T/E School District’s $1.3 Million Accounting Error/Act 1 Violation discussion continues – Taxpayers facing large tax increase with less than 30 days until School Board’s final vote!

In addition to other residents, I attended the T/E School Board Finance Committee meeting last night. The meeting lasted nearly three hours but we stayed; hopeful for resolution on the District’s $1.3 million Act 1 accounting error and its impact on the proposed 6% tax increase. Sadly, the evening ended no closer to a solution than when it began.

With less than 30 days before the Board must take a vote on the final budget, much of the meeting was spent discussing budget strategies to reduce the District’s spending and increase revenue. Possible budget strategies ranged from increasing student parking and activity fees to delaying the new reading program.  All the discussion about cost-cutting measures was a bit like getting the cart before the horse since the large “elephant in the room” was the $1.3 million accounting error and its impact on the current budget process and the proposed tax increase.

Residents who had attended the finance committee meeting in April (including myself) expected answers from the auditor. School board member Tina Whitlow had asked Art McDonnell, the District’s business manager to have the auditor attend last night’s meeting but (according to McDonnell) he was not available. Actually the absence of the auditor was no surprise; as his responses to taxpayer questions would probably not have bolstered the business manager’s position on the District’s serious accounting mistake.

The most disturbing part of the meeting was the response by Todd Kantorczyk, the finance committee chair, to residents Doug Anestad and Mike Heaberg regarding the District’s erroneous accounting of $1.3 million Special Ed invoices to the Pennsylvania State Board of Education.

Both Doug and Mike cited the “Manual of Accounting and Financial Reporting for Pennsylvania Local Educational Agencies (LEAs)”, Principle 9 – Measurement Focus and Basis of Accounting in the Basic Financial Statements (pg. 15), which states, in part that “Revenues should be recognized in the accounting period in which they become available and measurable. Expenditures should be recognized in the accounting period in which the fund liability is incurred …” (Clearly, this means that the $1.3 million Special Ed invoices need to be accurately reported in the year in which the expenses occurred.)

Kantorczyk dismissed the state’s accounting practices as referenced by Doug and Mike, as if to suggest that somehow the T/E School District was exempt from these regulations!  A remarkable moment – he remained unmoved by the follow-up comments questioning the Board’s actual taxing authority, possible Act 1 violation, the prospect of legal action and pleas to “just do the right thing”.

The evening ended with a discussion by Board members about the proposed tax increase which; to be clear, is still 6%.  Certain Board members stated that they needed counsel by the District solicitor Ken Roos, regarding the accounting error and possible legal ramifications, before finalizing their thoughts on the proposed budget. Finance committee member Kate Murphy was particularly thoughtful; sharing her concerns and need for further information. Likewise, Heather Ward, also a member of the finance committee, shared those concerns.

Resident Neal Colligan attended the meeting and offers his notes on the Board members ideas regarding the final tax increase:

  • Todd Kantorczyk indicated that he was comfortable with the District’s taxing authority at 6% but did not want to see the entire amount imposed in one year; he did not offer another number but seemed inclined to a tax increase short of 5%.

  • Michelle Burger wanted to sleep on the discussion points but was quick to point out that “she heard what the community said in their comments”.

  • Kate Murphy acknowledged that there’s “too much noise” surrounding the Special Education Exception. She can only, at this point support a 2.32% tax increase (Act 1 allowance and the Special Exception for PSERS cost increases).  In the sanest approach of the evening (my opinion); she related that if she can’t explain it to the constituents she meets at the Acme; she’s not voting for it.

  • Heather Ward echoed those thoughts and again asked for a meeting with the District’s auditor (that Tina Whitlow requested a month ago). She seemed willing to possibly accept a 3.91% tax increase…maybe (this would be the full taxing authority of the District IF they had submitted correct Special Education spending amounts to the Department of Education).

  • Tina Whitlow again raised questions of the District’s taxing authority particularly related to the Special Education Exception and again mentioned in her comments a 3.91% possible tax increase.

  • Roberta Hotinski is in favor of a 4.72% tax increase; this number would include the 3.91% mentioned above AND .81% increase derived from a calculation of what Last Year’s Special Education exception would have been if the numbers submitted to the State were correct.

  • Scott Dorsey, ever the Board Member balancing the fairness of a tax increase vs. the needs of the schools, favors an increase of 3.91%…his position has not changed in some time.

