Merrick school district didn't properly manage fund balance, reserves, state audit finds
The audit report was released Friday by state Comptroller Thomas DiNapoli, seen last year. Credit: Hans Pennink
Merrick's school district over a four-year period consistently overestimated annual budget appropriations by a cumulative $6.9 million and maintained fund surpluses beyond allowable statutory limits, the state Comptroller's Office reported.
The audit report, released Friday by state Comptroller Thomas DiNapoli, acknowledged that Merrick since 2015 had reduced cash surpluses from an amount equivalent to 19% of its annual budget to 8% of its budget. The report added, nevertheless, that the 8% figure was double the 4% allowed by state tax law and required further reduction.
"These practices lack transparency, circumvent the statutory limit on surplus fund balance and can result in taxpayers being taxed more than necessary," state auditors said in reference to Merrick's management of surplus funds.
The 11-page report focuses on district funding practices between school years 2019-20 and 2022-23, but touches on four earlier years as well.
Merrick, an elementary district, enrolls about 1,600 students in kindergarten through grade six and operates on a voter-approved budget of $63 million for the current school year.
In response to state auditors, Dominick Palma, Merrick's longtime superintendent, contended that the district's "unassigned" fund balance — that is, reserves not earmarked for specific purposes — was actually about 4.3% of the budget as of June 30. Palma, in a letter, went on to describe Merrick's financial condition as fundamentally healthy.
"Through the continued support of the community, the Merrick Union Free School District maintains a healthy financial position per our annual external audits, a stable bond rating, and lack of fiscal stress as per Comptroller reporting," Palma wrote.
The letter was addressed to Ira McCracken, chief of municipal audits for the comptroller's regional office in Hauppauge, which drafted the report.
Districts' cash surpluses are a touchy issue both in this region and statewide. In July, Newsday reported that 19 districts on the Island had accumulated surpluses beyond the 4% limit. Gov. Kathy Hochul has scolded districts with excessive reserves and called for a report on that issue and others that is due Dec. 1.
Friday's report marks the second time in eight years that the comptroller's office, which serves as a financial watchdog agency, has scrutinized Merrick's finances. An October 2016 report, which also was sent to Palma, found that the district's fund balance was $9 million, or approximately 19.3% of the ensuing year's budget.
One recommendation of the earlier report was that the district revise its fund-balance policy. In Friday's report, auditors quote district board members as acknowledging that the district's fund balance still exceeds 4%, but add that the board and district officials have still not adopted a policy to require compliance as auditors originally recommended.
Palma, in his response, contends this is inaccurate. He states that a plan on the district's reserves and fund balance was submitted to the board on Nov. 14, 2023, and will be updated annually. He adds that the district will seek formal board adoption of the plan at a November meeting.
Palma in September had announced he would retire from his post at the end of this school year, on June 30. A spokeswoman Friday said the superintendent had nothing to add outside his audit response letter.
John Hildebrand is Newsday's senior education writer and has covered school news and policy issues affecting Long Island for more than 40 years.
