, and they did not refinance any debt because “the market has been relatively flat.”

Although the district has refinanced debt over the past four or five years that has “saved the district quite a bit of money (in interest),” Fisher said, there wasn’t much reason for the district to consider refinancing because (interest) rates “can’t go much lower.”

The CPAs also audited federal program funds the district receives and spends during the year, which was around $12.7 million, according to the report.

The $12.7 million in federal funds was $1.8 million less than what was received in 2011, Fisher said.

“My only comment on that is, lower federal program dollars obviously mean” that more of the costs will have to covered by local and state money, he said.

The report on a decrease in federal funds was ironic because earlier in the meeting, the board passed a resolution urging Congress to amend the Budget Control Act of 2011 to prevent a negative impact on school funding.

The resolution was drafted by the Kentucky School Boards Association, which requested all Kentucky school boards to pass the resolution, Floyd said.

If the cuts are not amended, the district’s 2013-14 budget could see a $420,000 to $480,000 shortfall, the superintendent said.

The Budget Control Act includes a provision to impose $1.2 trillion in across-the-board budget cuts to almost all federal programs, including education. The cuts would become effective Jan. 2, 2013, the resolution states.

Board chair Mona Isaacs read the resolution: “[T]hese across-the-board budget cuts, also known as sequestration, would impact education by a reduction in funds 8.2 percent or more and could result in larger class sizes, fewer course offerings, possible four-day school weeks, loss of extracurricular activities, and teacher and staff lay-offs …”

“Madison County Schools, as well as other public schools, would be impacted nationwide by an estimated $2.7 billion loss from just three programs alone ? Title I grants, IDEA special education state grants and Head Start ? that serve a combined 30.7 million children ...”

“[F]ederal funding for K-12 programs was already reduced by more than $835 million in Fiscal Year 2011, and state and local funding for education continues to be impacted by budget cuts and lower local property tax revenues … Madison County Schools has already implement cuts commensurate to state and local budget conditions.”

The audit on compliance did not identify any bookkeeping items that were “required to be reported,” Fisher said.

The CPAs notice some minor bookkeeping issues when they visited the schools, but “each of those have already been communicated to Mr. Floyd and Ms. Frazier, and they have already been proactive in their response to them,” he said.

“We were $1.4 million under budget. Overall, we were still within our budgeted means,” board member Becky Coyle noted as the auditors wrapped up their report.

Also, this report takes into consideration the $1.8 million reduction in federal funds, board member Chris Hager noted. “That’s about a total $3 million (budget) difference.”

“It’s a formal dance that you all have to do every year … to be able to anticipate those kind of things that are outside of anybody in this room’s control,” Fisher said.

Board member John Lackey asked if there was a better way for the board to handle the differences between what is budgeted and the actual numbers.

“Our job up here is to try to apportion the money we have and handle our resources the right way. If we end up with $1.4 million more than we anticipated, but we’re looking at certain areas that are way over budgeted, then maybe we need to look at the budget and skew these the way they should be,” Lackey said.

Frazier interjected to say $1 million of  the $1.4 million general fund excess was the current year’s capital outlay money, which are funds provided by the state to offset the cost of construction, renovations or emergencies.

If the district does not use this money, recent legislation permits the board to use the money in the general fund or save it. The district has accumulated around $5 million in capital outlay since 2007 because it has been able to “live within its means,” Floyd said.

The other $400,000 was prior years’ capital outlay money that was set aside to use for construction projects, she said, but they were able “to get through the year without the use of those.”

The money was restored to the capital outlay fund as a financial “cushion” for future budgetary shortfalls, she said.

“So in all, it was an excellent year for budgeting and expenditures. We really ended up very close,” Isaacs said. “I always feel good when we get a good clean audit, because sometimes people don’t get good clean audits. That’s very reassuring that the numbers we have can be trusted. That’s why we do this exercise every year.”

See Sunday’s paper for more coverage of the Oct.11 school board meeting.

Crystal Wylie can be reached at cwylie@richmondregister.com or 623-1669, Ext. 6696.

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