Unreported $4.7M surplus led to $6M budget hole for Bayonne BOE, audit says


An unreported $4.7 million budget surplus for the Bayonne Board of Education at the end of the 2015 fiscal year, as well as under-budgeting non-salary accounts, led to a deficit of at least $6 million in 2016, according to an audit report released by the state. 

Bayonne BOE

By John Heinis/Hudson County View

“We found the primary factors that contributed to the fiscal year 2016 year-end General Fund budgetary deficit were the unreported designation of $4.7 million in reserve for excess surplus at fiscal year-end 2015 and the inappropriate encumbering of at least $1.8 million and $4.2 million for payment of subsequent year expenditures at the end of fiscal years 2015 and 2016, respectively,” state auditor Stephen E. Eells wrote in a 13-page report.

The audit, which reviewed the time period between July 1, 2015 and June 30, 2016, also reveals that the Bayonne school district went over budget by $5.7 million, for a total of $79.9 million, due to transferring money to under-budgeted accounts.

This budget shortfall led to nearly 300 staffers being laid off in April, though a number of them were rehired by July.

“However, over the course of the year, the district transferred nearly $5.7 million from their salary accounts to other under-budgeted accounts including health benefits ($2.5 million) and tuition to private and charter schools ($1.4 million),” Eells wrote.

He also notes that monthly health benefit billings “are not reviewed to verify enrollment eligibility and to recover unreimbursed premiums,” citing cases where nine employees on a leave of absence did not premiums from anywhere from two weeks to three months.

Furthermore, Eells states that four former employees were not removed or billed for health coverage for a period ranging from one to eight months.

The audit, conducted by the Office of the State Legislature’s Office of Legislative Services, says that the district is failed to collect $10,000 in employee premium contributions, as well as $11,500 in district paid health premium benefits for ex-employees.

To remedy these issues, the state recommends laying off 41 employees, and then demoting another 10, to save $2.5 million in salaries and $860,000 in employee benefit savings for next year.

“We estimate that the 2017 General Fund balance should not be in deficit at fiscal year end
and corrective measures eliminating 41 staff positions and demoting 10 employees should result in an approximate salary savings of $2.5 million and an additional $860,000 in employee benefits savings for fiscal year 2018,” Eells said in the audit report.

In a letter sent to Assistant State Auditor David Kaschak on November 8th, Bayonne School Business Administrator Leo Smith, Jr. says the district has already begun to implement solutions to the problems highlighted in the audit.

“The District has changed it’s budgeting procedures to properly adhere to the NJ DOE’s uniform minimum chart of accounts. The District has reviewed each and every salaried position in the district as well as expenditures for work billed via time sheets (which includes all stipends approved by the board,” wrote Smith.

“The District has significantly expanded the number of payroll related general accounts used, in order to properly account and budget for the District’s expenses.”

He further states that the district now only records encumbrances “related to unperformed contracts for goods and services,” which has led to a 97 percent decrease in general fund encumbrances as of June 30, 2017.

While Smith takes some responsibility in the matter, he places most of the blame on the school district’s former accountant.

“I relied on our in-house Accountant to effectively manage the budget and all of its details. Somewhere along the line he stopped effectively managing these details – which led us to this point.”

As Hudson County View exclusively reported in May, the Bayonne BOE’s former account, Brian Buckley, has since been hired by the West New York Board of Education.

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