The Clarkstown Central School District in Rockland County, N.Y., following an independent audit, has begun implementing procedures to better track capital projects and prevent adverse exposure to federal tax laws regarding accounting for bond proceeds.

The audit, completed in June by the accounting firm O’Connor Davies Mumms & Dobbins LLP, reported that the district had borrowed funds that were not used within the time permitted under Internal Revenue Service arbitrage rules. The audit also found that capital projects were not closed in a proper manner and that although the district submitted a five-year capital plan to the state as required, it did not use the plan internally.

“This was really an operational audit about capital projects — not misuse of funds in any way or fraud or anything,” said the district’s director of fiscal management, John LaNave. “This was about trying to come up with the benchmark for best practices regarding the management of capital projects.”

LaNave, who was hired in February, decided with the district’s superintendent that they needed to call in auditors to figure out best practices, he said. 

They found that more than $5 million of unused bond proceeds had not been transferred into debt-reserve funds as they should have been because the projects the bonds were sold for had never been officially closed out. 

“Without a resolution from the board, the project essentially isn’t closed, even if it’s finished,” LaNave said. “There’s a process for dealing with any leftover balances at the end of projects, and in our case we had several projects that were not closed, and as a result we had money sitting in the capital fund and the project should have been closed out and the money should have been moved to a reserve for debt service.”

Part of those funds were intended to finance a public school expansion in 2006 to accommodate a new housing development. As the economy began to sour, the housing development was not built and the school expansion was not needed. However, the project remained open, and the money was not transferred to a debt-reserve fund. 

The projects have now been closed and the money transferred to pay off the bonds, LaNave said. The funds did not earn enough interest for the district to face arbitrage penalties, he said.

The district, which has a $168 million annual operating budget, has now implemented a rolling five-year capital plan that will be updated each April, and is preparing monthly capital reports.

The district has sold $72 million of bonds since 2001, according to Thomson Reuters.

A spokesman for state Comptroller Thomas DiNapoli said the office is currently auditing the district and could not comment further.

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