Up to 45 Grand School District employees — about 20 percent of the district's work force — may receive pink slips for Christmas because the district has a $2 million shortfall due to accounting errors.

"It's a nightmare," said Grand School Board President Kaaron Jorgen.

An audit released Monday by the State Office of Education stated there was no evidence of embezzlement. The school district, located in Moab, discovered an almost $2 million deficit in September after the death of its business administrator, Doug Cannon.

The report outlined nine recommendations for ensuring financial errors don't continue.

"The controls should be strengthened and their accounting procedures should be evaluated and updated," said Natalie Grange, auditor for the State Office of Education.

The district is to implement the checks and balances and report back to the State Office of Education in six months.

Before Cannon died due to illness, property tax revenues were placed in the wrong fund, making it seem as if the district had more money than it did. Budgets were created based on this misperception. Money — which the district didn't have — was spent, mainly on salaries, according to district officials.

The district's operational budget is 92 percent salary and benefits. This means layoffs are inevitable. The district's 215 employees have indicated they want to know their fate before the district's Christmas break, which begins Dec. 18.

Jorgen said the employees likely would have to leave the area to find new jobs. "It's a loss for the whole community," she said.

The Grand School Board plans to discuss the issue and possibly vote on layoffs in its Dec. 16 meeting.

The district is already doing a five-day furlough to help make ends meet for this school year. State education officials haven't decided yet whether to allow districts to implement furloughs for the 2010-11 school year and may make a decision after the legislative session.

District officials are also contemplating a four-day school week.

In October, Grand officials received permission from the State Board of Education to reallocate money to keep the district running. The district was able to shift money from its capital fund to its maintenance and operation fund. The district will eventually have to build its capital fund back up.

However, this still leaves the district $1.6 million short. About $900,000 of that deficit is due to statewide budget cuts for this school year — and the Legislature could dictate more cuts for the next school year.

In November, Grand County residents voted down a proposed leeway that would have raised $1.5 million for the district. The increase would have been a $76 annual tax hike on a $100,000 home.

A team of state education officials visited the district Sept. 28. Grange was there Oct. 14-16 gathering facts and data.

Grand District has approximately 1,500 students in two elementary schools, one junior high and one high school.

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