Audit shows clean opinion; board warned $1.9 million teacher supplement could be lost under state formula

Surry County Schools received an unmodified opinion on its annual financial audit, auditors told the school board on Sept. 16, while also flagging a narrow risk that could cost the district about $1.9 million in state supplemental pay to teachers.

The district's auditor, Shannon Dennison of Sandra Smith White, said the audit found no misstatements, no disagreements with management and no findings in the financial statements or in federal and state awards. "Surry County Schools has an unmodified opinion on their audit," Dennison told the board, calling it the best outcome a district can receive.

The audit review noted the district began the fiscal year with roughly $3.7 million in general‑fund balance and ended with about $3.3 million. Dennison said the general fund decreased about $284,000 during the year (apart from an inventory change of about $118,000) and that capital outlay and timing of grant projects explain some year‑to‑year swings.

Beyond the clean opinion, auditors spent a large portion of the presentation on state O71 supplemental funds — about $1.9 million this year — earmarked for classroom teachers and certified instructional support. Dennison explained that the state's formula includes a supplanting clause: if local supplements are considered to replace previously provided county supplements under the DPI calculation, the district could lose the allotment in the following year. "These funds are to provide supplements to teachers and instructional support staff," Dennison said, adding that the calculation compares a 2021 base year supplement percent to current percentages.

Auditors showed the district's base‑year supplement percent (2.68%) and current year percent (2.89%), and said Surry was approximately $104,000 below the threshold that would trigger a supplanting determination for the prior year. Board members and staff discussed how a small change in salaries or supplements can shift the percentage. Audra, a district finance staff member, explained that budgeting requires anticipating late invoices posted back to the prior fiscal year, which complicates in‑year monitoring.

The board also heard that the new practice will have auditors monitoring the supplanting calculations regionally, rather than relying solely on DPI oversight; if supplanting occurs it would appear as an audit finding. That change prompted discussion about whether the district should consider moving from a flat‑dollar local supplement to a percentage model to reduce unintentional supplanting risk.

The audit presentation included updates on child nutrition enterprise funds (noting a roughly $281,000 drawdown in the food‑service cash balance) and the continued winding down of federal COVID‑era (ESSER) pots, where roughly $1.4 million remained in expiring funds at the time of the presentation.

Board members posed clarifying questions and asked staff to continue coordinating with the county and auditors on strategies to stabilize supplements and protect the O71 allotment. The board did not take formal action on supplements at the Sept. 16 meeting; staff said they will continue analyzing options ahead of next year’s budget cycle.