School district budgets throughout the state of Pennsylvania are tight.
So when the Northwest Tri-County Intermediate Unit, which provides special education supports for students in the Warren County School District and the other 16 member districts in Erie and Crawford counties, reported an $8.8 million general fund balance while raising prices to the districts, people started asking questions.
Those questions, answered through a financial audit, reveal approximately $14.1 million currently in the possession of the IU in a variety of accounts that should rightfully have been allocated to the member school districts.
The IU was contacted by the Times Observer on multiple occasions for comment and indicated that a press release would be forthcoming, but declined to indicate when the release would be available. Any additional questions were directed to the IU solicitor.
The audit, obtained by the Times Observer last week, claimed that the "IU management established financial policies that derived your clients (school districts) and the tax payers they represent."
According to the audit, funds were accumulated over multiple fiscal years and frequently placed in "deferred revenue" accounts. "In the case of the IU, a deferred revenue liability would exist if a governmental entity and/or the member districts had paid for services that the IU had not rendered at the end of any given date." Of the $14 million, $11,325,616 was in such accounts.
The audit alleged that "the financial policies of the IU were established by the management team that was in place at any given point in time. These policies were not approved or known by the IU Board based on our review of the Board minutes and interviews of management." As a result, the IU "was able to establish cash-hoarding policies disguised as legitimate business transactions that in the aggregate concealed millions of dollars" from the districts.
For example, the cyber-services account contained $936,995 in June of 2011, accumulated through program profits. At the conclusion of the fiscal year, $500,000 was transferred, without board knowledge or approval, from that account to a general fund account to "cover the costs of the program," according to the audit.
Noting that each district that participates in the program pays a $8,000 consortium fee, the audit concluded that "the IU since the inception of the program has overcharged the participating districts and has an obligation to return the finds. Second, and most importantly, the transfer of $500,000 from that account to a general fund revenue account is a conscious diversion of funds by IU management that can only be described as bad conduct, which may have serious consequences."
While an agreement has been reached to return $5 million to the member districts, the remaining $9 million has yet to be settled.
In their conclusion, the auditors indicate that the IU "accounting records are incomplete and financial reporting to the board is deficient." Adding that the "IU management was uncooperative and lacked candor" through the audit process, the audit notes that the IU is "in good financial condition but has some excess funds which can be retained to aid the 17 school districts in these difficult economic times."