This is an expanded version of an article published earlier.
Already struggling to address a projected deficit of $854,000 in the next school year, the Portola Valley School District has gone into high gear to try to cover an additional, unexpected shortfall estimated at more than $500,000 after auditors late last month found evidence of possible misappropriation of funds.
Failure to shore up the budget by June could lead the district into receivership and a takeover by the state, district officials announced last week.
The financial crisis, which has caused shock waves throughout the school community, comes on the heels of the January resignation of former superintendent Tim Hanretty, who has since been charged with three felony counts that include misappropriation of public funds -- allegations of misdeeds that stem from his earlier employment with the Woodside School District.
In an attempt to avoid going into receivership, the district is seeking a $500,000 loan from the San Mateo County Office of Education, a request expected to be heard by the county board of education on June 6.
School board members also will be "looking at all of our options" for spending cuts to balance the 2012-13 budget by June 30, school board President Scott Parker said.
In addition to possible funding misappropriations, which involved the spending of at least $400,000 of funds earmarked for the district's solar panel project on inappropriate purchases, the financial irregularities uncovered by auditors called in after Mr. Hanretty's resignation include underestimated costs of employee benefits, according to the district.
The exact figures and the trail of money movement in the district's budget are not yet determined, with the district's interim finance official Mark Bonnett, a team of forensic auditors, and a county-appointed finance expert scrambling to make sense of a budget that was crafted and overseen by Mr. Hanretty, who since 2010 had served a dual role as the district's superintendent and its chief business official.
At least one report, that of county-appointed fiscal expert Sandra Lepley, is expected to be completed at the end of the week, according to county Superintendent of Schools Anne Campbell, who was superintendent of the Portola Valley district before moving on to the county office.
Mr. Hanretty's attorney, Mike Markowitz, said he's advising his client not to comment about the situation. Reached last week, Mr. Markowitz said he hadn't been made aware of the development in the Portola Valley district, and that Mr. Hanretty would be ill-advised to comment on something "that might be even remotely related to the current (Woodside district) case."
The preliminary hearing for that case is set for May 24 in Superior Court. Mr. Hanretty has pleaded not guilty to the charges, but the case makes him "a target," Mr. Markowitz said. "If a quarter falls on the floor and disappears, it will be his fault."
Although not all the facts are in, auditors and Mr. Bonnett, the interim financial officer, have concluded that at least $418,000 of the money allotted to pay for solar power for the district's two schools was spent inappropriately on technology equipment, contracted staff, and general operating costs, district officials said.
Diverting the funds puts the district's $1.5 million federal subsidy for the completed solar panel project, authorized in 2010, in jeopardy, they said.
The district held a community meeting on May 2 to explain the information available at the time, and in a PowerPoint report revealed that in addition to the solar project-fund diversion, "employee benefits have not been recorded/tracked according to generally acceptable accounting principles."
The district had budgeted only $2.1 million for health and welfare benefits, although the actual costs for the year appears to be $2.6 million, the report said.
It also revealed that the district has "been spending beyond our means for at least the past two years.
"We have been covering general expenses by obtaining credit and loans that solve immediate problems but add to ongoing financial challenges."
Policy changes ahead
Community members attending the May 2 meeting voiced concerns about the type of cuts that might be made to school programs as a result of the shortfall, and questioned how the school board, which must approve budgets and sign off on annual audits, could have been unaware of the spending and budgeting irregularities now being uncovered.
Board President Parker told the Almanac that the board's practices that constituted "financial oversight were not any different from the best practices of school boards" in general, but "obviously, there's going to be discussion of future oversight ... and talk about enhanced controls."
For one thing, the board is certain to separate the positions of superintendent and financial official, "giving direct oversight to the superintendent of the financial person," he said. Mr. Hanretty had been serving in both capacities since his 2010 appointment as superintendent. He had been the chief finance official when he was assistant superintendent before that time, serving under Ms. Campbell.
The district is seeking recommendations for better oversight from the county's financial adviser and the forensic auditors, the district report said. Also, auditors in the future will present their annual reports directly to the board; before this year's audit report, the superintendent presented an audit summary to the board, Mr. Parker said.
The district will hold another community meeting at 9:30 a.m. Tuesday, May 15, in the school district annex. The board will also hear an update on the situation at its regular meeting at 5 p.m. Wednesday, May 16.