Illinois Supreme Court Upholds Dismissal of Taxpayers’ Lawsuit Alleging Improper Transfer from working Cash Fund

By March 13, 2015 News No Comments

The Illinois Supreme Court recently upheld the dismissal of an action challenging the spending of working cash fund moneys filed by five taxpayers on behalf of Lemont-Bromberek Combined School District 113A.

In Lutkauskas v. Ricker, 2015 IL 117090, the taxpayers brought suit against two district employees, seven school board members, the district’s accounting firm, and the district’s surety. The taxpayers claimed that the district employees and board members violated Section 20-5 of the School Code (105 ILCS 5/20-5) by spending money from the district’s working cash fund without a board resolution approving the transfer of funds from the working cash fund. The plaintiffs sought civil and criminal penalties provided for in Section 20-6 of the School Code, including forfeiture of office and payment of a fine.

Section 20-5 of the School Code requires a school board to pass a resolution directing each temporary transfer from the working cash fund. While the plaintiffs alleged that the defendants transferred funds from the working cash fund without a board resolution, they did not allege that the transferred money had been stolen or converted; instead, the transferred funds were spent on legitimate school district expenses.

The Supreme Court affirmed the appellate court’s dismissal because the plaintiffs did not allege that the transferred money was used for an improper purpose. The Court determined that, pursuant to Section 20-6 of the School Code, an “unlawful diversion” of funds requires the funds to be used for a purpose not permitted by statute. In this case, the district used the money from the working cash fund for school purposes.

As a result, the plaintiffs lacked “standing” to maintain the action because they could not assert that the failure to pass a board resolution resulted in an actual loss to the district.

Although the outcome was favorable for school districts, the case serves as a reminder that each working cash fund transfer must be properly authorized by school board resolution.

Contact Heather Brickman or Steven Richart with your school finance inquiries.

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