Southgate Community Schools audit receives clean opinion; USDA fund balance flagged

The Southgate Community School District’s June 2025 audit received an unmodified, or clean, opinion, auditor Daniel Clark told the school board at its Oct. 28 meeting. Clark, the signing principal on the audit, said the district’s financial statements were materially correct and the audit will be filed with the Michigan Department of Education by the Nov. 1 deadline.

Clark told the board the audit included an entity-wide beginning-balance adjustment tied to a Governmental Accounting Standards Board pronouncement governing compensated absences (accrued sick, vacation and comp time). “That impacted it about 4 and a half million dollars,” Clark said, explaining the change increased the liability on the entity-wide statements by approximately $4,500,000 but did not affect individual fund balances.

The auditors reported one management-letter comment related to the district’s food service fund. Clark said the U.S. Department of Agriculture requires that the fund not hold more than three months of expenditures in fund balance. “In your case, that would equate to about $600,000,” he said, adding that the district’s food-service fund balance was roughly $1,100,000 and that the district should spend about $500,000 on food-service-related items (typically equipment or similar purchases) to bring the balance closer to the USDA guidance. Clark characterized the item as a management recommendation rather than a material finding.

On federal compliance testing, Clark said auditors completed single-audit testing of federal programs — including the child nutrition cluster (approximately $1,900,000) and the special-education cluster (about $1,800,000) — but were holding formal single-audit issuance because the federal government had not finalized its compliance supplement. “We don’t expect any major changes,” he said, and the auditors plan to release the single audit once the supplement is issued.

Clark noted a documentation recommendation for procurement: auditors verified vendors were not debarred but found no printed evidence in procurement files that the federal debarment list had been checked. He recommended the district retain printed records of such checks to satisfy documentation requirements.

On financial results, Clark said the district reported about $154,000,000 in assets for 2025, down from $158,000,000 the prior year, and that cash and investments declined roughly $6,500,000. He attributed much of the cash usage to infrastructure spending related to bonds issued in 2023 and 2025. The district recorded about $17,000,000 in capital additions and $3,900,000 in depreciation for the year.

Total liabilities were roughly $195,000,000 (a decrease of just over $17,000,000 year over year). Long-term debt increased by about $4,800,000 after a 2025 bond issuance that added approximately $7,900,000 in debt and $3.3 million in annual principal payments. Clark said the district’s net pension liability declined by nearly $25,000,000 and that the pension balance was $66,700,000, about 74% funded. He said OPEB moved into a net asset position and was roughly 143% funded, which reduced the district’s annual OPEB contribution materially.

The district’s overall revenues totaled about $78,100,000 in 2025 and expenses about $65,000,000, producing a net increase of approximately $12,900,000. Per-pupil state funding remained the largest revenue source at about $48,900,000. Federal revenue, which rose during the COVID period, had declined to about $5.9 million in 2025.

Clark said the general fund reported $65,700,000 in revenue versus $63,900,000 in expenses, adding about $1,900,000 to the fund balance. Total fund balance was about $19.12 million and the district’s general-fund ratio was 29.89%, within the typical three- to four-month benchmark recommended for reserves.

Board members asked clarifying questions. Dr. Pomponio asked whether the USDA comment was a negative finding; Clark reiterated the comment was a management recommendation and restated the three-month guideline and the district’s current dollar positions. Board members also asked whether pension and OPEB liabilities were calculated for current and retired employees; Clark said they include both groups and are administered at the state level using actuarial calculations.

The board thanked the business department staff and interim CDFO Maria Gistinger for supporting the audit process. Clark said the auditors found no material weaknesses, no material misstatements, and no adjustments that would change the audit opinion.

The district’s single-audit report will be released after the federal compliance supplement is finalized.