Issues uncovered as part of a Lehighton Area School District audit should serve as a “stern warning” to other districts across Pennsylvania, State Auditor Eugene DePasquale said Thursday.

“The Lehighton district greatly overextended itself by taking on enormous amounts of debt, then tapping its reserve funds to build a new stadium for which it had not budgeted,” DePasquale said. “On top of that, the district spent millions of taxpayer dollars on a private education contract that district officials had mistakenly believed would be achieved at no cost.”

During the audit period, Lehighton’s general fund balance dropped from approximately $14.2 million as of June 30, 2015, to $874,439 as of June 30, 2019. DePasquale said that 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.”

The audit included two findings and eight recommendations.

Lehighton Superintendent Jonathan Cleaver thanked the Department of the Auditor General for scheduling and completing the audit, which he said was requested by the district administration following financial discrepancies and concerns raised by then newly hired business administrator Patricia Denicola in April 2019.

The Auditor General’s Office conducted a multiyear audit of past documents and financial information for the district.

“As you can see by the district management responses, the district has already begun the process of addressing both findings listed in the report,” Cleaver said. “Our business office immediately placed preventative measures and has shared all financial and contractual information with the board. These include monthly revenue/expenditure reports and budgets built from actual expected costs, in an effort to develop balanced budgets in the future.”

In a response from the district to the audit, it said corrective steps had already been taken including having Denicola provide fund balance training to the board, provide the board with a multiyear comparison of the district’s actual versus budgeted expenditures and revenues, develop 2019-20 and 2020-21 budgets based on actual expected costs, and addressed deficiencies within the business office related to invoicing of other school districts for Lehighton’s education of a student from another school district. A total of $1,102,147.74 was billed to other school districts for school years 2017-18 and prior. A balance of $1,004,932.21 remains owed to Lehighton.

Denicola, according to the audit, also ensured that the district’s requests for Plan Con reimbursements were brought up-to-date, Lehighton had a number of instances in which Plan Con reimbursements were not appropriately filed in prior fiscal years. Denicola addressed incomplete filings related to prior years totaling $1,777,049.82 in Plan Con reimbursements.

‘No cost contract’

The audit also noted that the district entered into a supposed “no-cost” contract to create Science, Technology, Engineering and Math 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.

NEF provides the 10 percent in-kind match required for the Qualified Zone Academy Bonds proceeds. Lehighton Area School District issued two QZABs during the review. The audit recommends that the district try to recoup some of the money it paid for services it never received from NEF as part of the arrangement.

DePasquale noted that when the contract issue came up during the Lehighton audit, he directed his team to review other Pennsylvania school districts that have issued QZABs. While some of these districts have been audited and similar concerns were not identified, reviewing these bonds and associated contracts will continue to be a part of the Auditor General’s audit process.

“While the problem seems to be isolated to Lehighton Area School District, this is a reminder that school district officials should carefully vet every proposal that comes before them, especially as so many districts are grappling with serving students during the pandemic,” DePasquale said. “Not only should all proposals undergo a careful legal review, the full school board should vote on whether to move forward with a full understanding of the costs and benefits.”

Cleaver said the district will continue to work to recover costs as mentioned in the report.

“We will make every ‘good faith’ effort to move the district forward in all areas, for the betterment of the entire Lehighton educational community,” he said.

The full audit can be found with this article at tnonline.com.