Sloan School District says a mistake made 10 years ago on the reimbursement for a capital project led the district to set aside some state aid to pay off the debt.
Auditors with the state comptroller's office said the district's action was improper, and resulted in too much money in its fund balance.
The district's response to the audit of the period of July 1, 2015 through March 2 says the issue started when the district sold $19 million in bonds 11 years ago for a capital project that included renovations and additions.
The state Education Department determined it would reimburse the district for 15 years - which is the customary time period for renovation projects. But the district borrowed the money over 20 years, because a substantial part of the project included an addition to facilities.
That would leave the district paying the entire interest and principal, which amounts to an initial payment of more than $1 million, for the last five years of the 20-year bond.
The district discovered the situation when it was preparing for another project several years ago.
"Superintendent (Andrea L.) Galenski and business manager (Wayne) Dresher knew that this error made back in 2005-2006 would create devastating consequences on educational programming, staffing, the community and district taxpayers," the district wrote in its response to the audit.
The district contends it received excess state aid in the first 15 years. To avoid a $1 million hit on the budget, the district made a "prior period adjustment," setting aside the extra state aid it received so it can be used in the last five years as a reimbursement on the debt.
The state comptroller's audit calls moving the money from fund balance an "improper" adjustment. The move made it appear the the district's unrestricted fund balance was within the statutory limit, the audit said.
"Had fund balance been reported properly, it would have exceeded the statutory limit by $2.7 million or 8 percentage points that year," the audit states.
The audit also said not aligning the debt service payments to 15 years was an option, and not necessarily an error by the previous administration.
The district cited guidance by the Government Accounting Standards Board and the comptroller's office that it took the correct action, but the audit maintains the deferral of building aid was improper.