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Newberg schools correct surprise budget shortfall


Education — Interim finance director Gwen Gardner helps school board take action to correct the $950,000 deficit that led to the resignation of former CFO Nathan Roedel in late August

It was revealed at the Sept. 24 Newberg School District board meeting that budget projection errors left the district nearly $1 million in the red last year, leading to the resignation of finance director Nathan Roedel in late August.

At its regular Sept. 10 meeting, the board hired experienced school business manager Gwen Gardner as interim finance director and charged her with reviewing the district’s finances to determine the cause of the shortfall and identify solutions, which she did at the next regularly-scheduled meeting last week.

In the interim, district employees and the community were left in the dark about what spurred Roedel’s abrupt resignation Aug. 29, just days before the start of classes.

Experienced in identifying illegal and questionable expenditures in her long career working throughout the state, Gardner reported to the board during an hour-long work session before the official meeting that she did not find “anything of that kind whatsoever.”

Gardner determined that two major projection errors — one an under projection of $1.1 million in payroll expenditures and a $1.5 million over projection of revenue — resulted in a negative ending fund balance (EFB) of $950,212 in the general fund for the 2012-13 fiscal year.

Gardner concluded that the majority of the payroll projection error occurred in June, likely stemming from a failure to account for the district’s contracts with licensed employees, which require the district to pay out not only for June, but for July and August as well.

The error in the revenue projection was primarily the result of an overestimation of the school’s basic state funding, for which projections from the legislature were in flux as it hammered out an overall budget in the first year of its session, according to Gardner.

Now in her second stint with the district, for which she served as interim finance director for the 2008-09 school year before Roedel was hired in 2009, Gardner reported to the board that the budget office was already working on two potential solutions to the problem, both of which she investigated and ultimately recommended.

The first was to transfer $597,429 in prior year tax dollars on paid bonds to the general fund, which is allowed under ORS 287A.140. The board passed a motion to do so 7-0 later in the official meeting. The second was to recode $375,000 of bond expenditures to the bond budget, which was executed by the business office.

Gardner was questioned by board members about why the district wouldn’t keep track of such funds more strictly before encountering a crisis and she said her answer had to do with the district’s stable financial history.

“This is really a very rarely used process because I thought back and can’t remember a district that I’ve been in that had paid off their bonds,” Gardner responded at the meeting. “So very seldom this comes up.”

Gardner said that after verifying the district’s books, she immediately looked into the district’s PERS liability account as possible source of funds to offset the deficit.

Even though the first two measures were enough to erase the deficit and leave the EFB at $22,217, she said the district would be better protected by withdrawing $300,000 from the PERS account, leaving its balance at $75,000, to create a more robust EFB. Gardner also noted that with reductions to PERS liabilities expected to kick in this year, now was the best time to pull from the account.

Superintendent Kym LeBlanc-Esparza added that most districts aim for an EFB that is 3 percent of the total budget and that leaving it at $22,217 could negatively affect future district bond ratings.

An EFB of $322,217, which Gardner was confident would increase when the district is officially audited, represents just 0.7 percent of the $43.4 general fund budget. Gardner also reported to the board that with $970,000 in potential savings on payroll/benefits and PERS saving next year, she estimates the 2013-14 EFB will be a much healthier $1.29 million.

“As far as working with Gwen, utilizing her expertise and being in a situation where we’re moving forward with a very similar financial end line going into our new year’s budget, I have to say that I’m very pleased with the work she’s done on a very quick time frame,” LeBlanc-Esparza said.

The superintendent also announced at the board meeting that Gardner has agreed to serve as director of finance for the rest of the fiscal year, which will give the district time to do a proper search for a permanent replacement.

“We got applicants, but the pool was very limited in folks who had actual K-12 education experience and we just weren’t willing to take that kind of risk when we had a phenomenal candidate sitting in the chair,” LeBlanc-Esparza said. “If she was willing to stay, that’s a no brainer for us.”

LeBlanc-Esparza also addressed the board about working with Gardner to add some more checks and balances into the budgeting system, including: upgrading to software that will provide real-time snapshots of the budget, eliminate lag time in calculating monthly budgets and allow budgets to be calculated and cross referenced by schools and the budget office; upgrading to a more modern purchase-order system; and switching to a budget reporting structure with more clarity to replace the quarterly spreadsheets given to the board’s finance committee.

“So while I think this was a difficult situation, it’s not a transition anyone looks forward to, but at the same time I think the system is going to get stronger in the long run,” LeBlanc-Esparza said.