  • Ed Sweeney leans towards the 2.3-2.5% tax increase range. He did point out that the Budget process is in dire need of change as only now, with a month to go, are we “getting into the brass tacks”.  He also mentioned that a Board needs to trust the numbers it is given when considering a budget … it is clear he has doubts.

  • Kyle Boyer was the last to weigh in … his support level is around the 3.91% range but may be convinced to go a little higher. He mentioned that he keeps a District tax increase chart on his phone and that in 2008 the District raised taxes at the highest level in the last 15 years … and he’d like to stay below that 4.3% figure.

The Top Answer to tax increase percentage was 3.91%.  At this level; the potential Final Budget would have an imbalance of a $2.662 MM of deficit that will need to be filled by Fund Balance Commitment.  No Budget Strategies have been offered that could fill that imbalance.  Board Members left the “hard analysis” behind and expressed their “feel” for the correct tax increase. The normal Budget process which could have looked delved into the need for a 5.5% spending increase OR at why the District habitually under-states revenues and over-states expenses in the Budget process has been hijacked by the Accounting Timing Error fiasco.  On this point, Ed Sweeney is clearly correct.  With a month to go … it’s going to be a bumpy ride.

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32 Comments

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  1. I’m not sure anyone should consult with solicitor Ken Roos or anyone at the law firm Wisler Perstine concerning the $1.2M accounting error and the possible legal ramifications. Mr. Roos is the very person who has led the Lower Merion School District into a multi-year, expensive (>$400K in legal fees) lawsuit over budget discrepancies.

    The board needs to hear directly from the auditor and an independent financial advisor. The idea that TESD is exempt from accounting standards is ludicrous. Mr. Kantorczyk needs a lesson in the basics of GASB & GAAP from someone at the Office of Comptroller Operations.

    Here is the law: Sections 2-218 and 9-921A of Public School Code of 1949 states “…all financial accounting and reporting by Pennsylvania Local Educational Agencies [TESD] shall be in accordance with generally accepted accounting and reporting standards…”

    [Reply]

    TE taxpayer Reply:

    Mr. Kantorczyk doesn’t need basics in GASB. He knows what you are saying is true. He is 100% behind and loyal to the BM. He is distant, difficult and strange to tax payers and some Board Members, especially lately. There’s definitely a noticeable change in his personality and the way he acts towards people who don’t agree with him. What’s happening here? Why does he bully and intimidate people who point out the truth? We should keep pursuing this situation.

    Was the meeting video taped? I am a community member who watches the meetings on video.

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    Pattye Reply:

    Unfortunately, the finance committee meetings are not taped. I really try not to personalize the posts on Community Matters but Mr. Kantorczyk’s response to Doug Anestad and Mike Heaberg when they quoted from the state accounting manual was simply not to be believed. He doesn’t need to believe the opinions of residents but seriously, to dismiss basic accounting principles was just one of those ‘wow’ moments.

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    Tredyffrin taxpayer Reply:

    His superficial and insincere defense of the indefensible says “It’s none of Your business when Art breaks the law.” Right Todd?

    MALLAM Reply:

    If Mr. Kantorczyk does not respond to simple and legitimate requests to appear in person for the board and public to better understand and resolve the $1.2m error, then he should not be retained. Full stop. No private business or person would dare retain such a professional’s lack of response when requested and needed. Why is the board still keeping his services?

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    Pattye Reply:

    Mr. Kantorczyk is not the auditor — Todd Kantorczyk is an elected school board director who is chair of the finance committee. I looked up the person who audited the return, his name is Edward Furman, and he’s with Maillie LLP, an accounting firm in Oaks, PA. According to Keith Knauss, who is a former school board director and board chair of Unionville-Chadds Ford School District, if 5 of the 9 school board members ‘voted’ to have Furman at a public school board meeting, it would happen. However, it was left to the business manager (Art McDonnell) to contact Furman and ask him to come to the meeting. And of course, it would not be in the best interest of McDonnell for Furman to show up so ‘no surprise’, Furman was not available. The key to this situation is that the residents elect school board directors as oversight of the school district — we should not be reliant on the business manager to contact the auditor, it should be the school board DIRECTING the business manager to have the auditor at a public meeting.

