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Watertown trustees accept clean audit; district and auditors flag reserves, OPEB and capital risks
Summary
The Watertown City School District board approved a clean external audit and heard auditors and administrators describe a sizable OPEB‑driven deficit, an above‑policy unassigned fund balance and controls recommendations tied to an ongoing $110 million capital program.
The Watertown City School District board on Tuesday accepted an unmodified (clean) audit of the district’s financial statements and discussed steps to reduce an above‑policy fund balance while protecting cash flow for operations.
Auditors from Bowers and Company — Lori Pov and Lindy Hill — told the board the independent opinion was unmodified for the fiscal year ending June 30, 2025. They highlighted a general‑fund change in net position of about $2.8 million that included a $10 million transfer to the capital projects fund and reported district reserves of just over $13 million at year‑end.
The auditors also said the district’s government‑wide statements show a total net deficit of roughly $123 million driven primarily by an unfunded other post‑employment benefits (OPEB) liability. They reported total revenues near $108 million and expenditures near $101 million, and noted a $12 million bond issuance and roughly $6.5 million of capital spending in the year as the district advances a $110 million districtwide capital program.
On federal funding and compliance, the audit team said the district exceeded the $750,000 federal‑expenditure threshold that triggers a single audit. They tested four programs (Title I, impact aid, FEMA hazard‑mitigation funding, and the child‑nutrition cluster) — approximately $11 million of federal expenditures — and reported no compliance findings for those tested programs.
Auditors identified several management‑level recommendations: (1) the school‑food service fund held an excess balance (about $590,000) above a six‑month target and should pursue a multiyear investment plan for equipment and upgrades; (2) controls over manual journal entries need stricter segregation of duties and dual review; and (3) the district lacked a written reserve plan to document the purpose, targets and planned uses of its general‑fund reserves. Auditors flagged instances where capital‑project payables and final cost reports did not align with the district’s general ledger and recommended stronger year‑end project controls.
District administrators told the board they are actively working to lower the unassigned fund balance toward compliance without jeopardizing operational cash flow. Finance staff reported the unassigned fund balance at about 22% of the subsequent year’s budget (down from about 24%), well above the state’s 4% benchmark, and outlined risks that justify a higher cushion: timing of state aid receipts, volatility in interest earnings, the recent flood and other unanticipated capital costs, and the scheduled expiration or reduction of some federal and state one‑time revenues used during the pandemic.
Administrators said they plan a multiyear approach to reduce reserves, including allocating one‑time funds to urgent capital needs (Massey Building repairs, North Elementary accessibility upgrades, court repairs and ADA‑compliant playground work) and tightening recurring expenditures in the 2025‑26 budget. The board and staff agreed to continue monthly fund‑balance updates to the Finance/Audit/Facilities committee and to finalize a written reserve policy that will be reviewed annually.
The board voted to approve the external audit and associated corrective‑action plan. According to the auditors, the district will complete and submit the single‑audit data collection form once the state compliance supplement is finalized.
