Auditors Report $2.7 Million Deficit from Education

After months of reporting a small surplus, the Woonsocket Education Department ended the 2010-2011 year with a $2.7 million deficit, according to the draft operating results sent to Finance Director Thomas Bruce on Monday by auditors from Braver PC. 

The news came as a shock to many, who believed WED was in the clear for the fiscal year that ended last June. Business Manager Stacey Busby, the sole accountant employed by the department, told auditors and the administration just weeks ago that while she was still finalizing the numbers, she believed education had ended the difficult year with .  

"As recent as a meeting with the superintendent of schools and the Business Manager Stacey Busby, two weeks ago with the mayor, a surplus was assured," said Bruce. "On September 15th, we received in writing an indication that the school department surplus was $68,737. This same amount was reported to the State of Rhode Island regarding the fourth quarter of the fiscal year."  

Council and School Committee members expecting to end their 2011 term on a high note received the unpleasant surprise at the council's final meeting before newly elected officials take the helm. Committeewomen Vimala Phongsavanh and Anita McGuire-Forcier were attending the meeting on unrelated matters when they were handed copies of the auditor's communication with Bruce. McGuire-Forcier left the meeting visibly shaken by the news. 

"This is devastating," said Phongsavanh. "I'm totally surprised by this - I'm shocked. I'll be interested to hear Stacey's explanation because $2.7 million is not a small amount. I think it has a lot to do with how our financial committee is set up. There has to be a better way."

On the city's end of the budget, the auditor's draft report showed a $435,500 surplus, but the positive news was overshadowed by the school department's report, which could result in major changes in how Woonsocket's finances are handled in the future.

School Committee Chairman Marc Dubois said he had been warned of the news today during a phone call from Busby and Superintendent Giovanna Donoyon at 5:15 p.m. and had been warned of the problem.

"They said there's no one glaring area or budget item that accounts for this," said Dubois. "I was concerned... I was shocked. We were told all along to expect a small surplus."

Dubois said Busby and Donoyon did indicate that some of the issue stemmed from increased unemployment payments. "We've cut so many positions and we do end up having to pay unemployment for these people, so I know that the unemployment costs have been higher than what was budgeted," he said. "Tomorrow's my last day as a School Committee member so I will be going to to try to find out more details as to how we got to where we are."

According to Dubois, Busby also said that the shortage was the result of some confusion over how to apply deficit bond proceeds. Woonsocket took out a last year to stabilize city finances, and nearly $5.9 million was slated for education.

"They're saying that if they use the deficit reduction money, that they would actually have a surplus this year," said Dubois. "The city is saying that that money was not to use this year and cannot be used to plug a deficit. They were counting it in." 

Bruce found it unlikely that the $2.7 million discrepancy could be the result of a simple misunderstanding.

"An operating surplus, which has been the focus of the discussion this evening, has no relationship with deficit bonds. That's been expressed at the state level, that's been reviewed by the auditors," Bruce said, adding that in his opinion, someone in Busby's position would have been aware that the bond proceeds would not be counted as revenue on a final statement.  

Bruce also pointed out that under that logic, the numbers would still not add up. "The deficit funding bond for the schools was $5.9 million. If we were to count that in our operating surplus, in actuality the operating surplus with that reasoning would be in the area of $3 million. In September, they reported a surplus of $68,000." 

Principal Robert Civetti of Braver is expected to turn in a final review of the School Department on Dec. 9, though Bruce said he does not expect the numbers to change. An emergency Joint Work Session has been set up for Thursday with the School Committee, administration and the auditor on the findings. Bruce has also contacted state Department of Administration, the Department of Revenue (DOR) and Education Commissioner Deborah Gist.

"The auditors will be getting into more detail Thursday evening and they've indicated that it is general weaknesses in internal control and reporting that have caused a problem," he said. "Our bond rating could be downgraded because we're going to need another year to prove ourselves to back to investment grade."

Bruce said city officials should also be aware of the possibility that DOR Director Rosemary Booth Gallogly could appoint a financial overseer, as she recently did in East Providence.

"I would not be surprised if that happened right away in Woonsocket. What it would mean for the city is lack of local control over expenditures, contracts...most importantly we could lose local control over setting the tax rate in July."

The Joint Work Session will be held at 7 p.m. in the second floor conference room of City Hall.