Minooka 201 Audit Report 2010 (or What Was All That Accounting Talk About?)

Those of you who attended the November 17, 2010 meeting of the Minooka CCSD 201 school board and stayed for the business portion of the meeting may have been wondering what the lengthy discussion between our auditor and myself was about (those of you who did not attend were saved the boredom of listening to a discussion of Statement of Financial Accounting Standards 5). Well, in accounting jargon, what we were talking about were "contingent liabilities." "Contingent liabilities" are potential obligations that a school district or other entity may be faced with having to pay in the future. They can arise in a variety of ways, but they are generally the result of losing a lawsuit or settling a lawsuit out of court. In the case of Minooka CCSD 201, the contingent liabilities at issue arose from appeals of property tax assessments on two separate pieces of property. Now contingent liabilities, according to financial accounting standards (SFAS 5) must be disclosed on an entity's financial statements when they are "probable" and the liability can be "reasonably estimated." This is what the discussion was about. Our audited financial statements for the fiscal year ended June 30, 2010 were subsequently approved at the December 1, 2010 special meeting. Click here for a link to the Minooka CCSD 201 audited financial statements for the fiscal year ended June 30, 2010. The contingent liability disclosure is on pages 34 and 35.

As you can see from the financial statements, we are dealing with very large expected liabilities in terms of our annual budget (in one case $5,700,000 and in the other case $2,800,000, for a total of $8,500,000). These numbers represent the "estimated" liability (a best guess given current information), so the ultimate liabilities could be greater or less than the "estimated" amounts. The good news is that we have some large fund balances. The bad news is that these liabilities are also large. In fact, if they had to be paid today at the "estimated" amounts, our fund balances would be reduced by roughly one third.

Those who read the article in the Morris Herald regarding our fund balances (the same article appeared in November 25, 2010 edition of the Southwest Herald) might want to consider that article in light of the financial statement disclosure regarding contingent liabilities. Once you subtract the amounts represented by the contingent liabilities, our fund balances would be one third less than that shown on our balance sheet and our budget.