NUTLEY, NJ - Millions of dollars in under budgeted expenses, overstated revenue projections, and financial warnings that failed to reach the Board of Education contributed to the Nutley Public School District's financial crisis, which ultimately required a $9 million advance in state aid, according to findings presented during an independent forensic audit.
Richard J. Corcoran III, of PKF O'Connor Davies Advisory LLC, presented the findings during the Oct. 26 Board of Education meeting, detailing how financial problems during the 2022-23 and 2023-24 school years depleted district reserves and left the district unable to meet its financial obligations.
The investigation, covering July 1, 2021, through June 30, 2024, found that the district spent approximately $6.77 million more than it collected during 2022-23, using its accumulated fund balance to cover the difference.
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The following year, an additional $7.8 million budget shortfall left the district dependent on state assistance.
Of the $9 million received, approximately $7.8 million was needed for operating expenses, while the remaining $1.2 million provided a financial cushion.
"The money didn't disappear or go anywhere," Corcoran said. "You didn't budget enough for it, but you could pay for it because you had savings."
The investigation found that the money was spent on district operations, including employee health benefits, student transportation, custodial services, and special education tuition.
Millions in Underbudgeted Expenses and Overstated Revenue
Among the largest discrepancies was the district's employee health insurance budget. For 2023-24, Nutley budgeted approximately $11.7 million but spent $14.7 million, creating a $3 million shortfall.
Corcoran said the district's insurance broker had provided the information needed for accurate financial projections, but it was not properly communicated beyond the business office.
"There's no reason that your budget should have been off by this much with your health insurance," Corcoran said.
Other significant discrepancies included approximately $958,000 in under budgeted out-of-district special education tuition, $548,000 in student transportation, and $475,000 in custodial services.
The audit also identified overstated miscellaneous revenue, particularly anticipated rental and royalty income that never materialized.
In 2021-22, the district budgeted approximately $200,000 in miscellaneous revenue but collected only about $2,000. The following year, it budgeted approximately $600,000 but collected just $14,000.
Rather than correcting those projections, the district continued increasing anticipated revenue during the 2023-24 budget cycle.
Corcoran said the discrepancies were less noticeable in earlier years because additional state and federal COVID-related funding helped offset shortfalls.
Financial Warnings and Missing Records
The investigation found that financial concerns identified by the district's former auditors were not adequately communicated to the Board of Education.
Corcoran said investigators found communications concerning the 2022-23 deficit as early as June 2023, after the district's 2023-24 budget had already been adopted in May.
Although records referenced finance committee meetings during June, July, and August, investigators could not determine which members attended or what information was shared because documentation was incomplete.
According to the audit, critical financial information remained largely within the former business administrator's office, limiting the board's understanding of the district's financial condition.
Investigators attempted to interview former Business Administrator David DiPisa but were unsuccessful. Corcoran said the firm spoke briefly with his legal counsel but did not obtain an interview.
Corcoran explained that the forensic auditors had no subpoena power and relied on voluntary interviews and available financial records. Some vendors also declined to participate, limiting investigators' ability to examine certain transactions.
The investigation was further complicated by a previous flood that damaged financial records.
"There was a flood at some point and some of the files were damaged," Corcoran said.
He explained that some documents developed mold and had to be destroyed, making it difficult to determine whether investigators had access to every relevant record.
During a later public comment period, resident Chris Corino questioned where the flooding occurred and whether the damaged documents had been backed up.
District officials explained that paper records had been stored in the basement of the middle school, where water problems occurred during power outages and sump pump failures.
Business Administrator Michael DeVita confirmed that the district's electronic accounting system, including vendor information and invoice records, remained backed up. Officials said records had since been relocated and additional safeguards implemented.
A verified source also told TAPinto Nutley that water damage at the Board of Education office "produced moldy files."
Audit Identifies Purchasing and Procurement Problems
The forensic investigation also examined vendor contracts, purchasing procedures, and whether services billed to the district were actually performed.
