School Finds $360,000 Hole; Also Bernard Moves on to East Hampton Town

Posted on 12 December 2009

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With the Sag Harbor School District already grappling with a challenging budget year, independent auditor Jill Sanders visited the school board on Monday evening to reveal a $360,000 shortfall in the 2008-2009 budget. In addition the board members recently learned they must also find a replacement for Len Bernard, the district’s business manager. In an interview on Wednesday, Bernard revealed he will resign his position with the school district in order to take a financial job in East Hampton Town government.

During his tenure in the Sag Harbor School District, Bernard said he enacted several accounting controls based on recommendations made by the district’s audit firm Coughlin, Foundotos, Cullen & Danowski, LLP. Sanders, an independent auditor with the company, mentioned these improvements at a board of education meeting on Monday. Sanders was at the meeting to present the results of the 2008-2009 audit.

“I am pleased to render an unqualified opinion, which is the highest level of assurance,” announced Sanders at the meeting.

She added though, the board closed out the 2008-2009 fiscal year with a $362,000 shortfall due to unforeseen expenses. The district covered these expenses with undesignated surplus funds. By the end of the last school year, the district’s undesignated fund balence was precariously low at $65,818.

School superintendent Dr. John Gratto and Bernard attributed this shortfall to unexpected costs. The district had budgeted to send six students to the Child Development Center of the Hamptons, a charter school offering special education classes, but ultimately 10 children from Sag Harbor attended the school. Bernard said this increased out-of-district tuition expenses by around $200,000. In addition, the district overspent their budget for legal fees by $50,000 because of the ongoing teacher negotiations. Close to $30,000 had to be paid in unbudgeted overtime for the janatorial staff. Bernard added the district’s health insurance rates also increased at the beginning of January 2009, which exacerbated the over spending.

On a separate note, the auditors suggested the board increase the money set aside for potential staff raises (or accrued liabilities) to $388,785 for payments on renegotiated contracts. The board had originally funded salaries in 2008-2009 to reflect a one percent raise for the teachers, which was the offer on the table at the time. Subsequently, the board has offered the teachers a 2.5 percent annual salary increase, though the Teacher’s Association of Sag Harbor is seeking a 3.9 percent increase. Based on the recent recommendations by an independent fact finder, the auditors suggested the board prepare for a three percent salary increase, taking into account the fact pay raises would be retroactive to 2008.

Dr. Gratto said the $360,000 which would cover those potential three pecent raises will be derived from $505,000 in unreserved surplus that was moved from last fiscal year into this year’s budget.

Though the money is being set aside, Dr. Gratto cautioned this doesn’t obligate the board to amend their contract offer to TASH.

“Say you have $10,000 to buy a car, but you might find an $8,000 car that serves you better. You surely aren’t obligated to spend [the rest of the money],” said Dr. Gratto, by way of example. He added that money in this account not spent would be redirected to the surplus and could offset the school tax increase.

The state allows school districts to retain a maximum of four percent of their total annual budget for a fund balance, or rainy day fund. Bernard noted the current school board has sought to pare down the district’s fund balance so that it falls within state guidelines. In previous years, the surplus was larger to provide a substantial financial cushion for the district. For example, the 2005-2006 budget year ended with a fund balance of $3.8 million (or roughly 16 percent) out of a $24 million budget. In 2008-2009, the end of the year overall fund balance was close to $860,000 (or three percent) for a $28.5 million budget. Bernard added an audit report from 2007 said before June of 2006 the district’s fund balances “exceeded the statutory limit.”

“When you have a budget that has a general fund balance that is theoretically in the legal limit and come the end of the year the fund balance exceeds this limit, you clearly over budgeted,” noted board member Ed Haye. “The district did this for a number of years. With zero-based budgeting, the board made a conscious effort to budget more accurately. When you have mistakes in the budget they become more apparent with a lean budget.”

Haye added the board will accept a corrective action plan, based on the results of the 2008-2009 audit, at the board of education business meeting on Monday, December 21.

Bernard said he will help the district through the transition period in finding a replacement.

“I will help with the transfer [of duties] through the [2010-2011] budget process,” he said.

“At this point, the plan is to transition someone [into the position] in January,” said Bernard in an interview. “I feel my heart is in East Hampton and I want to get the town back on its feet, but I am not going to leave the district high and dry.”

Bernard has a history of working for the Town of East Hampton. From 2000 through 2004 he served as the budget officer for then supervisor Jay Schneiderman. Bernard later lost his own bid for the supervisor’s seat to Bill McGintee. Bernard added that the current contentious teacher contract negotiations in Sag Harbor weren’t the impetus for his decision and that in fact, he wished to work for East Hampton Town once again.

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