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July 19, 2004

School District Financial Reform

The time for change is now!

One of the greatest concerns of Nassau County residents is verifiable fiscal accountability on the part of their local school districts. With school taxes accounting for approximately 60% of the total tax bill, there is virtually no independent oversight of school districts. This situation has lead to various financial scandals involving Long Island school districts. Due to increased public awareness, it is likely that many more scandals will emerge.

The Roslyn scandal has proven that increased funding does not necessarily improve the quality of education. Between seven and eight million dollars in spending were deemed questionable. These funds could have been used to limit the growth of local taxation. With state lawmakers struggling to address the recent legal victory of the Campaign for Fiscal Equity, it is imperative that school funding be fair and adequate throughout the state. It is also imperative that the level of taxation adequately reflect what is absolutely necessary. Therefore it is essential that the legislature enact fiscal reforms that put in place strong financial controls and procedures that ensure accountability by local school districts.

We would like to recommend several initiatives to bring fiscal accountability to school boards throughout Nassau County and the state. Some of these initiatives are relatively inexpensive and others may require additional state funding. These initiatives would ensure open, honest and moral government that is accountable to the people of Nassau County and the state. These goals are consistent with our mission statement.

We believe that General Municipal Law and or Educational law should be amended to require that each and every school district post its full line item budget on the internet and a hard copy to their local public library. This will ensure that local residents are fully informed as to how their tax dollars are being utilized. This openness will encourage greater accountability by the district and will facilitate public participation as this information is readily accessible. Since many districts already have their own websites and have their budgets and other financial information in an electronic format (Lotus, Excel), the cost would be insignificant.

Most school boards use Generally Accepted Accounting Principles. While these standards are sufficient for other entities, they do not provide the same level of accountability as imposed on companies that trade on the stock market by the passage of the Sarbanes-Oxley Act of 2002. This act requires that the CEO or CFO swear under the penalty of perjury that their financial statements are true and accurate. As school boards are considered local governmental entities, the implementation of Government Accounting Standards Board Principles (GASB) will ensure stronger fiscal accountability. Nassau County has implemented this form of accounting which has helped restore fiscal order to county government. 

This new accounting change can be promulgated by the New York State Comptroller; however he has not moved to make this change. We would recommend passage of an amendment to General Municipal Law, section 36. In addition, a requirement should be implemented to mandate two certifications; each and every school board member and treasurer must certify under oath that the school financial statements are true and accurate to best of their knowledge and that each has complied with their various fiduciary duties as a board member or officer. The second should contain a perjury clause along with the following; “I, John Doe did not breach my duty of care, duty of loyalty to the residents of Anywhere School District and have complied with all required financial reporting provisions.” 

Educational Law and or General Municipal Law should be amended to impose a clear duty on each and every school board member or officer to report fiscal misconduct of any other board member, officer or school employee relative to school financial matters. This shall include the thief, misappropriation of school funds, property and or proprietary information. Violations shall constitute a class A misdemeanor.

All school districts must promulgate and maintain a code of ethics with an annual certification that school board members or officers are in compliance with the code. This code must require that any conflict of interest must be publicly disclosed. Compliance should be governed by a state conflicts board. This should include but not be limited to vendor relationships, contracts for services or goods, financial interests, school employees, etc.

All school districts should be required to provide full disclosure of all entities that have a relationship with a school district. This shall include but not be limited to providing services, receiving services from the school district and or the use of school property for any purpose by an entity.

Educational Law should be amended to permit a private right of enforcement by any school district resident pertaining to a breach of duty or knowingly filing a false certification by a school board member or officer relative to their fiduciary duties. This would be similar to the federal False Claims Act. This would allow a citizen to litigate an action of behalf of the taxpayers to recoup the value of any benefit that was wrongfully received by the respondent and or seek restitution of any lost monies owed to the school district. This private right of enforcement would include the imposition of reasonable attorney fees and court costs to be borne solely by the respondent. 

The final initiative is a mandated audit every two years by the New York State Comptroller’s office. Unfortunately this would require additional state funding and would be expensive. Consideration should be given to requiring all districts to have an internal auditor (which is currently optional) who must report his or her findings to the State Comptroller. If further investigation is warranted, this will trigger a separate audit by the comptroller.

These initiatives were submitted to the legislature for consideration on July 13, 2004.