Little Falls board accepts audit showing fund shortfall, approves cost-cutting plan and nonrenewal notices for special-education staff

The Little Falls school board accepted a multi-year audit and approved a package of budget cuts and personnel notices at its March 18 meeting as district leaders warned of tightened finances.

Auditor Janelle Bitson of KDB told the board the firm issued an unmodified (clean) opinion on the district’s governmental activities and general fund but a qualified opinion on several other funds — including food service, community service, debt and capital projects — after a material bank-reconciliation adjustment could not be allocated to a specific fund. She also listed three internal-control findings: lack of segregation of accounting duties, weaknesses in the cash-reconciliation process and the need for material audit adjustments. “We did issue an unmodified or a clean opinion in relation to the governmental activities and the general fund financial statements,” Bitson said, and added the qualified opinion related to the remaining funds because of the size and unclear allocation of a reconciliation journal entry.

Superintendent Greg Johnson said the audit and recent financial trends left the district with a funding gap to address. The board had directed administration to bring recommendations to “rightsize” next year’s budget, he said, and presented a cost-containment plan with a target of $2 million in reductions across district administration, teaching and learning, human resources, nursing, transportation and activities. The plan includes not refilling some retirements, reassigning administrative FTEs, modest fee increases for activities, route adjustments in transportation and other program efficiencies. Johnson characterized the reductions as difficult but necessary, saying the board and administration are focused on retaining core services while balancing the budget.

Board members heard that 2023 showed an approximately $1.4 million decrease in fund balance versus an amended-budgeted decrease of about $900,000; the district’s unassigned fund balance fell to roughly 2.9% of expenditures, slightly below the board’s policy target of 5–7 percent. The auditor also noted the district had received three IRS fines for late payments; appeals were filed and later declined. The district said it has implemented changes in the business office to prevent recurrence.

In a series of roll-call votes the board approved the cost-containment package and a set of resolutions under Minnesota Statutes 122A.40, subdivision 5, to terminate or not renew the teaching contracts of seven Tier 1/2 special-education teachers at the close of the 2023–24 school year. The resolutions listed each teacher by name and were approved by roll call; board members noted the statutory process requires posting the positions and that the affected teachers may apply for the reposted openings.

Kelsey, who presented several resolutions, said the notices are a required legal step for Tier 1/2 teachers and that the district’s hope is the incumbents will reapply. “This process has to be followed … our hope is that these folks will apply for these jobs and we'll be able to have them back next year,” Kelsey said.

The board also approved a series of routine and related items: acceptance of multiple donations to the district, the 2024–25 administrative-structure plan that shifts some FTEs and posts two positions to support early-childhood services, the 2024–25 school calendar, non-certified substitute rates, a union agreement on teacher CDL usage (one abstention), and moving the last full day for pre-K through grade 5 to May 23, 2024, to aid grade-level banding moves.

The audit presentation underscored the district’s exposure in non-general funds and the operational changes staff and the board said they will pursue. Next steps spelled out by administration include implementing the approved cost-containment reductions, posting required vacancies, sending formal written notices to teachers as required by law, and continuing business-office process improvements identified during the audit.

Votes at a glance

- Acceptance of 2020–2023 audit: approved (motion and vote after auditor presentation).
- Cost containment plan (target ~$2 million): approved (roll-call/motion).
- Termination/nonrenewal resolutions for seven Tier 1/2 special-education teachers: approved (roll-call on each named resolution).
- Approval of donations listed in the consent agenda: approved by roll call.
- Administrative-structure changes for 2024–25: approved.
- 2024–25 school calendar: approved.
- Non-certified substitute rates for 2023–24: approved.
- Teachers-union agreement on CDL usage: approved (one abstention).
- Last day for pre-K–5 set to May 23, 2024: approved.

What to watch next

The district will implement the cost-containment reductions, post affected positions as required by state statute, and proceed with the business-office improvements the audit recommended. The board indicated it will monitor impacts on class sizes, student supports and special-education services as the staffing and program changes are implemented.

(Reporting notes: quotes and attributions are drawn directly from the March 18 public meeting transcript.)