We are often asked as claims auditors if a school can pay for community or PTA events, or certain items in honor of an employee or Board member. Our role is to ensure that schools protect the integrity of public funds. Overall, school law states that school districts cannot make gifts or charitable contributions of public funds. However, determining what is and isn’t a gift of public funds can vary among districts and causes additional scrutiny of the expense being reviewed.
Article 8, Section 1 of the New York State Constitution prohibits gift of public funds. According to Article 8, Section 1 of the New York State Constitution, “No county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private corporation or association, or private undertaking, or become directly or indirectly the owner of stock in, or bonds of, any private corporation or association”. There is some vagueness of the law that leaves room for interpretation by the schools, auditors, and the legal system. Basically though, neither public funds nor public property can be used for a private purpose or benefit. They must be used only for a public purpose that is within the authority of a school district.
Some situations where school districts are prohibited from using district funds include:
- Making a donation in memory of the parent of a school district employee;
- Paying more than an agreed upon obligation or contract as the funds expended are considered to be gifted (funds given must be for an agreed upon amount and for the public’s benefit in order to be permitted by the state);
- Purchasing sweaters or jackets for students who have participated in athletics activities (extra-classroom activity funds may be used for this purpose, if duly authorized, because they are not school district moneys);
- Purchasing graduation pins and flowers for students; and
- Paying for a dinner, picnic, or similar outing for employees and/or officers unless pursuant to a collective bargaining agreement.
School law does note some exceptions where school districts can make some purchases including:
- Purchasing a plaque of nominal value in recognition of service by unsalaried individuals;
- Paying only for the meals of board members at a dinner held to recognize service, provided the cost of the dinner is reasonable;
- Paying only for the meal of a retiring board member at a dinner held to honor the retiring board member; and
- Purchasing pins for employees in recognition of their years of service.
A good place to start to determine if the expenditure can be considered a gift of public funds is by confirming that the expense or use of school resources is within the district’s authority under Education Law, and confirming that the expense does not benefit a private entity. In many cases, the expense can be both a public and private benefit, but as long as the benefit is primarily for the public, then the expense may be considered permissible. It is not uncommon for a school district to be asked to donate something for charitable or related purposes, and generally we see requests to attend an event at a local community-based organization. Often these community organizations provide some benefit to the district, hence where some clarity is needed to determine if the expense is permissible. In order to pass the claims audit, the expense should be approved y the Board of Education and ideally, the District Attorney. In addition, the expense should benefit the District. Bottom line, make sure the expenditure is really serving the interests of the school and students. When in doubt, err on the side of caution, don’t commit to the expense, and consult legal counsel to ensure the expenditure is appropriate.
James Laino, CPA
James is a member of Cerini & Associates’ senior audit staff where he works with our education and school district clients. James conducts claims audits at various school districts on Long Island.