District could receive $669K from IU5

The Warren County School District could receive an additional $669,937.80 from the Northwest Tri-County Intermediate Unit 5 if a distribution formula designed to allocate approximately $12 million in funding the IU has held is approved.

The Finance Committee forwarded to the full school board a draft resolution adopting the formula at its meeting last week.

The IU, 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. At that point, the districts took a closer look and facilitated an audit on the IU’s books.

According to a memo from the lawfirm Knox, McLaughlin, Gornall & Sennett, “At this time, all seventeen school district superintendents and business managers have responded… and have approved the distribution formula.”

“I believe it is in the best interest of the district that this be the allocation method used,” WCSD Business Manager Jim Grosch said to the committee.

The memo explains that a model resolution was circulated to all IU 5 member districts last month.

“The goal is to provide unanimous approval of the distribution formula by all seventeen school districts by January 31, 2013 so the distribution formula could then be approved by the intermediate unit board at its meeting of February 20, 2013,” the memo said.

Board Vice-president Donna Zariczny, who serves on the IU board, said that the IU board will likely approve the distribution formula resolution at the February meeting. She also explained that a forensic audit the IU has initiated could be complete, “by the March 1 deadline we gave them.”

The original audit, obtained by the Times Observer in October, 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 total, $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.

According to a spread sheet of proposed payments, the district’s largest payments would be $291,888.18 from the cyber-services fund and $181,919.22 from the IU general fund.

Grosch cautioned that “this is all contingent upon the certification or modification of the auditors that are currently performing a forensic audit and the IU board’s approval.”