    Doug Anestad Reply:

    I agree with Keith on his opinion concerning Ken Roos. His law firm is way too cozy with the administration and would most likely parse any legal opinion to give the most favorable version of it concerning the Business Manager, Art McDonnell, and his possible violations of Act 1 in regards to the the special education exception. The law firm is supposed to report to the school board, but acts more like it reports to the administration. This is in addition to the point that Keith made above about his law firm giving similar advice to the Lower Merion School Board and afterwards losing in court. The school board should get outside legal advice on this matter.

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    Friend of Radnor Parent Reply:

    I agree with Doug and Keith on their information about Ken Roos. He is also the Solicitor in Radnor. His law firm helped a teacher write a complaint against a Board Member and parent who was tabling discussions on topics the Administration did not want tabled. He works for and answers to the Administration.

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  2. If the Board wanted the auditor at the meeting, the auditor would have been at the meeting. Waste of time talking about cut strategies. It’s about the illegal accounting error and the BM slides by talking about cut strategies. Everyone knows he under estimates revenue and over estimates expenses, raises taxes and ends up with a surplus, Every Year. Meetings are a side show that mean nothing. Tax increase rates were decided long ago. Board Members are puppets and tax payers are unsuspecting stooges. The Board needs to stand up and address the real issue. Hold the BM and auditor accountable. It stops with you.

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    Doug Anestad Reply:

    While I agree with the vast majority of your comments, the auditor is not part of the problem here. The auditor only speak to whether the district was compliant with GAAP, which it is. The problem is that the district is not compliant with the Manual of Accounting and Financial Reporting for Pennsylvania Local Educational Agencies (LEAs). This is a level of specificity above GAAP. The school board doesn’t seem to understand that even though they are an LEA, they need to follow the accounting rules for LEAs.

    A couple of minor notes on your comments. While the underestimating of taxes continues to this day, the overestimating of expenses seems to be tapering off a little bit. Instead of surprise surpluses, we have less of a deficit than projected.

    The puppet analogy is more specific if you say that the board members are puppets and Art McDonnell is pulling their strings.

    [Reply]

    TE taxpayer Reply:

    O.K. Board Members are puppets and Art McDonnell is pulling their strings.

    [Reply]

    Keith Knauss Reply:

    Doug,

    You mentioned that you feel the district “was compliant with GAAP”. I would disagree. My understanding is that GAAP for districts is defined by GASB. Therefore, If the district is not in compliance with GASB pronouncements then the district is not compliant with GAAP.

    GASB says “Expenditures should be recognized in the accounting period in which the fund liability is incurred,…”
    Reference: GASB Codification Section 1600, NCGA-1

    TESD violated this rule by placing special education expenditures in the wrong year. To me, that means TESD is not GAAP compliant.

    [Reply]

    Neal Colligan Reply:

    Couple thoughts on the auditor…most of us young accountants started as auditors in the beginning.

    The auditors are hired by the Board, they address their findings to the Board and should answer to the Board alone. They are the Board’s “check” on the accuracy and controls of the finance department at the District. As one would imagine, as they do their field work in close conjunction with the people that work in the District Business office-relationships may develop (it’s one reasons Best Practices include changing auditors for time to time). Make no mistake-the auditors are hired by the Board and if they need to attend a meeting…it is the Board who would demand that…directly if necessary.

    It’s also important to realize, auditors NEVER make calls on the what to book/what mistakes to correct in the Financial Statements. They may make recommendation or tell you “you’ll have a Clean Opinion corrected or not. The Financial Statements ARE the Districts; the auditor is rendering an Opinion on those statements. To say “the auditor didn’t want to correct a mistake” is ridiculous on its surface. That is the job and decision of the District (and the Board would have to have input if the system is working) alone….its THEIR Financial Statement. THAT’s what the auditor would tell you….

    We can discuss later that the auditor does no review or in any way touches the Annual Financial Reports sent the the State….they’d tell you that too….That is the sole responsibility of the Business office and the Superintendent.

    [Reply]

    Pattye Reply:

    But wouldn’t the auditor have noted the application of the Spec Ed invoices ($1.3 million) in the year in which they did not occur. Would that have been part of the process — assuming that he was told. I understand that the auditor’s job is not to compare the previous year with the current year but rather simply review the numbers which are placed in front of him. Would that be correct?

    [Reply]

    Neal Colligan Reply:

    Good point. A Management Letter would accompany the Audit. That letter details any weaknesses in accounting controls. I would think losing $1.3 MM in bills for several months would qualify as a weakness in controls. So, it would be mentioned in the Management Letter addressed to the Board.

