The Heyworth School District recently amended our budget. Between the original budget and the amended budget, a total of $7.4 million has been been incorrectly allocated, or completely left off the new budget.
I’ll start off with the first $7.2 million error in how we recognize the sale of bonds.
On page 2 of the old budget we can see that on row 35, $5.1 million is allocated to the Capital Projects fund and 1.9 million is allocated to the Fire Prevention & Safety fund in account 7210. The description for that account is “Principal on Bonds Sold.”
In the new budget, this line is blank. We know we sold bonds, so where did all that money go? In the new budget, we can see in row 5 of the new budget, column H has an extra $5.3 million now, and column K has an extra $1.9 million. Since row 5 on this page is a summary row, we need to go looking for the details of what account the bonds where allocated to in the new budget. We finally find the entry on page 6, under “Gain or Loss on Sale of Investments”, account 1520.
Which account is correct? Should the proceeds of the bond sale be accounted for under 7210 or 1520? I went looking for an answer and found the best summary in the Mechanics of a School District Budget published by the Illinois School Board of Education (ISBE).
From page 12, I quote: “Revenues are the monies estimated to be received by the school district that do not create an offsetting liability (debt/obligation to repay) or cancel an asset.” Accounts 1000-4999 are considered Revenues. Accounts 7100 – 7990 are considered Other Sources of Funds that do create an offsetting liability.
In summary, allocating the $7.2 million under 1520 gives accountants and auditors the impression that this money is District money, free and clear. The money must be allocated in 7210 to make sure that they understand there are long term debt obligations created.
So what’s the last $400,000 error?
In fiscal year 2017, the School district made an internal loan from the Operations and Maintenance fund to the Fire Prevention & Safety fund. We have already paid that back in our current fiscal year 2019. You can see correct entries for the repayment of this loan in the old budget on page 4. Those entries disappear in the new budget. Why would they remove this from the amended budget, throwing the ending balances of Operations & Maintenance and Fire Prevention & Safety funds off?
When I brought this all up during the public hearing regarding the amended budget on 6/19/2019, Ms Taylor’s response to the $7.2 million bond error was “You can always correct it, a budget is just a plan.” In response to the $200,000 loan repayment falling off the budget, she didn’t address that at all. Just talked about how they had handled the actual transaction of re-paying the loan.
Why file an amended budget to show that we are likely to spend $2.5 million on construction, that then makes a $7.6 million error compared to the already approved budget? Seems to me the original budget is the more accurate one.