Audit Criticizes Frewsburg’s Reserve Funds

FREWSBURG – Recent activities of Frewsburg’s Board of Education are being called into question at the state level.

The Office of the New York State Comptroller released completed audit reports last week of six New York schools, one of which was Frewsburg Central School.

A report of examination from the comptroller’s office for the period of July 1, 2012, through Oct. 1, 2013, yielded several findings and recommendations for district officials to consider for the coming year. Among the reported findings was a balance surplus within two of the district’s reserve funds in the amount of $3.19 million in excess of the amounts needed for authorized purposes, while three other reserve fund balances totaled $1 million that was not supported by a written plan or other documentation explaining its use.

“District officials did not adopt policies governing reserve funds and could not demonstrate the reasonableness of reserve balances,” the report said. “This lack of planning suggests that district officials maintained these reserve balances to reduce the district’s unexpended surplus funds close to the legal limit, and did not perform any analysis or identify future district fiscal needs prior to transferring moneys to these reserves.”

Additionally, the report stated the district: did not address its rationale for establishing employee benefit accrued liability and retirement contribution reserves and its objectives for each; does not have a comprehensive payroll policy supported by written documentation, which does not allow for independent review of leave time records; and has not made clear whether Larry Gauger, board president, has directly performed engineering work on district projects through his employment with a firm hired to do business with the district and/or whether his compensation from the firm has been affected by the firm’s relationship with the district.

As a result of these activities, the report said: “The board and district have withheld significant funds from productive use, levied unnecessarily high taxes and compromised the transparency of district finances to taxpayers.”

The employee benefit accrued liability reserve is authorized by General Municipal Law to be used only for the cash payment of accrued and unused sick, vacation and certain other accrued but unused leave time earned by employees and due upon separation of service. The report said the Frewsburg board established its employee benefit accrued liability reserve by resolution in December 2004. The reserve balance was reported at $2.86 million on June 30, 2013, leading the audit to presume the reserve is over-funded by $2.48 million with the knowledge that the district has not used any moneys from the reserve.

The report also found that the board had authorized a transfer of $198,148 to the reserve in August 2011 to fund other post-employment benefits, which is not authorized under General Municipal Law.

A retirement contribution reserve balance of $283,291 was reported on June 30, 2013. Although the district has used $423,750 from the reserve over the past three years, the report said $209,152 was used improperly to pay for a retirement incentive for the New York State Teachers’ Retirement System in 2011.

Danielle O’Connor, Frewsburg superintendent, issued a response to the comptroller’s office, which was included the report. In her response, O’Connor answered the report’s claims regarding the district’s use of reserve funds.

“Reserve funds are an important tool which the district utilizes in an effort to finance various future district costs,” O’Connor said. “The district would like to make note that neither the Education Law nor the General Municipal Law – both of which govern reserves – require additional board policies for the establishment of reserves. Nonetheless, the district acknowledges that additional board policies could be beneficial to the overall process of establishing and managing the district reserve funds.”

O’Connor also iterated the district’s payroll and conflict of interest policies.

“All leave time of unionized district employees is governed by the bargaining agreement between the district and the teacher union, and between the district and the non-instructional employers’ union,” she said. “The district acknowledges the discrepancies found in the audit report, but would like to note that all employees’ leave time were given in accordance with their respective contract. The discrepancies noted in the audit stem from paperwork errors in recording. The district will refine its processes of tracking and recording leave time, and develop internal controls features which will include review of leave time accruals to safeguard against errors.”

“The district has a conflict of interest policy which it strictly adheres to,” she added in response to the report’s findings surrounding Gauger. “Employees are required to disclose any possible conflicts, and sign a conflict of interest declaration annually. Additionally, board members are also required to submit a conflict of interest declaration.”

Although recently employed by the firm hired to do construction work at Frewsburg – Sandberg Kessler Architecture and Engineering, P.C. – Gauger said he is no longer employed by the firm, and did not perform any engineering work on the district while he was.

“I was employed at Sandberg in January, but I’m not there now,” he said. “The project did come across my desk during that time, but I was not otherwise involved with it.”

O’Connor said the process of having her district audited began in late August, and lasted for two months. The comptroller’s office released its findings in January, with O’Connor’s response being submitted on Jan. 23. O’Connor said the district and its board are working to compile and submit a corrective action plan with the comptroller’s office within the 90-day period allowed to the district following the report’s release.