South Country school district freezes all discretionary spending, cites 'significant fiscal challenges'

The South Country school district has suspended all discretionary spending for the remainder of the fiscal year, just weeks after officials acknowledged that the district overspent last school year's approved budget by $3.49 million.

In a Nov. 6 letter sent to South Country staff members, John Belmonte, the district’s newly appointed acting assistant superintendent for finance and management services, said that due to "significant fiscal challenges," the district must prioritize "available resources" to pay for operational costs. He said the spending freeze will apply to all "nonessential purchases, travel, conferences and new initiatives."

He added, "Moving forward, only essential items absolutely necessary to operate your programs and buildings through the end of this fiscal year will be considered for approval. All purchase orders and expense requests must clearly demonstrate how they meet this critical need."

The spending freeze went into effect Wednesday. School officials said programming, including field trips, related to the core curriculum of a class will not be impacted, but other elective field trips will be approved on a case to case to basis. 

At a board of education meeting Wednesday night, Michael J. Leone of the accounting firm Cullen & Danowski presented the findings of an external audit his firm conducted of the district's finances.

Among his findings, Leone said factors such as ineffective "real-time" monitoring of the budget last school year and a lack of communication contributed to the overspending.

Going forward, district officials must "analyze spending trends and mandated costs" during the development of the budget, implement targeted cost-reduction measures for this year and in the future, and develop a multi-year financial recovery plan" that identifies goals and timelines to rebuild the district's funds, according to the report's findings. 

"Everyone needs to understand financial reports that are being issued on a monthly basis. What they mean and how we react to that to make sure that we're not in this situation,"  Leone told the board. "This is an unfortunate situation and its going to take a few budget cycles to repair this."

Fraud, theft not suspected

Belmonte previously said that last school year's overspending was in part caused by treasurer's reports submitted to the school board two to three months late, which led the board having to cover "unanticipated expenses," Newsday reported. The acting assistant superintendent said he did not believe "that there was any fraud or there was any theft."

He previously said that at the start of last school year, the district had about $31 million in its fund balance and reserves. More than half was withdrawn to cover instructional and support programs, leaving about $15.3 million in its reserve, Newsday reported.

Leone said unexpected expenditures related to special education, transportation and health insurance contributed to the deficit. The loss of COVID funding, which expired last year, was also a factor, he said.

"All of these things combined to create an unusual situation and that's where you ended up," he said.

Belmonte, of Belfor Long Island, was hired by the district last month. District officials last month also hired Manhattan-based Investigative Management Group to provide forensic financial auditing and investigation services. The district estimated the firm’s services would cost between $15,000 and $20,000.

"We still await the results of the pending forensic audit...and we expect to have more questions answered by that report," the board said in a letter to the community Thursday.

The district was in financial peril last spring when officials proposed cutting dozens of positions, including teachers, librarians and other support staff, to help shore up a $3 million budget hole for the current school year.

Voters approved a $147 million spending plan that included a 3.48% tax levy increase, which was equal to the tax cap.