EagleTribune.com, North Andover, MA

September 12, 2013

Schools to hire outside company to review spending

Review was condition of $1.35 million budget bailout

By Shawn Regan

---- — HAVERHILL — Mayor James Fiorentini described it as a one-time reprieve from a School Department financial crisis.

On June 28, two days before the end of the fiscal year, the mayor and City Council agreed to give the schools $1.35 million to plug a budget shortfall that school officials said was caused by an unexpected overrun in special education spending.

Superintendent James Scully said it was primarily the result of 18 special needs students who moved to Haverhill during the school year, including one who cost the district $329,000 in eight months. In all, the district spent about $2 million more than was set aside last year to educate students with physical and mental learning disabilities, Scully said.

State law requires cities and towns to reconcile their annual operating budgets and pay all their bills by the end of the fiscal year.

“This shortfall and the late notice is completely and utterly unacceptable on so many levels,” Fiorentini told the council prior to approving the bailout June 28. “The schools, like everyone else, has to live within their budget. It’s unacceptable for them not to give better updates and reports. The special education overrun is the heart of it, but it’s also inappropriate accounting and poor oversight.”

In exchange for the city bailout, the School Committee agreed to cut its budget by $500,00 this year and return that amount to the city, and to hire a company to perform a management audit of the school budget and the district’s accounting methods.

The School Committee will consider hiring a company to perform the review at tonight’s meeting at 7 p.m. at City Hall.

The superintendent is recommending the Melanson Heath & Company firm of Andover for the job, at a cost not to exceed $18,500. The company’s proposal said its review will be completed by Oct. 15 with a final reporting deadline of Oct. 30.

Fiorentini, who is also the School Committee chairman, said hiring an outside agency to review the school budget is the only way to satisfy bond-rating agencies that the city has a handle on school spending.

“Moody’s was concerned about the school overrun, but they didn’t downgrade us because we told them we were putting in these controls,” Fiorentini said yesterday. “This study is critical.”

Moody’s is one of the firms that sets the city’s bond rating, which determines how much interest the city pays when it borrows money.

Scully said the purpose of the upcoming financial review is determine whether the city has budgeted the correct amount of money to pay its expenses and financial obligations.

“I want them to review what we spent last year for specific needs and expenses and make sure we budgeted that amount this year, so we don’t have to patch holes at the 11th hour again,” Scully said. “The idea is to manage our costs rather than reacting to expenses.”

Scully acknowledged he’s not sure if there’s enough money in the $61.5 million school budget and whether the funds are allocated in the right places.

“That why we are doing the financial review,” he said.

According to the specifications of the study, the purpose is to “review prior years actual expenses including the growth of special education ‘out of district’ tuitions and the current year’s salaries’ encumbrances to determine the adequacy of the FY 2014 budget and revolving account expenses and revenue.”

The Melanson Heath & Company proposal said it will provide “conclusions as well as recommendations for improvement.” The firm has also offered to meet with school officials to provide assistance in implementing any recommendations it makes.

The company, which Haverhill has used before for financial audits of city financial procedures in the past, has extensive experience in performing operation audits and reviews, according to its proposal.

As for the other conditions of the June 28 city bailout, Scully said the School Department has already shaved the city’s $500,000 from this year’s school budget. He also said school officials will be giving monthly detailed budget updates to city financial officials.

On the night the bailout was passed, the council also approved the mayor’s request to form a panel of School Committee members and city councilors to develop a proposal to consolidate the school and city finance operations. But the School Committee later rejected that idea. Several members said they would consider the merger in the future, after the study of school finances is completed.