WESTBROOK — The School Department ran a $3.5 million deficit in 2019 due to a lack of financial oversight and late billings, and Mayor Mike Foley says he has no confidence the department can remedy the situation or prevent it from happening again.

The deficit as of June 30, 2019, was revealed in a city audit presented Monday. Superintendent Peter Lancia said the deficit has since been reduced to $1.1 million. Over-expenditures were the result of not billing or billing late for Medicaid reimbursements, an oversight compounded by a staff shortage throughout the year, he said.

Lancia

Foley said the School Department has had budget deficits for the past three years.

“Based on the information that has been presented through these findings, the fact many of these findings have been cited in (previous) audits and the fact that the accumulated deficit tripled during (2019), I am not confident that the School Department’s financial services can achieve the necessary changes with their current staffing configuration and leadership,” Foley said, reading from a letter he had emailed to city officials, staff and residents before Monday’s audit meeting.

The deficit can impact Westbrook’s bond rating, the mayor said, making it more difficult and costly for the city to secure loans and manageable interest rates for future projects.

Ward 2 Councilor Victor Chau compared bond ratings to an individual’s credit score, where financial problems can make it difficult for someone to get a mortgage or a car loan.

A lower bond rating for the city means higher interest rates, Foley said, which ultimately may put an added burden on taxpayers.

Two accounts make up the bulk of the deficit, the audit showed. The Medicaid account was short $740,000 at the end of 2019 and the food services account had a deficit $130,000. A  Medicaid deficit has been identified in the previous three years of audits without being corrected, according to Foley and city councilors.

Lancia said Medicaid reimbursement from the state has been lower than in recent years, but the school continued to spend from the account as if they were receiving the same level of reimbursement as in the past. The Medicaid account covers the cost of staffing therapists and counselors for students with special needs, ranging from occupational therapy to medical issues. The number of students needing the specialists has increased, he said.

Over three years of overspending in the account, the deficit grew. In fiscal year 2017, the Medicaid deficit sat at roughly $230,000, meaning the deficit tripled between then and 2019.

“The revenues haven’t been as strong as we hoped. We’ve taken some corrective action to remove expenses out of that fund so that it can replenish itself. The staff who conducted billing are having professional development to understand the current rules,” Lancia said in an interview Tuesday.

The expenses will be paid from other funds, Lancia said. No student services will be cut.

Lancia also says deficit is a symptom of understaffing. The School Departments has three full-time financial administration employees and one part-time employee. One staff member was on medical leave for much of 2019, he said.

“We were unable to fill that position with a single person, patching together a lot of responsibilities and a lot of the delay in our billing happened at that time,” Lancia said.

The School Department, in response to the audit findings, drew up a list of goals to prevent future deficits, calling for an additional accountant, more meticulous recordkeeping by using individual notebooks for grants, manual calculation of workers compensation expenses to eliminate adjustments needed at the end of the year, and a hold on all discretionary funds.

The Medicaid account will eventually be replenished through yearly state reimbursements if the school stops spending from it, Lancia said. That could take up to five years.

City councilors and the mayor questioned whether Lancia’s plan was enough. Foley, and Councilors Rairdon, Chau, Elliot Storey, Michael Shaughnessy and David Morse said they didn’t think Lancia had provided a clear answer to the issue. Councilors Anna Turcotte and Claude Rwaganji were absent at the Monday meeting.

“I was saddened and disappointed,” said Council President Gary Rairdon. “Reviewing the response we received, I am disturbed. We need to work our way out of this rather than status quo it.”

“We really won’t know how this affects us until we get that bond rating in,” City Administrator Jere Bryant said. “The only way to possibly mitigate that is by showing we have a concrete plan.”

At-Large School Committee member Sue Salisbury said the school board and its finance committee would work on a “more concrete plan.”

“We’ve got our marching call now,” Salisbury said.

The finance committee was scheduled to meet Wednesday night, after the American Journal’s print deadline.

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