State auditor warns of recurring budget weaknesses as committee probes multimillion-dollar school deficits

The Assembly Education Committee heard testimony from the state auditor that recent forensic and post audits of New Jersey school districts revealed recurring weaknesses in internal controls that have helped produce multimillion-dollar budget shortfalls.

State Auditor Dave Kashak told the panel the office has issued eight school-district reports under authority of the state constitution and titles 52 and 18A, and identified frequent problems including procurement lapses, misclassified expenditures between general and special revenue funds, errors on state aid applications and underestimated health benefit and payroll costs. "Sometimes expenditures have happened out of one fund that should have been out of another," Kashak said during his presentation.

Committee members pressed Kashak on whether the auditor’s work examines the state funding formula or whether projected midyear deficits can be distinguished from final audited deficits. Kashak said his office audits after the fact and triggers forensic audits based on year-end, GAAP-based general-fund deficits and statutory criteria; he declined to offer policy prescriptions, citing the office’s independent, post-audit role.

Witnesses and committee members debated the role of county superintendents and county business offices in monitoring budgets. Kashak and his managers said county offices sometimes learn of transfers and spending only after they occur, and county review staffs are often stretched thin. Kristen Menegas, manager with the auditor’s office, said errors on state aid applications can produce overpayments and that some districts failed to seek competitive bids or to account for contractual cost-of-living increases when budgeting.

Officials representing school business administrators argued the pressures are often systemic: health benefit increases and salary settlements account for a large share of expenditures, district budgets must be adopted before state aid rates are finalized, and small changes — for example, a new special-education student requiring out-of-district transportation — can overwhelm a small district’s finances. Susan Young of the New Jersey Association of School Business Officials said unpredictable health-benefit rate timing and rigid statutory caps leave districts with few options and urged returning greater local flexibility on benefit design and categorical aid adjustments.

The committee heard testimony from educators’ unions and local representatives that financial distress has immediate effects in classrooms. Patricia Paradiso of the Perth Amboy Federation of Teachers described layoffs and program cuts following a state report finding nearly 40 internal-control deficiencies and a $13 million deficit in Perth Amboy schools, saying the shortfall has reduced services for students with individualized education plans and removed nurses from some buildings.

The committee did not vote on statutory changes during the session. Members signaled interest in a range of follow-ups: reviewing county monitoring capacity, exploring legislative fixes to align health-benefit rate setting with the school-budget calendar, and considering statutory adjustments to surplus and bonding requirements.

The committee adjourned after completing its agenda and will schedule further hearings and requests for written follow-up from the auditor and stakeholder groups.