    Pattye Reply:

    Bingo, which is why it would not be in Art McDonnell’s best interest to have the auditor at a public meeting. Because either the auditor noted it accompanying audit materials or — the auditor was not told what happened. Either way, it would shine the light on the District’s business manager. So far McDonnell is holding fast to his message to the school board that everything is perfectly OK and that there’s NO PROBLEM! He’s got to protect that $209K salary and at the taxpayers’ expense! This picture is just so wrong! Who is advocating for the taxpayer!

  3. Thanks to all for the follow up. Any discussion of the new class schedule and related increasing in busing costs? Did they adjust up to add the costs or discuss perhaps postponing it until a better budget situation?

    [Reply]

    Pattye Reply:

    No, don’t think there was any discussion about new class size. There was discussion about the $610K cost for the delayed start time which was approved at the last school board meeting. It appeared that the Board was divided over the $300K one-time cost for the new reading program — although there was no vote on any of thebudget strategies, my guess is that the new reading program will not be cut from the 2019/20 budget.

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  4. For those who say vote them out, some of these folks are running unopposed in the school board election, including the chair of the finance committee.

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  5. How can delaying the start time cost $610K? Reset the bells, run the buses, have teachers change their clocks…bingo. How complicated can this be? I know it’s not so simple, but $610K? Come one now. The more time I live in TE the more disorganized the administration looks and the lower competent the board.

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  6. Time for some write-in candidates. I am amazed they wanted to cut a reading program but have no problem spending over $600,000 to change school start times. Stupid.

    [Reply]

    Pattye Reply:

    Thank you for you comment Laura. To be clear, although the new reading program ($300K) is listed as a budget strategy which means it would not happen in 2019/20 but would move to the following year, that cut has not yet been approved. A number of the school board members spoke out in support of keeping the reading program in this year’s budget so it’s unclear what will happen at this point. However, the cost to change the school start times — $610K — was approved at the last school board meeting and had to be added to the 2019/20 budget. It is interesting that the academics of a new reading program remains in question whereas letting the kids sleep a little extra was passed by the school board.

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  7. Feeling a serious case of whiplash. In Monday’s Finance Meeting we suffered angst discussing possible program cuts to save $30K here and $80K there to balance the budget. In Tuesday’s Facilities Meeting, no concerns raised about the size and funding of the $40M budget revealed for the CHS expansion and renovation. (More about CHS project in separate post below.)

    Thanks to Neal C, Doug A, Mike H for clear and compelling arguments on Monday for correcting the Spec Ed Exception Submission. Why aren’t Board members asking Admin to correct it? (Did Roos counsel them to protect McDonnell or others?) Thanks to Keith for his insights and reminders of Roos’ history. Some of the Board are asking for more info but a final decision on the Budget and tax increase is due in less than a month. Sheesh, we’ve been waiting months for full disclosure.

    TESD’s legal exposure and distrust of Admin’s numbers are a concern. Why cling to an erroneous submission which makes the taxpayers pay more than is permitted with the corrected submission? Ethics aside, given that so many (not a majority yet) Board members indicated a preference for a total tax increase at or below 3.9%, it’s a no brainer to request a new submission with the correct Spec Ed numbers which (coincidentally) allows a max 3.91% tax increase and also provides flexibility for a larger tax exception for the following year, if needed.

    After months waffling over reductions – here’s a quick solution to balancing the budget with less than a 3.9% tax increase. Close the $2.66 M deficit with accurate and explicit assumptions for: tax base growth ($0.5M?); Breakage (replacement of retiring teachers) ($0.5M?); interest income ($0.25M?); and a second look at savings ID’d by Dr. Gusick ($0.35M). Also use the General Fund for initiating the Reading Program ($0.3 M), Spec Ed 1 year revenue catchup ($0.9 M), and testing the new start times ($0.6 M). Done.

    The Finance Committee can then focus on the larger issues. Delve into why Spec Ed expenses continue to grow – an estimated $2.9M increase to $27.2M this year! Why are Benefits exceeding current Budget by $1.2M (8%)? Revamp the budgeting process and reexamine district expenses overall. Guide the District in rethinking how to best deliver a top tier education in the most cost efficient/effective way. It’s not easy given all the rising costs (Spec Ed, Benefits, Security, PSERS, etc), but this painful and drawn out small project cutting is not a productive use of our resources. We’ve got a strong team of Administrators and teachers, dedicated School Board members and interested community members who can make TESD stronger within a reasonable Budget – but we need far better processes, trust and transparency.

