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Frazee-Vergas could use a larger reserve, but otherwise has 'very clean' audit report

The annual audit revealed a clean bill of health for the Frazee-Vergas School District, thanks in part to salary sacrifices made by teachers and administrators.

The district needs to build its undesignated reserve fund, but other than that has done a good job of meeting its budget, according to Randall Highland, of Carlson Highland & Co., LLP.

There were no findings (problems that need to be addressed within the district's accounting system), no unanswered questions and no disputes between the auditor and the district business office.

"This is a very clean audit report," Highland told the school board at its regular meeting Tuesday.

The district has $885,000 in unreserved funds that can be used for operations if necessary.

"This is very good news," Highland said. "When I first mentioned it to the superintendent, his jaw dropped."

The district had expected to have about $600,000 in the fund, but that was based on a conservative estimate by the business office. The numbers change from month to month, due to the complexities of the way the state funds education, and Highland had refused to be pinned down and would not provide an estimate until the audit was complete, he said.

"I was almost going to have another audit done on the audit that just got done," said Superintendent Deron Stender. "He (Highland) said it's normal, and it's a credit to the conservative nature of the business office we have."

The district had about $798,000 in the fund last year.

But the district spends about $750,000 per month, so this year's amount, although higher than expected, still represents less than 10 percent of the district's annual operating budget.

The Minnesota Auditor's Office recommends reserves of 35-50 percent of a district's annual operating budget, Highland said. A healthy reserve fund would contain operating revenue for five to six months, he added.

Budget to actual variances showed that "overall, district budgeting was quite accurate," Highland wrote in his audit report.

Revenue was about $176,000 (2 percent) higher than expected, and spending was about $148,000 (1.6 percent) under budget.

Net assets increased by about $625,000 over the prior year, mostly reflecting progress in paying off the district's long-term debt. The district paid $665,000 this fiscal year, leaving it with school construction bond debt of $7.27 million. That debt will be paid off entirely by 2018.

The "net assets" category is designed to show the district's overall financial health.

It tallies up the value of land and buildings and other assets and weighs them against long-term liabilities such as general obligation bonds and severance benefits payable (which, by the way, dropped by $101,000, to $549,000 this year).

In all, the district's net liabilities dropped from $8.7 million to $7.9 million, a 9.1 percent decrease.

Regular instruction costs fell by about $150,000, to $3.9 million.

District and school administration costs fell by about $70,000, to $485,000.

Vocational instruction costs fell by about $50,000, to $426,000.

Exceptional instruction fell by about $50,000, to $1.5 million.

On the other side, instructional support services and pupil support services each increased by about $100,000 from last year, as did site buildings and equipment costs.

Here's a quick look at where the district gets its money, and how it is spent:

? About 67 percent of the district's total revenues of $10.7 million came from the state. About 12 percent came from property taxes, another 19 percent from program revenues and 3 percent from other sources.

? Total cost of all programs was just over $10 million, with the cost of regular instruction accounting for the largest share --about 39 percent.

In rounded percentages, the district spent 15 percent on pupil support services, another 15 percent on exceptional instruction, 12 percent on site buildings and equipment, 5 percent on district and school administration, 4 percent on vocation education, 4 percent on instructional support services, 3 percent on fiscal and other fixed cost programs, 2 percent on community education, and 1 percent on district support services.

"People can look at our audit report," Stender said. "We're efficient. Now (with the passing of the operating levy referendum)we get a chance to still be efficient, but add something back."

Stender will rely on his "administrative cabinet" of department heads in seven areas (things like curriculum, buildings and grounds, transportation, activities/athletics) to make recommendations on priority needs. As always, the school board will make the final call on funding decisions.

The pep band and marching band will be restored this winter, Stender said, thanks in part to booster club funds and perhaps community education funding.

The district also received some bad news -- it may have to buy a new boiler for about $80,000, and it may have to pay back the state about $125,000 in health and safety funds. It will also have to pay about $4,000 to replace failing ventilation equipment.

The high school is using its reserve boiler because of leaking tubes on its main boiler.

Instead of putting $30,000 into again repairing the 40-year-old boiler (similar repairs were done several years ago), Stender said "it might be time to look at a new boiler." He will get quotes for a new 500,000 BTU boiler.

The state has for years, off-and-on, been paying the Frazee-Vergas District for a health and safety program that was long discontinued.

"Now they're saying we possibly need to pay them back," Stender said, adding that he and the business office will try to get the problem solved. "They are at fault as much as we are," he said.

If not resolved, the payment problem will haunt the Health and Safety Fund, because it will affect levy limits on that fund, Stender said.

The board didn't make any promises, but agreed to consider giving hiring preference to applicants who live in the district or are already employed by the district. The request was made by Felicia Antonsen, who urged the board to require administrators to at least interview qualified local applicants.

"I would like to see a stronger consideration for supporting the community, especially after this difficult referendum," she said. "It would be good public relations for the district."

"I see where you're coming from," said board member Rich Ziegler. The board discussed the matter at some length. On the one hand, it doesn't want to tie administrators' hands as far as hiring the best teacher for the job. On the other hand, it wants to support the community.

The board agreed to discuss the matter further.

"It will be useful for planning purposes," said Board Member Nancy Dashner.