Audit uncovers $3.1M general fund shortfall

The recently released city audit reveals a $3.1 million shortfall in the city’s general fund.

The Shelton Board of Aldermen was informed about this shortfall Thursday, Jan. 31, during a presentation by CPA David Cappilletti of Clermont and Associates, LLP, the city’s independent auditor. And the result has sparked a tug of war between the city and the Board of Education.

The audit uncovered a $3,170,300 accumulated loss in five special-revenue accounts maintained by the Shelton Board of Education and school district. The biggest shortfall is for $2,776,708 in the state excess cost-grant program, a fund used primarily to subsidize high-cost special education programs. Much of its revenue gets reimbursed by the state, hence the name of the fund.

“All of a sudden a fund is down $2.7 million?” asked Mayor Mark Lauretti. “That’s concerning to me … I don’t recall this ever happening in my many years as mayor.”

“It’s concerning to me, too, as an auditor,” Cappilletti said. “This [the overruns] started in 2017 and continued in 2018.”

Cappilletti did not suggest there was any wrongdoing on the part of the Board of Education or school district staff. Instead, the problem came about because of misunderstandings of the budgeting requirements, he said, and a lack of communication between the school district and City Hall.

“We’re counting this as more of an inventory-control finding than a compliance finding,” Cappilletti said. “Yet, internal controls are simple and have to happen.”

Superintendent weighs in

For his part, School Superintendent Chris Clouet pointed out that the school district sends a detailed letter to City Hall each year outlining any excess expenses.

“Neither the City nor its auditor — the same auditing firm that reviewed the Board of Education’s compliance with State of Connecticut excess-cost grant procedures in prior fiscal years, ever contested this process,” said Clouet in a prepared statement, “or the district’s legal right to the excess-cost funds.”

Clouet also said there are “serious errors” in the audit report. He said the error stems from how the district uses and accounts for state-issued excess-cost funds that help school districts deal with unanticipated special ed costs. Such students, he said, typically “need complex services offered in out-of-district settings.”

“There is an implication in the report that the school district acted incorrectly,” said Clouet. “We have formally asked for a correction.” That request came from the law firm that represents the Board of Education, Chinni & Meuser, LLC of Avon. The attorneys nonetheless said the Board of Ed’s finance staff were eager to meet with city officials to rectify the matter identified by the audit.

Line-by-line needed

Cappilletti urged the Board of Education to develop a more robust, line-by-line budget providing details on all expenditures. Moreover, he noted, “this [the budget shortfall] is a long-term trend that needs to be corrected.”

Chief Alderman John Anglace said his board intends to aggressively work to correct the fund’s shortfall and the education budget process. “We’re going to make it mandatory for the Board to submit their budget in line-item format, then we will schedule a meeting to make sure everything is reviewed,” said Anglace.

Cappilletti cited the board’s facility-rental program as an item that should not go over budget, but has nonetheless. “They [school officials] should change the program to close the gap,” Cappilletti said. “For starters, they should charge a little bit more than what it costs to make a room available.”

The school lunch program is another example of a program that has had past shortfalls — and correctove action was taken. “I do sit down with the finance director for the Board of Ed, and the school lunch program has made the necessary adjustments,” said Paul Hiller, head of the city’s accounting department.

“We [the city’s financial team] need to have a discussion with the Board of Education as soon as possible to correct the problem, and to put controls in place so we have advance notice that something is amiss,” Cappilletti said. “I think the most important issue is going to be improving the lines of communication between the City and the Board of Education.”

For his part, Lauretti said a letter will be going out from his office warning all departments that they cannot make any cost overruns for the remainder of the fiscal year — even small ones.

Brighter days?

The ‘silver lining’ in this storm cloud came from Alderman Anthony Simonetti. He noted that the shortfall would limit the assets the city would have available for the remainder of the year.

“The good news is that the city has historically had a $4.3 million surplus [at the end of each year],” Simonetti said. While it cannot be guaranteed, such a trend would bode well toward solving this current budget crisis.