The Brookfield Board of Finance reviewed a draft audit Wednesday showing the town’s schools used improper accounting to hide overspending in the past two fiscal years amounting to $1.1 million.
The town’s auditors from Mahoney Sabol & Company said the schools are in the process of undoing $471,000 in excess spending from the 2013 fiscal year by obtaining a credit from Cigna for that amount.
More than $700,000 in excess spending from the previous year remains. The board will have to decide whether to raise taxes or spend down its fund balance to pay for the unbudgeted expenses.
The auditors, new to the town, found school officials had pushed expenses out of the current fiscal year and into the next.
For example, in 2012 and 2013 the board of education paid for 11.5 months of health insurance instead of a full 12 months, according to the auditors. Since the board only accounted for paying for 23 months of insurance during a 24-month period, it underreported spending. This allowed the board of education to spend more than its appropriation.
“The material noncompliance appears to be due to the board of education’s business office operating under the past practice that any excess costs over budget pertaining to the prior fiscal year could be paid from the subsequent fiscal year appropriation,” the auditors wrote in a draft report. “As such, the need for an additional appropriation was never considered by the business office.”
Board of finance chairman Phillip Kurtz said the town’s boards would need to work together to resolve the problems. “It comes down to one bottom line,” he said.
The practice of pushing expenses into future periods is something many families do at home since they use cash accounting instead of accrual accounting. Cash accounting considers money spent when it changes hands. Under accrual accounting money is spent when goods and services are provided. That is why it is impossible under accrual accounting to pay for less than one year of health insurance each year.
“This is like operating a mom and pop,” said Ernie Nepomuceno, board of finance vice chairman. “This is pretty serious from my perspective.”
The state requires municipalities to use accrual accounting, but uses a different system for itself, modified cash accounting.
For years, governors and the General Assembly used accounting gimmicks to make Connecticut’s budget appear balanced. They made the fiscal year longer when it came to collecting taxes and shorter when it came to paying bills.
As both Brookfield and the state have learned, this works in the short term, but has long-term consequences. An expense pushed into next year makes the next budget that much more out of balance.
The state’s current gap is $1.1 billion. That’s the price tag for adopting accrual accounting and Generally Accepted Accounting Principles as Gov. Dannel Malloy has promised to do.
According to the board of education’s comments in the draft audit, unexpected costs in three areas led to the overspending.
For the two-year period, special education costs exceeded the budget by $427,840, substitute staff costs by $424,925 and health insurance premiums by $340,486.
To alleviate the overspending, the board of education negotiated a one-time credit from its health insurer, Cigna, for $471,262 or the equivalent of the June 2013 monthly premium. The credit is “based on a strong and positive business relationship,” according to the board of education comments in the draft audit.