CLAREMONT — The Claremont School District is dealing with a “structural deficit that impacts cash flow” as the result of too much money being returned to taxpayers in the 2020 and 2021 fiscal years, the district’s attorney told the School Board last week.

To address the deficits, which total $2 million, the district’s lawyer is recommending the School Board ask voters to establish a deficit reduction expendable trust fund at the annual meeting next year and put $400,000 in it to begin paying it down.

“You can address it in the next two, three, four or five years, but you need to address it,” attorney Matt Upton said at a School Board meeting earlier this month.

Any future year-end surpluses could be used to reduce the deficit, which would lessen the impact to taxpayers, Upton said.

The district recently discovered the deficits because it is only now catching up on several years of audits that should have been conducted annually.

When she was hired in July 2023, SAU 6 Business Administrator Mary Henry was tasked with getting the district’s finances in order. The district was about five years behind in audits at the time, Henry said during the May 21 board meeting.

Under state law, towns, school boards and other government entities “may hire a certified public accountant or a public accountant” to conduct and audit.

Though not required, Upton said annual audits are regarded as “best practice.”

“We have run into an issue with deficits in fiscal years ‘20 and ‘21 because of money that had been returned to the taxpayers in error,” Henry said.

The deficits occurred when the school district submitted the incorrect surplus numbers for those two years to the state Department of Revenue Administration, which sets the tax rate.

In 2020, there was a surplus of $966,000, but the district returned more than $1.7 million, leaving a deficit of $765,000, Henry said.

The following year, the surplus should have been $133,000 and the district returned $1.4 million, for a deficit of $1.27 million, Henry said.

“… We thought we had this money but we didn’t,” Henry said.

In fiscal years ’20 and ’21, Mike Tempesta was the superintendent and Richard Seaman, the business administrator. Tempesta, who was hired in 2019, was fired in early January 2024. Current Superintendent Chris Pratt took over as interim a month later, before being hired to the permanent post in May of that year. Attempts to reach Seaman, who left the district in 2022, were unsuccessful.

The deficits primarily were the result of the district failing to apply for reimbursement of approved grants, Henry and Pratt said at the recent meeting. Once a grant is approved, the district first spends the money then applies for reimbursement.

“We were spending the money but not submitting to the state so they could reimburse us,” Pratt said.

Grants, such as Title I, Individuals with Disabilities Education Act, or IDEA, and Elementary and Secondary School Emergency Relief, or ESSER, must be claimed in a certain period of time, otherwise they have to be written off to the general budget, Henry said.

Additionally, there were liabilities that were not properly expensed, meaning that when liabilities, such as worker’s compensation, were paid they were not put in expenditures, Henry said. The district had poor record-keeping prior to her being hired but she has since reconciled all cash accounts and liabilities, she said.

The district’s attorney chalked up at least some of the discrepancies to confusion related to COVID-19 pandemic-era aid.

During the pandemic, there was an “extraordinary” amount of Elementary and Secondary School Emergency Relief, or ESSER, grants being distributed and the structures and systems needed to process them at the federal level just didn’t exist, Upton told the board.

“There were a lot of districts that had difficulty in getting reimbursements and getting clear guidance on what reimbursements were or what expenditures qualified for reimbursements,” Upton said.

Under ESSER, you could go back in time to write a grant for an activity that you may have already purchased, which is not how it is normally done, Henry told the board.

Due to “inefficiencies in the system” and the high volume of grants, Upton said, many districts took a “conservative approach” to booking revenue.

As they look closer at Claremont’s circumstances, he predicted they will see that eligibility for grants were booked as revenue yet not fully recovered and that created the structural deficit.

“If you get less in (non-tax) revenue than you anticipated then what you raise in taxes will not be enough and you will have a shortfall (deficit) in the budget,” Upton said this week.

The district is still sorting through the numbers, Upton said Wednesday.

Pratt and Henry assured the board that the administration is addressing the causes of the deficits.

“We have been working hard to put things in place to make sure this doesn’t happen again,” Pratt said. “We found it. We are fixing it.”

Going back to 2016, regular reports were not being given to the board to compare budgeted to actual numbers on both the expense and revenue side of the ledger, said Mike Campo, with the Concord-based accounting firm Plodzik and Sanderson, who spoke to the board with Henry.

“So you were not getting audited reports on a regular basis and it had a lot to do with the quality of the records and the finance department as a whole,” Campo said.

For the years ’20 and ’21, Campo said he had conversations with management at the time and urged it to be conservative because they were years behind and the true fund balance number was unknown.

Since Henry came on board, she said everything is scanned into the system, transactions recorded immediately and cash reconciled regularly.

“You have to, so you know where you stand,” Henry said.

While the district’s “books were not kept well,” Henry said a few times she was not assessing blame nor did she think there was foul play or something criminal.

“I’m concentrating on solving the problem not placing blame because at this point it is what it is and we have to find a way to deal with it in Claremont,” Henry said.

Completed audits for fiscal years 2022 and 2023 are expected to be complete by later this fall, Henry told the board.

Patrick O’Grady can be reached at pogclmt@gmail.com.