WARREN – SAD 40 has been officially warned by the state Department of Education to get its financial act together or it will lose federal funds.

Last month, the board learned that SAD 40’s budget was overspent by $476,854 for that fiscal year that ran from July 1, 2001, through June 30, 2002.

Directors also discovered the district is in deeper financial trouble than the fiscal year 2002 shortfall.

SAD 40’s auditor, Ron Smith of RHR Smith & Co. of Buxton, recently stated that the district may be in the red by as much as $1 million, but that until a second audit is conducted and all records are reviewed, the precise figure is unknown.

For three years, Smith said his company informed the board it was not in compliance with its financial record keeping and in reconciling its accounts in a timely manner.

“Our records show that these findings have remained unresolved for three years since the audit of fiscal year 2000, when they were first reported,” Susan Griffin, supervisor of audit for the state Education Department, wrote in a letter Thursday to SAD 40 board Chairman Sam Pennington.

The possibility of the state taking this approach was raised at a board meeting early last week.

The state has given the district until March 10 to file a corrective plan with the name of a contact person responsible for the corrective action.

If the district disagrees with the audit findings or believes corrective action is not necessary, it still must file a statement to that effect by March 10.

Griffin also stated in her letter that “this letter also serves as notification that due to the ‘high risk’ status of the district in the management of federal education funds, if corrective action is not implemented by March 10, 2003, we will recommend to the commissioner that all federal grant payments be withheld beginning in April 2003.”

Pennington said in an e-mail Monday that the district now has its work cut out and not much time to accomplish what must be done.