Corcoran identified deficiencies involving competitive bidding, cooperative purchasing agreements, and state contract procedures.
"This is a perfect example where things were not being done correctly as far as the procurement process," Corcoran said.
Investigators confirmed that the work examined had generally been completed, including projects at district facilities. However, they could not determine whether vendors had overcharged the district because they lacked access to internal vendor financial records.
The audit also identified unusual billing practices, including supplies ordered on a per-student basis rather than through an inventory system tracking actual needs.
State Monitor Describes Weak Financial Controls
Following the audit presentation, outlined additional problems involving the district's former financial practices.
Makus said the accounting system previously allowed employees to override account restrictions, permitting purchases even when sufficient funds were unavailable.
"And I'm going to say it — it was like the wild west," Makus said.
She also revealed that board members had received shortened financial reports rather than the complete eight-page board secretary's report, limiting their ability to identify budget concerns.
Makus said those practices have since been corrected, although she could not determine when they began or who initially authorized them.
District Faced Cash Shortage, Nearly $11.3 Million in Cuts
DiPisa was placed on leave March 14, 2024, and resigned June 29, 2024, TAPinto Nutley previously reported.
As the , the district sought emergency state assistance, developed a corrective action plan, and worked to address outstanding obligations.
Makus said the district received its $9 million state aid advance in June 2024, when it lacked sufficient funds to cover payroll and outstanding bills. Vendor checks had been set aside because money was unavailable.
The district subsequently cut approximately $6.7 million from its 2024-25 budget, affecting about 30 positions.
Another $4.61 million in reductions followed in 2025-26 through staffing changes, attrition, and contract reductions.
Combined, the district has eliminated approximately $11.3 million in spending and about 42 positions since the crisis.
The $9 million state aid advance must also be repaid. Corcoran said the interest-free advance is scheduled for repayment at approximately $1 million annually over nine years, following a one-year deferral approved by the state.
Public Questions Accountability and Potential Recovery
During public comment, Nutley resident Nick Frey questioned whether earlier financial warnings, previous audit findings, and temporary COVID funding should have alerted officials to the district's growing financial problems.
Frey also asked about DiPisa's previous tenure in Lyndhurst, where Makus confirmed a similar deficit had occurred, although she could not determine whether the same financial practices were involved.
Questions were also raised about possible consequences for DiPisa. Makus said concerns had previously been referred to state education officials for consideration of potential licensing action, but no additional action was announced.
Resident Donna Ferraro questioned whether the district could recover any financial losses through its errors and omissions insurance policy rather than leaving taxpayers responsible for the consequences.
The district's attorney confirmed that an insurance policy existed but said it was unclear whether the budgetary shortfall would qualify for reimbursement. Any potential claim would require establishing an insurable loss and determining damages.
Financial Improvements and Remaining Recommendations
Since the crisis, Nutley has hired Business Administrator Michael DeVita, strengthened purchasing procedures, implemented more conservative revenue projections, and expanded financial reporting to the board.
Makus said the district ended 2024-25 with approximately $2.67 million in unrestricted fund balance, $1.8 million in capital reserves, and $850,000 in maintenance reserves.
The annual audit contained no repeat findings, although six additional recommendations were issued to strengthen procedures. Corcoran said most corrective actions have been implemented, while some remain pending because of ongoing collective bargaining negotiations.
Makus also reported that the district's 2025-26 annual audit was still being finalized, but preliminary figures indicated another positive year-end balance. Two additional recommendations had already been addressed, she said.
Makus said her priority is ensuring the district maintains stronger financial practices after state oversight ends.
"My feeling is that when I leave Nutley that I want the practices and procedures that are in place and that people understand so what transpired 3 years ago does not transpire again, and that truly is my goal," Makus said.
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A Recap of the Nutley Public School's $7.8 Million Financial Crisis, First Reported in 2024
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