HAMBURG, Pa. -

Calling it "deeply flawed," the Hamburg Area School District responded Friday to the Pennsylvania auditor general's report on the district losing nearly $4.5 million in an interest rate swap.

The district, Auditor General Eugene DePasquale announced Tuesday, was hit with $2.38 million in termination fees to end a financial management "swap" after losing a net $2.05 million on the investment over six years.

"The auditor general calculated the $2.05 million loss by comparing the difference the district paid on the fixed rate portion of the swap with the variable rate portion the district received from the initiation of the swap in 2005 through its termination in 2011," the district's superintendent, Steven Keifer, said in a prepared statement.

"The district is unaware of any known financial accounting standard under which this constitutes a loss," Keifer continued. "The $2.05 million represented the districts' cost of interest on the debt to which the swap related under the Local Governmental Debt Act."

DePasquale called the district's financial agreement "risky" and said the lost money could have been spent on improving education in the Hamburg area without placing an additional burden on taxpayers.

"The idea that $4.4 million did not get into the classroom or caused the district to raise taxes is simply not accurate," Keifer said. "The district’s financial health from 2005 to present is strong." 

The district said it entered into the swap agreement as it undertook a $25 million project to construct the Tilden Elementary School.

You can read the district's response in its entirety here.