Why Should Delaware Care?
Appoquinimink School District residents will pay 10% higher school taxes this year, costing the average homeowner more than $100 more in taxes, after the school board approved the hike amid an accounting scandal. Frustrated residents have sought answers as to how the errors occurred, and a public audit could provide them.
Delaware State Auditor Lydia York announced Wednesday morning that her office will launch a “special inquiry” around the accounting errors that nearly forced the Appoquinimink School District into financial distress, potentially giving the public a window into exactly what went wrong.
York told Spotlight Delaware that the review would specifically look at cash flow reporting from the district and how it missed a variety of obvious errors like a third pay period in May that ended up shorting the district $7.9 million.
She warned that it would not be a full audit of the district, in part because York’s office audits school district spending in pieces throughout the course of a year and because she wants to get answers to the public faster.
York aims to publish the “special inquiry” report by Labor Day, while a comprehensive audit would be costly, take months to prepare and is outside the office’s typical work with school districts.
“We’re trying to figure out how they got their cash position out of sorts, because that’s a parameter that all the school districts need to meet,” she said, referring to the fact that Delaware school districts need to end each fiscal year with at least two pay periods worth of cash on hand or face falling into receivership by the Delaware Department of Education – a prospect that Appoquininmink faced.
“This is a case where we have a lot of data, but we’re having trouble figuring out the information,” she added.
The Appoquinimink School District did not reply to a Wednesday afternoon request for comment on the auditor’s review, but York said she had spoken to Superintendent Matthew Burrows about it and he “pledged his unconditional cooperation.”
In a monthly letter to families, Burrows said, “As a district, we continue to focus on cost reduction measures and will continue to conduct a thorough examination regarding the situation.”
Legislators, public push for review
The auditor’s office has fielded numerous calls from the public and elected county and state officials to investigate the circumstances around the Middletown-Odessa-Townsend-area school district that led the school board to abruptly raise taxes by 10% earlier this month.
More than 1,800 residents have also signed an online petition to reverse the 10% increase that occurred by a vote of the school board under the reassessment process rather than approval of voters in a referendum.
“I want to assure parents, students, taxpayers, other residents of Appoquinimink that we hear you,” York said. “We hear your concerns, we have some of them for ourselves, and we take their concerns very seriously.”
“We’re doing the fastest thing that we can do that will satisfy most of our standards, so that we can give the public the assurance they are seeking: That this is not a case of anything other than bad accounting,” she added.
New Castle County Councilman Kevin Caneco, who represents a slice of the school district and has been one of the biggest critics of the district’s leadership in recent days, commended the state auditor Wednesday for heeding the intervention requests.
District already gets audited
The state auditor’s office already reviews school districts’ spending, particularly around the tens of millions of dollars in state funding that support classroom instruction and school construction.
Appoquinimink’s most recent audits by the office have turned up some issues around a lack of bid procurement for expensive school maintenance work – the district argued that unexpected issues with HVAC systems required faster repairs rather than lengthier bid reviews – and faulty reporting on spending for projects at Odessa High School, Silver Lake Elementary School and more. Virtually all Delaware school districts have turned up issues of varying degrees in audits in recent years.
York told Spotlight Delaware that she was also surprised to learn how far off Appoquinimink’s accounting was in the latest case though, because the school district utilizes the First State Financials (FSF) reporting system that is in place statewide.
“The questions we would have is, ‘Were you using FSF correctly? Was that what you were reporting to your board? And if not, why not and what system are you using?’” she said.
When asked whether her review would include the failure of Appoquinimink’s checks-and-balances – reportedly, both the school board and a Financial Advisory Committee, made up of independent community members with financial backgrounds, had reviewed the monthly cash flow statements – York said it was too early to say.
Appoquinimink School Board Chair Richard Forsten announced earlier this month that the district was undertaking an internal independent review of what happened, which would be published publicly later this year. Involved in reviewing the books would be Scott Kessell, a former Brandywine School District and Red Clay Consolidated School District chief financial officer, and Chuck Longfellow, a former Appoquinimink finance director.
It’s unclear whether that review will move forward in lieu of York’s review – it would likely cost the district billable hours to the contractors to complete a report – but the state auditor encouraged Appoquinmink to consider completing its work because of the limited nature of her review and because it could recommend additional solutions to safeguard against future issues.
What do we know so far?
Starting in May, the school board learned that a projected $7.9 million savings balance for the fiscal year that ended June 30 had essentially been a mirage.
Numerous accounting errors, including a failure to notice that May had an extra pay period and that extracurricular pay to teachers and coaches hadn’t been applied, as well as funds for summer school programs having been appropriated to ineligible federal funds, left Appoquinimink facing a significant budget deficit.
The district’s former finance director, Eric Loftus, resigned last month, but officials have declined to discuss that departure.
They said they are nearing the replacement hire for Loftus, who oversaw Appoquinimink’s accounting for nearly the last seven years.
In response, Burrows undertook $2.5 million in district-wide cuts to try to reduce that potential burden over the final weeks of the school year. That included the reduction of a few dozen open positions, reassignment of district staff to school-based roles, and cuts to both district and individual school budgets.
In the end, Appoquinimink ended the fiscal year with a cash balance of about $3.1 million.
That put the district, which serves more than 13,000 students, in a precarious situation though, because state regulations require districts to have at least two payrolls worth of cash on hand at year’s end. For Appoquinimink, it equates to $4.2 million.
Failure to meet that threshold could risk putting the school district into financial receivership of the Delaware Department of Education, where state officials would overtake financial decision-making, including the setting of tax rates.
To make matters worse, the district had already planned a Fiscal Year 2026 budget built on the now-faulty projections. Failing to find a way to bring in roughly $5 million in new funding would force the district to likely cut dozens of additional classroom positions, Burrows told Spotlight Delaware.
All of these factors came to a head July 8 because state statute requires school districts to report their tax rates to counties by the second Thursday in July – in this year’s case, it was July 10 – in order for the counties to prepare tax bills in time.
In the end, the school board begrudgingly voted 4-0, with one member abstaining, to approve a full 10% tax increase on a portion of the school tax rate.
