Audit: Watchung Hills posts another clean opinion; capital reserve drawn down to retire referendum note

Auditors told the Watchung Hills Regional High School District board on Thursday that the district’s 2023–24 annual comprehensive financial report received unmodified opinions on the financial statements, internal control and federal and state financial assistance, and that there were no audit recommendations.

The clean audit matters because it affirms the district’s financial reporting and internal controls, while also documenting a nearly $4.9 million planned decrease in fund balance driven by using capital reserve to retire a temporary capital note from the 2022 referendum.

Chris Vinci of the district’s audit firm presented the report, saying, “An unmodified opinion is the cleanest audit opinion you can get.” Vinci said the district began the year with $9,754,003 in capital reserve and ended with $5,780,850 — a decrease of about $4 million that the auditors described as planned and budgeted to pay off the temporary capital note for the 2022 referendum. He added that the payoff should reduce future debt service needs compared with issuing long-term debt.

Vinci also reviewed other reserve and fund-balance components. Maintenance reserve rose by about $103,000 during the year and was described as roughly half of its maximum allowable level. Tuition reserve remained at $100,000 and is used to offset delayed state-certified tuition adjustments. Excess surplus for June 30, 2024, was $489,221, down from $622,008 the prior year; the auditors noted that excess surplus must be included as revenue in the 2025–26 budget.

The district reported $264,717 for unemployment liabilities and said it uses the reimbursement method rather than a contribution method, which the auditors characterized as more cost-effective because the district pays claims as they come in rather than making regular contributions. Encumbrances (open purchase orders) were about $280,000 at year-end and were designated for the subsequent year’s budget.

Board members and auditors described the district’s position as financially stable despite the year-to-year drawdown in reserves, calling the planned use of funds a preferable alternative to issuing long-term debt. The operations committee also reviewed the audit and was told the district’s debt will decline sharply in 2028–29 as serial payments mature.

Board action on consent and business agenda items followed the audit presentation. Multiple grouped motions to approve agenda items (listed on the board’s agenda as ranges of items) passed by roll call; the motions were procedural approvals of consent and business items on the meeting agenda.

Looking ahead, board members said they expect the 2025–26 budget year to be challenging because of rising health-care costs, higher out-of-district special-education placements and declining state reimbursements. In response, the board created an ad hoc finance committee to focus on budgeting issues over the next several months.

The auditors and board praised district business-office staff for their preparation. Vinci said there were no recommendations requiring corrective action, and board members repeatedly thanked staff for their work.

Questions raised during the meeting were procedural or planning-oriented; no new fiscal policies or new borrowing were approved at the meeting.