    [Reply]

    Neal Colligan Reply:

    Careful Carol…you’re awfully close to getting your Civilian “Honorary Accountant” designation. Excellent work! And “Spec Ed 1 year revenue catchup ($0.9 M)”…would be properly accounted for as Fund Balance use. The Board never had the chance to put that in a tax increase BECAUSE THE WRONG NUMBERS WERE SENT TO THE STATE (that decision was made by the Administration…as far as we know now). No Mulligans in setting the tax rate as Mrs. Hotinski would like…..if your don’t use it in the year allowed, it goes away forever.

    The rest of your comments are spot-on as well. The Board should be the visionary, long-term planning body here. Instead, they are mired in trying to get straight answers to simple questions with a deadline ever looming on a current year budget. THAT is the fault (and orchestration?) of key people in the Administration. As we’ve said often here and in public….this is not a Policy issue…we have a People issue….

    [Reply]

    Doug Anestad Reply:

    Carol, what you wrote is more insightful than anything I have ever heard from the board. The school board don’t seem to get that when all your decisions are based on someone who has been proven time and time again that he is willing to lie to you and the public, you probably are not making the best decisions based on real data. The school board continues to treat what Art McDonnell says as the gospel truth and continues to ignore what the public says. Even though we have proven time and again that Art has lied to them and that we were correct. One example is us letting them know that the district can submit the correct numbers even though the reporting period has closed. Art continues to lie and says that he can’t. How does he still have a job?

    [Reply]

  8. CHS Expansion

    For those exhausted by the Budget issues – review the agenda packet from Tuesday’s Facilities meeting and see the latest CHS expansion and renovation designs. The architects provided a great review. They have found/created 3 additional classrooms and 22 additional parking spaces beyond the 26 rooms and 106 spaces originally planned. They also identified an alternative means of increasing cafeteria capacity to 500 at a savings of $1M in construction and $74K in professional fees.

    Please note that the now $39M project estimate (after the $1M cafeteria savings) includes about $5.4M in planned renovations and $3.6 M contingency. The Agenda includes details and delightful renderings. The facilities committee is reviewing ceiling/window options for the atrium and have requested additional cost estimates.

    The Committee and Admin aren’t concerned about funding at this time and indicated they will use some of the recent $30M bond issue. Time for the “Capital Sources and Uses” page to get updated. CCTV costs have been reduced and the projected CHS costs need to be added. I need clarification on that $30M bond issue in February. Some say it is costing taxpayers $100K per month and is unused until 2020?

    [Reply]

  9. Hi Pattye,
    I don’t think Neal quite captured the point of view I expressed regarding the tax rate. I’m not advocating a 4.742% tax rate – what I said is that I would feel comfortable at least bringing the rate down that far given the strategies we’ve already identified. At that tax rate, we’d be within about $1.7 million of closing the budget, which is close to the $1.5 million target we used last year, and we still have a variety of strategies left on the table. I also said I’d like to bring the rate lower as we agree on additional strategies to close the gap, which is the process we’ve followed in previous years. I’m not comfortable picking a number without spelling out a plan for getting there, so I look forward to making more progress on the specifics at the next Finance Committee meeting.

    [Reply]

    Pattye Reply:

    Thanks Roberta for your clarification on proposed tax increase – much appreciated.

    [Reply]

    Neal Colligan Reply:

    I apologize if I mis-characterized…it was a long meeting and I was doing my best to take notes. That said, I think that certain Board members have some questions regarding “taxing authority” and have limited their thinking in the 3.9% range….

    [Reply]

  10. Does anyone have the numbers showing what the initial projected budget/surplus was for the past 5-10 yrs of budgets and what the final actual deficit/surplus has been? I’m guessing that there is a pretty steady practice of overestimating expenses and underestimating revenue – if that’s the practice it will be clear from the history of budget vs actual.

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  11. Does any one know the cost of moving to later start times? I assume additional busing costs etc. and how this is being funded

    [Reply]

    Pattye Reply:

    The District gave the number of $610,000 as the cost to move to later start time. The school board approved the plan at the last school board meeting and the $610K was added to the budget for 2019-20.

    [Reply]

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