Audit shows school deficit, positive town numbers

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The Town Council received and accepted a generally positive town audit report for the fiscal year ending June 2019 during its meeting on Tuesday night, which included a full presentation from BlumShapiro partner Ronald Nossek.

While town numbers were largely rosy – including a $3.3 million increase in the town’s general fund and consistent tax collection rates – Nossek said the firm identified “significant deficiency” in the school department’s reporting. Nossek said there were “significant delays related to School Committee financial info” and that it caused some difficulties in performing the final audit.

Nossek made three recommendations to the council, with the last two pertaining mostly to the school district. He told the board that the department was “substantially behind” relative to performing bank conciliations during the 2019 period.

“I’ve said this for many, many years, if you knew nothing else relating to internal controls, you need to know bank reconciliations,” Nossek said. “That’s a must, and it wasn’t … As I said earlier, they over-expended their appropriation request substantially during the fiscal year, when we received information from them during the performance of the audit, there were multiple transactions not reported to the system.”

Nossek said that process is “problematic” when managing substantial appropriations, and he used a sports metaphor to illustrate his point further. He noted earlier in the evening that the school department ran a deficit for the fiscal year, which Superintendent of Johnston Schools Bernard DiLullo and School Committee Chairman Bob LaFazia confirmed Wednesday was about $2.3 million.

“I liken it to coaching a basketball game and the scoreboard’s not working,” Nossek said. “You don’t know where you are. It’s not an enviable position to be in and we believe that’s what caused the over-expenditure. They may argue that, but basically that’s our opinion relative to the findings.”

LaFazia and DiLullo told the Sun Rise that a confluence of factors led to the shortfall last year, most notably the $3 million Johnston commits to out-of-district tuition. LaFazia said the Cranston Area Career and Technical Center’s addition of ninth grade hurt the district considerably, requiring an extra $800,000 to send the students off.

The School Committee has lobbied the local legislative delegation to implement legislation that would provide financial relief for districts like Johnston, which have to cover the cost of sending students to other districts but also must fund the similar programs they offer.

“That’s what’s killing us,” LaFazia said. “The reason why a couple years back we had that deficit, Cranston opened up ninth grade without our knowledge of it … That we didn’t have in our budget to bring them over here. The Department of Education has rules and regulations stating that if a child wants to go out of district, even though we have the course in our high school, we have to allow them to go.”

LaFazia also said that high self-insured health care costs and, subsequently, an unusually high amount of substitute teachers resulted in higher expenditures.

“We had quite a few claims that came in for serious illnesses,” LaFazia said. “Plus our substitute teachers as well, that hurt because there were quite a few teachers out, that causes an impact. There are dollars you don’t figure, you put so much aside and you hope that’s enough but in some cases, what happened in 2019, we took a hit on the out-of-district [funds], additional health care and also the substitute teachers.”

DiLullo also attributed the reporting delay to unusual turnover in the business manager’s office. Fred Azar retired last year, and his replacement resigned shortly after taking over. Lesli-Ann Powell was appointed and has received rave reviews from the district since, but DiLullo said the situation explained the gap.

Nossek also encouraged the town to address its information technology controls to preserve sensitive information.

“We do an evaluation of information technology systems relative to financial reporting and security,” Nossek said. “The audit team does not do that, our IT group performs that work. They issue reports to the school department and town that quite frankly have extensive recommendations listed in them, a lot of these are best practices. These are things that should be addressed quickly. We tend to want to keep those out of public [view].”

Nossek provided an update on the town’s pension liability as well, noting that the police and fie pensions were 24.1 percent and just more than 30 percent funded respectively. Both liabilities amount to about $56 million each, and the town’s total figure sits at about $171 million.

Finance director Joe Chiodo elaborated a bit on the composition of that number on Wednesday, saying teachers’ liability accounts for $44.3 million alone as well.

Mayor Joseph Polisena expressed satisfaction with the audit during a phone call with the Sun Rise on Wednesday afternoon, adding that the town is handling pension liabilities in a “very cautious, judicious fashion.”

“The pension liabilities are there … you can’t print money,” Polisena said. “We’re following the five-year plan for funding. I’m very, very pleased with the audit, especially in these economic times.”

Polisena lauded Chiodo’s work ethic throughout the process, saying he’s like “the Energizer bunny” and often working late nights at Town Hall.

“He’s kind of by himself as far as being the only finance director, some communities have more than one finance director, and as long as I’m there we’re only going to have one,” Polisena said. “He just does whatever is good for the town financially. I’m very, very lucky to have him and we say it all the time.”

Nossek said the town’s general fund jumped to $32.8 million, with $31.8 million marked as unrestricted funds. The current tax collection rate remained high at 95.5 percent, which Nossek acknowledge is consistent with the past three years of reporting.

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