Thursday, March 6, 2008

School For Scandal

"I am conducting an internal review of the health insurance line and the manner used to project employee contributions, School Superintendent JeanAnn Paddyfote said in a story by Nanci Hutson in today's News-Times. "When the internal review is concluded, the information will be shared with the Board of Education."

Sure. Sounds like the fox/henhouse fable to me. And what do you suppose that this "internal review" will likely find? Uh-huh. I agree with you. Nothing. That's why I believe that the Town Auditor should be looking into this.

Let me see if I can explain two of these issues very clearly.

1) The $2,400,000: Every year, the Town has a budget line for the medical expenses of its employees. That line is part of the General Fund. Medical claims are paid out of the Internal Service Fund that, for obvious reasons, is highly regulated and to which strict accounting rules apply. During the fiscal year, all payments are made to the providers of medical services out of the ISF and then the ISF is reimbursed for those payments by the monies in the GF. It is this payment due to the ISF from the GF that people are calling the "receivable." As you can see, this is nothing more than an accounting or bookkeeping entry. At the end of each fiscal year, there are always payments that have to be made that either weren’t billed or weren’t paid prior to the end of the fiscal year and this is "washed out" shortly after the beginning of the new fiscal year. That receivable is the $2,400,000. There is absolutely no "shortfall."

2) The BOE slush fund: The ISF was established in 1993 but Ray Jankowski put his foot down in 2001 when he began to see discrepancies about its handling by the BOE. Prior thereto, this is how its predecessor, the medical reserve account, worked. Or didn’t. Let’s say that the BOE budgeted the sum of $10,000,000 for receivables...any and all co-pays for employee medical insurance. And let’s say that it did this even though its history (in accounting parlance it’s "experience) suggested a different number, let’s say $11,000,000. Despite that experience, with full knowledge that it was grossly underestimating the revenue, the BOE apparently did this year after year, generating a surplus that was then transferred from this account to others. Remember that the Statutes, unlike the Town, allow the BOE to make these transfers from one account to another. Now please understand this next point. The so-called "Town-side" had no specific knowledge of the problem since the BOE was sending the allegedly proper amount – the $10,000,000 -- to Ray Jankowski for deposit into the ISF. Without access to the data such as the number of retirees in the school system, he could not know for sure that there was anything untoward happening.

In about 2000, former Town Auditor Derek DeLeo made a comment about the way that the BOE finances were being handled. I will follow up on this and post as soon as I can find them. [ed. note: see comment 3]

So the affect on the taxpayers is that we footed the bill for $1,000,000 more than we had to. This is truly voodoo accounting; it is unlawful to overtax the taxpayers and, in my opinion, that’s exactly what was being done for years by the BOE and it is exactly what Ray Jankowski alleges in his letter.

Who knew about this? BOE Finance Manager Tom Corbett surely had to know. Former Chair Wendy Faulenbach? JeanAnn? Time will tell.

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