State Auditors Say Springs School Had Too Much Surplus

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The Springs School last year had accumulated an unrestricted fund balance that is almost four times what is allowed, according to the state comptroller’s office.

In their report, auditors said in the 2010-11 and 2012-13 school years, the school district’s revenues exceeded spending by an average of more than $1.7 million. As a result, the district’s unrestricted fund balance—sometimes called a “rainy day” fund—was 15 percent of the 2013-14 budgeted appropriations. That’s almost four times the limit of 4 percent set by state law. As of June 30, 2013, the balance had expanded to $3.8 million.

Last year, the Wainscott School faced the same criticism after it was audited and found to have an unexpended surplus fund balance that was 17 times greater than the legal limit, to the tune of more than $1.7 million.

Staying within the state-mandated 2-percent cap on tax levy increases has been on school officials’ minds in recent years, and Springs School officials said it’s been a difficult balance for a small school district trying to plan for future expenses while staying under the cap.

“Schools are doing their best to restrain spending, given the challenges of the tax cap,” School Board President Liz Mendelman said on Tuesday. “It is prudent to set aside assets to realize a district’s longer-range goals and provide insurance against unanticipated expenditures.”

She said when Springs, which teaches kindergarten to eighth grade students, generates an operating surplus, the School Board has to decide how best to use it, depending on the district’s financial condition. It can either be assigned to reserves, allocated to the following year’s budget, used to reduce the tax levy, or be left as an unassigned, unrestricted fund balance.

“Several factors contributed to the surplus, including reductions in high school tuition [which Springs pays to East Hampton School District], changes in the Springs Teachers Association contract, and lower instruction costs,” she said, adding that it is difficult to budget for unforeseen circumstances, which is why having money in the unrestricted, unassigned fund balance can be a helpful thing.

Every year, the School Board forecasts and budgets what its revenues and expenditures will be. Ms. Mendelman said that enrollment and tuition to other schools, including East Hampton High School, the Child Development Center of the Hamptons, and the Eastern Suffolk Board of Cooperative Educational Services, makes up 30 to 35 percent of the district’s budget each year.

“Under the tax cap, we can’t go back to voters if we have 30 more kids attending the high school than we anticipated, which happened one year to us,” she said. “We had to add an extra kindergarten section and had to levy additional taxes. We can’t do that anymore.”

During the 2013 school year, the School Board discussed how best to use the $3.8 million surplus during the 2014-15 school year. According to Ms. Mendelman, the board established and invested $2 million in a capital reserve fund with voter approval. That fund will go toward paying for capital improvements to increase space efficiency in the school’s facilities, with help from BBS Architecture. The voters approved to fund the reserve up to $10 million over the next five years for improvements.

The School Board allocated the rest, more than $1 million, to help fund this year’s school budget, according to Ms. Mendelman.

State auditors also recommended in their report that the School Board improve oversight of employees’ sick leave accrual balances. “We found that the sick leave accrual balances in the time and attendance system were not correct for the fiscal years ending June 30, 2012 and June 30, 2013,” auditors stated. “As of July 1, 2013, all 10 employees’ sick leave balances reviewed were overstated by a total of 139.25 days, with a value of $44,430.”

Balances were not accurate, and so district officials could not rely on them they said.

Ms. Mendelman said the School Board is conducting an investigation of the issue, which they were aware of for about two years. The board hired an independent professional to get to the root of the problem and recommend better procedures for the future.

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