LINN —  The Osage County R-II Board of Education approved a clean financial audit for the 2025-26 fiscal year during its Oct. 15 meeting, although district officials cautioned that declining operating reserves, uncertain state funding, and increasing transportation expenses will require continued financial restraint.

The audit, conducted by Gerding, Korte & Chitwood, P.C., resulted in an unmodified opinion, with no state findings, identified material weaknesses, or reportable instances of noncompliance. The auditors also reported no significant difficulties or disagreements with district administration.

The district ended the fiscal year with a combined operating fund balance of $2,242,048 in Funds 1 and 2, representing approximately 27.3% of annual operating expenditures. That was a decrease of $486,213 from the previous year and remained below the district’s long-term goal of maintaining operating reserves of at least 30%.

According to the audit summary, a 30% operating fund balance would have required approximately $2,463,790.

Total cash and investments across all district funds were $6,442,973, including approximately $2.91 million in capital projects funds and $1.29 million restricted for debt service. The district spent approximately $6.73 million on facilities acquisition and construction during the year.

Superintendent Bob James praised the district’s business office for improving the audit process, reducing the amount of time auditors spend examining records, and eliminating additional hourly charges.

James estimated the auditor’s base contract fee at $6,400 to $6,500. During his first year as superintendent, the district paid approximately $15,000 in additional charges. That amount dropped to approximately $2,000 the following year, and the district has paid only the base fee for the past two years.

He credited Chelsie Miller, Paula Caywood, and Rachel Jones in the business office for maintaining accurate records throughout the year, including reconciling small discrepancies and organizing the documentation auditors request.

James also described cash-handling procedures requiring two people to count and sign off on receipts, including money collected at athletic events.

“You know, unfortunately, when you do a great job, it doesn’t increase your fund balance,” James said. “That would be great if we got a percentage bonus, but it just means that our accounting practices are on board in our office.”

Miller explained that the auditors generally provide their documentation packet in July. Office personnel divide the assignments in early September, then organize the requested materials so auditors can retrieve them without repeatedly asking staff for assistance.

Board VP Alfred Brandt commended the employees for their year-round work. “You don’t prepare for an audit in three days. It’s a 12-month process, so I’d like to thank the office staff for getting that done,” he said.

Board President Mark Baker recalled that the district had previously struggled to complete its audit before the state deadline. The board also recognized a business office employee who recently earned a school business specialty certification.

While the audit reflected sound accounting practices, James expressed concern about the district’s financial outlook.

He said the district developed its current budget using a state funding figure of $6,700, although an earlier figure of $6,900 had been discussed. James reported hearing that the final amount could be $6,700 this year and said he would continue using a more conservative $6,400 figure for future projections.

The Missouri School Funding Modernization Task Force is scheduled to provide recommendations to the governor by Dec. 1. James said potential changes to the foundation formula remain a concern, particularly for small and rural districts.

He also reported that Gov. Mike Kehoe had canceled an Oct. 19 meeting concerning the public school budget, leaving districts without the anticipated funding update before the November election.

Transportation expenses present another challenge. Under the district’s transportation contract, the district pays additional fuel charges when prices exceed the average established in the agreement.

James’ written report listed approximately $9,200 in fuel charge-backs last year and anticipated nearly $31,000 this year. During the meeting, he said the charge could reach approximately $32,000 using comparable mileage from last year.

He estimated that the increase represents nearly half a percentage point of the district’s operating fund balance.

James said the district is limiting discretionary expenditures while protecting resources needed by students and employees. Where legally appropriate, some remaining construction-related work can be paid from bond proceeds rather than the operating budget.

One example is a water main issue beneath the flagpole, which James said can be addressed as part of the construction facilities work without placing the expense on the regular maintenance budget.

“We’re in a position not to thrive through this difficult budget climate, but we will survive this budget climate,” James said.

Despite those concerns, the district has implemented the certified staff salary increase approved by the board. Teachers’ September paychecks reflected a $40,000 base salary and a $3,000 increase throughout the certified salary schedule.

James thanked business office personnel for completing the payroll changes and cautioned that future statutory salary increases will create additional recurring expenses.

Construction and maintenance also remain on the district’s agenda. James reported that the high school addition, elementary improvements, athletic facilities, and parking infrastructure are in use, with attention now turning to unfinished project details and maintenance.

In his written report,James reported that the district is working with Navigate to ensure construction warranties remain valid, the current scope of work is completed, and payments are withheld for incomplete or unsatisfactory work.

The district is also planning to replace aging middle school HVAC equipment, with substantial work anticipated during summer 2027. James said the limited available space presents challenges in selecting equipment that will not interfere with maintenance access or existing fire suppression systems.

With winter approaching, the district is preparing its snow-removal procedures. James said a more expensive, noncorrosive pavement treatment will be used to protect new surfaces and their warranties.

He also described drainage cleanouts that may interfere with snowplowing until they are corrected. James said the responsible contractor will make those repairs at no additional cost to the district.

The district has purchased markers to help snow-removal crews identify parking wheel stops, and some areas may require smaller equipment and slower plowing.

The board approved payment of bills and transfers during the meeting. James reported that election expenses totaled approximately $9,000, exceeding an initial estimate of $4,000 to $6,000 but remaining well below the potential $30,000 cost previously discussed.

The board’s next regular meeting is scheduled for Nov. 19.