Lehighton Area School District is looking to turn the page after a state audit earlier this year yielded two findings including a general fund balance that decreased by $13 million over five years.

In his report, issued in October, Pennsylvania Auditor General Eugene DePasquale said Lehighton’s audit should serve as a “stern warning” to other districts across Pennsylvania.

District officials said a variety of changes are taking place, in the hopes they can lead to avoiding future issues.

“The board, in the previous expense reports, was not seeing the full cost the district was incurring,” Superintendent Jonathan Cleaver said. “The board is now provided with additional financial reporting to include monthly reporting of both revenues and expenditures. During the periods under state audit, the board most often only received expenditure reporting. The board is now also provided with additional expenditure reporting data, expenditure reporting by object in an effort to understand the budget to allow for actual analysis.”

In addition, Cleaver said, the board currently receives monthly bank statements to assist in any budget analysis they wish to perform based on the districts most up-to-date financial data.

Audit findings

Lehighton Area School District’s general fund balance, DePasquale said, dropped at an alarming rate during the audit period, falling from approximately $14.2 million as of June 30, 2015, to $874,439 as of June 30, 2019. This, he added, was largely due to the district’s failure to budget for capital expenditures coupled with the costs of borrowing $62 million to consolidate and renovate school buildings.

“The district racked up a stunning $17.3 million tab for debt service during the audit period,” DePasquale said. “By the time the debt is scheduled to be paid off in 2044, district taxpayers will have paid over $43 million in interest on the loans.”

According to the audit, the district also spent millions of taxpayer dollars on a private education contract that district officials had mistakenly believed would be achieved at no cost. The contract was to create Science, Technology, Engineering, and Math (STEM) academies at the elementary, middle, and high schools. In reality, the complex contract with the National Education Foundation ended up costing the district over $3 million.

Going back to a finance committee meeting on April 9, 2018, Brian Feick, Lehighton’s business manager at the time, presented the board with a five-year general fund revenue and expenditure projection. The district had expenditures of $41,478,220 in 2017 and $6.52 million in the fund balance at the end of that year.

Projections

According to Feick’s projection, the district would have expenditures of $41,841,721 in expenditures in 2020 and still have $3.86 million left in the fund balance at the end of the year. The projection didn’t have Lehighton falling behind the $1 million mark in fund balance until after 2023.

An audit of Lehighton’s 2016-17 finances was presented to the district’s finance committee on May 14, 2018, when, according to meeting minutes, board treasurer Andrew Yenser asked Don Pierce, representative for the Maillie LLP auditing firm, if anything concerned them, to which Pierce answered “nothing in particular.”

Eight of nine current directors, including Dave Bradley, Larry Stern, Joy Beers, Wayne Wentz, Gail Maholick, Rita Spinelli, Richard Beltz and Stephen Holland, were in their seats on the board and unanimously voted to approved the 2018-19 district budget, which called for an estimated $203,000 use of the fund balance.

In early 2019, Feick projected no tax increase for 2019-20, a 3% increase in state funding and a use of $300,000 from the fund balance with a plan to get that number to zero by the time the final budget was passed in June of that year.

The audit of Lehighton’s 2017-18 finances was presented to the board on March 25, 2019, with “no significant deficiencies of materials or internal controls,” according to meeting minutes. Pierce, when asked by Beers, told the board during that meeting that there was “nothing unusual” about Lehighton’s audit compared to other districts.

Patricia Denicola took over for Feick in 2019 and during a budget presentation on June 3, 2019, Bradley asked why Lehighton was $1.8 million over budget for 2018-19.

“Medical claims that were paid from July (2018) through March (2019), totaling $3.5 million, should have been shown as an expense on the books, but were not,” Denicola said.

Denicola added that the expense should be shown every month, but she couldn’t speak to what had been done in years prior.

As a result, the estimated $203,000 deficit that board members had approved as part of the 2018-19 budget ended up being a $1.77 million deficit when the 2018-19 audit was returned.

In a meeting Wednesday night, Bradley called for a separate session to discuss the state audit. Because Wednesday’s meeting had only been advertised as a reorganization meeting, however, board President Larry Stern said he would not honor the motion.

“You can bring it up at the regular meeting in January,” Stern told Bradley.

Cleaver said the board and administration will continue to work diligently and make every “good faith” effort to move the district forward.

“The district budget for 2019-20 and 2020-21 was developed from our business office based on actual expected costs,” he said. “The 2019-20 and 2020-21 general fund budgets align with actual expected spending, whereas the former years’ budgets when reviewed by business office and auditors did not align with the actual spending. As individuals retire from our district that position is analyzed and reviewed and every effort is made to make adjustments within our current staff that would allow the district to not replace that position. With the consolidation of the schools this practice has been made possible to occur over the last two years.”