Auditor General DePasquale Says ‘Perfect Storm’ Led to Pocono Mountain School District Financial Crisis

Struggling economy, enrollment drop and charter school expenses contributing to problem

October 11 2013

Auditor General DePasquale Says ‘Perfect Storm’ Led to Pocono Mountain School District Financial Crisis
Struggling economy, enrollment drop and charter school expenses contributing to problem

HARRISBURG (Oct. 11, 2013)– Auditor General Eugene DePasquale said today that a recent audit shows that despite cutting staff and closing three schools, the Pocono Mountain School District, Monroe County, continues to suffer serious financial problems.

In the three school years reviewed, 2009 through 2012, the district’s operating expenditures were more than $22 million above its operating revenue. 

“The loss of real estate tax base and students, the sour economy and the charter school funding issue caused by a lack of accountability at the Pennsylvania Department of Education has unfortunately created a ‘perfect storm’ for the Pocono Mountain School District,” DePasquale said. “The district is trying its best to cut costs, but as we found with recent audits of other financially ailing districts, they are a long way from returning to financial solvency.

“The declining revenues and related enrollment drops are caused in part by the decreasing property values in the district’s tax base and possibly an exodus back to the New York City area by families who moved to Monroe County seeking a rural lifestyle and affordable housing. Many people probably grew tired of the high cost in time and money it took to commute.”

DePasquale said that unanticipated growth in payments to charter schools and the elimination of the charter school reimbursement in the 2011 state budget also contributed to the financial dilemma. He noted that the Pocono Mountain School District’s tuition payments for students to attend charter schools jumped from $7.2 million in 2009-10 to almost $10 million in the 2011-12 school year.

Prior to the 2011-12 school year, the state tried to reduce the impact of charter school education on traditional public schools by reimbursing school districts a portion of their charter school tuition payments according to established rates (30 percent to 41.96 percent in some instances). The reimbursement was eliminated in the state’s 2011-12 annual budget without any changes to the way charter schools are funded.

The financial problems continue despite the closing of two elementary and one intermediate school, furloughing several hundred staff and taking other cost-cutting and financial planning measures. In particular, auditors found that the district:

• continues to maintain a negative fund balance because operating expenditures are exceeding operating revenues;
• continues to have errors in public enrollment numbers that has resulted in state subsidy and reimbursement for basic education overpayments of more than $165,000 for the 2009-10 and 2008-09 school years; and 
• made a payment of more than $12,000 to the former superintendent’s retirement account that was not provided for in his contract nor was it approved by the school board.
  Auditors recommend that the school district:
• with direction and advice of the school board, put into place a plan to systematically reduce the fund balance deficit in the district’s general fund;
• provide the board with monthly budget status reports, including a comparison of budget versus actual expenditures for the month and year-to-date;
• strengthen internal controls and provide regular training to staff responsible for recording and reporting student enrollment data;
• work with the district’s solicitor to ensure that all employee contract provisions and board resolutions clearly document the board’s intentions; and
• ensure that the school district’s employment agreements and subsequent resolutions are as transparent as possible so that the district’s taxpayers can evaluate their appropriateness.

The Pocono Mountain School District provides educational services to approximately 10,000 students in kindergarten through 12th grade and serves a population of 65,000 people. 

The department’s Bureau of School Audits examines the records of school districts, charter schools, intermediate units, and area vocational-technical schools. The audits — among other things — assess whether or not school entities received the state subsidies and reimbursements to which they were entitled, accurately managed taxpayer funds, and complied with ethics codes. The audits also determine whether teachers and administrators were properly certified for the positions they held during the audit period.

The Pocono Mountain School District audit report is available online at:www.PaAuditor.gov/audit-reports.

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