Cliff Buchan
News EditorAuditor Kenneth Malloy of MMKR Certified Public Accountants said ISD 831 is doing a good job with its financial records but must continue to work on building its fund balance.
Malloy went before the school board Monday night for the annual audit report. The board voted 7-0 to accept and approve the findings of the independent auditor. The audit report covered the 2002-2003 fiscal year ending June 30, 2003.
Among the 28 districts audited by MMKR, only five have received ìno findingsî reports in areas of the financial reporting system where adjustments are necessary, the auditor said. Forest Lake Area Schools is one of the five districts, Malloy said.
The district ended the 2002-2003 fiscal on a far stronger financial footing than school district officials had projected.
According to the audit, the district has emerged from statutory operating debt thanks to unexpected revenues and spending policies that retained additional dollars for the unreserved general fund. The elimination of the districtís debt status comes two years ahead of schedule under a state-approved plan.
The district is now showing an unreserved general fund balance of $177,944. On June 30, 2002, the unreserved fund balance stood a negative $2.15 million. The district has projected reducing that negative balance by about $1 million in the most recent fiscal year, school officials said.
ìAlthough the unreserved fund balance is minimal, it is positive, and it is a significant improvement from the Statutory Operating Debt position which the district has been in for the last two years,î the audit report said.
The turnaround
Why the turnaround?
The unexpected revenues and district spending policies are the reasons, the audit report said.
Although spending went up by $5.6 million in the last fiscal year, the district was under budget by $727,846. Some of the savings was found in lower utility costs and limits on spending for supplies and equipment, said Larry Martini, director of business affairs.
But new revenues are the major factor in the turnaround, officials said.
The district gained some $400,000 in a prior year adjustment for additional pupil units in the 2001-2002 fiscal year.
An additional $550,000 was produced in special education state funding because of an accounting reclassification involving personnel and transportation categories. Some additional federal dollars were also secured to help fund special education needs, Martini said.
More to do
But with a minimal unreserved fund balance and a bleak funding future, more work needs to be done, Malloy told the school board.
While the fund balance has improved, Malloy said the districtís cash balance has dropped. All districts are experiencing the same because of new aid payment schedules from the state that delay when school districts receive funding.
The new shifts are part of state accounting gimmicks to help resolve state budget problems, Malloy said.
In fiscal year 2003, the percentage of estimated aid paid was reduced from 90 percent to 83 percent for most aids. In fiscal year 2004, the percentage will drop to 80 percent.
The shift in aids to the fiscal year to follow means districts like Forest Lake must resort to borrowing action via aid anticipation certificates to covers its cash flow needs, the auditor said.
While the districtís new unreserved fund balance is now positive, Malloy said more work is needed.
Based on a study of 20 school districts with average daily membership of 9000 students, an average general fund unreserved fund balance of 4.1 percent is recorded. If Forest Lake is to achieve the 4.1 percentage, its fund balance should be in the area of $2 million, the auditor said.
ìYou have to walk before you run,î Malloy said, pointing to the small but positive step in building its unreserved fund balance.
A fund balance in the area of $2 million enables a district to deal with unexpected budget swings, Malloy said.
With no new state revenues coming in the next fiscal year and the state having exhausted its accounting gimmicks, the district is facing an uncertain time, the auditor said.
While district funding was improved by the passage of an operating levy in 2001, district voters did not back a request last month to raise an additional $2 million a year over five years to support the general fund.
The district is moving ahead with plans to trim spending by $2 million in the 2004-2005 school year to keep expenditures in line with revenues.
Those cuts will mean a reduction of 25 teachers, program curtailment and a new kindergarten program that will have students in school on a full-day, alternate-day schedule as a means to save transportation costs.
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