Auditors give Keystone Central unmodified opinion despite $6.7M fund-balance drop

Baker Tilly delivered an unmodified opinion on Keystone Central School District’s financial statements and on compliance with major federal-award programs for the year ended June 30, 2025, while flagging a $6.7 million decline in the general fund for the year.

Adam Hartsell, senior manager with Baker Tilly, said the firm provided “reasonable assurance” after auditing the district’s fiscal year and noted the opinion is the highest level an audit firm can provide. He said the audit also produced an unmodified compliance opinion on federal programs, adding the district expended about $6.5 million in federal awards during the year.

The auditors identified two main drivers of the $6.7 million decrease. Expenditures exceeded budget by roughly $4.4 million, and the district moved about $3.8 million from the general fund to the capital projects fund to pay for construction tied to the Liberty project, Hartsell said. He and colleague Kate Mowery attributed roughly $2.5 million of the expenditure overrun to higher-than-expected cyber-charter tuition costs; the remainder reflected higher health-care and salary costs.

Mowery, who led the internal-control discussion, reported no material weaknesses in internal control over financial reporting and no compliance findings in the single-audit compliance work. She also reviewed two new Governmental Accounting Standards Board requirements implemented for the year: one affecting recognition of compensated-absence liabilities and a disclosure standard. Under the change for compensated absences the district added a $5.0 million restatement to its beginning balance as of July 1, 2024.

The auditors reviewed the district’s fund-balance composition and benchmarks. Mowery said Keystone’s unassigned fund balance was a negative $216,000 at June 30, 2025, a result of prior board commitments that exceed the total fund balance. She contrasted that with advice from the Government Finance Officers Association (GFOA) and the Pennsylvania Department of Education’s Act 1 guidance, noting the board may wish to consider plans to replenish reserves while monitoring the Act 1 implications for taxation and borrowing costs.

Auditors stressed that some drivers were one-time or nonrecurring: the $3.8 million transfer to capital projects funded a durable asset and is not simply expense lost to operations, Hartsell said. The presentation included a pointer to the audit-report schedules (page 54) for line-by-line revenue and expenditure detail.

Board members asked about vendor-impersonation fraud the district experienced and whether updated cybersecurity protocols are in place. Baker Tilly said it had reissued a 2019 cybersecurity letter and that the business office and district staff have been implementing recommended policies and training; auditors cautioned that such schemes remain increasingly sophisticated and require ongoing staff training.

Next steps: auditors recommended that the board and management review detailed findings and the auditor’s results document included with the report; the audit will be uploaded to the public municipal market access site and the federal/state repositories required for continuing disclosure.