10/07/2013 – Financial Report

Dr. Michael Bell, Chief Financial Officer (CFO)
You have the August financial report of disbursements in front of you. As you can see, from last August the trends are in our favor. Receipts, month to date, we are $24,350,000 compare to expenditures for the month of August which are $22,784,000. So, we collected more than we spent which is a good sign for the remainder of the year. The year to date for FY ’14, we’ve collected $29.7 million and spent $33.7 million. Not an unusual gap at this point in the year. If you go to the right most column, you’ll see back in FY’13 in August a year ago, we collected $24.2 million and actually spent $38.5 million dollars. On a larger budget, we are collecting more and spending less in the first part of the year.

Second page, the pie chart. We have expended 4% of the budget and unexpended is 96% of the budget. The 3rd page is the trend analysis. We’ve added some information that was requested in terms of where we are with actual receipts compared to projections. Our over collections are ahead of where we projected them to be. Going forward we’ll try to do an analysis and project where we expect expenditures to be.

We have gone through various iterations of the vendor spend report. Based on specific questions we’ll continue to work on it. We want to satisfy everybody.

Campbell – On page 5 of the August Financial report. “Other Costs” on line 3 under “Instructional”. Why did we spend $800K this year compared to $129K last year?

Dr. Bell – In these “Other Costs” categories there’s a lot of variables. We’d have to take a look. I can’t answer that.

Campbell – $103K in legal fees vs $757K last August. Job well done. Great job controlling costs.

Jim McMahan – We are trying to be better prepared and get questions to you sooner. I have a question about the Vendor Spend Report. Please convert the pdf to excel for us. Can you explain the different codes for the different columns TYPE and STATUS

Dr. Bell – Column “TYPE” on the Vendor Spend report
BLKT – Blanket Purchase Order. It’s a larger amount and applies to a class of service. It’s not a P.O. for a particular company. A number of companies invoice off the same P.O. It’s a common practice in government.
DPAY – Direct Pay. That’s a purchase order for a particular company in their name.
NORM – Normal. It’s a normal sort of P.O. process.
TRVL – Travel payment

Jim McMahan – Can you explain the difference between “Direct Pay” and “Normal”?

Dr. Bell – No.

Jim McMahan – Can you explain the STATUS column?

Dr. Bell – POSTED – Posted would mean the invoice is received and in process
CLOSED – The invoice has been paid. That P.O. has been exhausted.
There are various categories for payments that are in process. This is for the year as of September 19th.

Jim McMahan – Please explain the process for receiving invoices. Looks like the invoice date is the date on the invoice and posted date is the date we posted it and a pay date.

Dr. Bell – When a vendor is engaged they are put into our vendor database and receive a vendor number. The staff should, when there is a legitimate contract, process a purchase order. That should go into the system and wait for the invoices to come in. When the invoices come in, the date of the invoice will logically be after the date of the purchase order. Sometimes the purchase order gets processed after the invoice arrives. The purchase order is processed. We train our people, but sometimes it just sits on their desk and the purchase order doesn’t get created before the invoice arrives.

Jim McMahan – How old are some of the invoices?

Dr. Bell – I don’t know. I’d have to take a look. As we were rolling the ’14 budget, people would tell me we have this stuff for ’13 and we need to pay it. Then we get into an accrual problem. A ’13 expense that comes in at the beginning of ’14, I can legitimately go back and pay it out of ’13 which is where it ought to be. 60 days ought to be the outside limit. I haven’t specifically looked at the problem.

Jim McMahan – The FYear column. If you were to pay something that was due last year and hit last year, it would be denoted in that column?

Dr. Bell – It should, but we are well into ’14 past 60 days, so this is all ’14.

Jim McMahan – Project/Dept?

Dr. Bell – The project department code within the division

Jim McMahan – Account?

Dr. Bell – That’s the account number DeKalb Schools assigns it

Jim McMahan – Is the FY column different than the FYear column

Dr. Bell – I don’t know. I’d have to check and see.

Marshall Orson – You talked about reconciliation back to the prior fiscal year. You’re saying 60 days that would take us through the end of August for reconciling back to the prior fiscal year.

Dr. Bell – Certainly not in all cases. A lot of times things will be encumbered. That’s this appropriations payable number that we talked about during the budget process … about $7 million dollars that came in about $5.4. That’s a legitimate accounting impact on the prior year. When we display the budget, we estimate that number.

Marshall Orson – At what point does this vendor spend report hit the revenue and expense financial report? The legal expenses are an interesting example. We showed no expenses last month and a de minimis amount, but when you look at the vendor spend report, there are significant expenses in the legal area.

Dr. Bell – The financial report is on a modified accrual basis. This spend report is really on a cash basis. You’re raising a good point about the legal expenses.

Marshall Orson – Let’s look at the Sutherland lines in the Vendor Spend report. The 4th entry is for $158K. It shows an invoice date of 1/25/2013. Why is the entry date of 9/9/2013?

Dr. Bell – I would have to say, and I don’t know if Mr. Ramsey is in the room, there was a lot of work being done on processing legal fees. And there were a lot of questions about it. I think possibly during this process, there were some delays in moving forward.

Senator Ron Ramsey – We do process the billings that come in on a regular basis. From time to time we question some of the things in the billings before they are sent on to finance.

Marshall Orson – 8 months?

Ramsey – I can’t speak to the specifics of this item.

Marshall Orson – The 2nd invoice is $95K. It has an invoice date of 6/25/2013 and an entry date of 7/8/2013, but it looks like it has been posted against the 2014 fiscal year. That seems inconsistent with your 60 day reconciliation period.

Dr. Bell – What you’re saying does appear to be correct. But, if this stuff was moved forward after we closed the books completely on ’13, then there’s no other place to pay it accept for out of ’14.

Marshall Orson – But, the check date is 7/11/13

Dr. Bell – I’d have to take a look at that one.

Marshall Orson – I don’t want to belabor the point, but we get the feeling that we have some systems issues. In our ability to ensure the public that we are being honest and forthright in our numbers which has been an area of great concern, we not only have to have the rules of the road. I accept the 60 day window for reconciling the previous fiscal year, but then we have to actually abide by that. We’ve got to address these system issues.

Superintendent
As it relates to legal fees, I found that this particular component of our operation was somewhat out of control, so I implemented a different policy where by the Superintendent must sign off on any payment to any attorney. Consequently, I personally now look at all the invoices along with Mr. Ramsey. That has slowed the process. But, at the same time, it has resulted I believe in significant savings for the district …. I believe the process we put in place has created much more consistency as it exists now. One of the proposals that we’re going to look at today is focused on helping us develop the kind of systems that you suggest we need, and I agree with, going forward.

We are into the 8th month of the administration and I believe the next step is to put in those systems and metrics that we need so the board and members of the public can look at a much more transparent organization….

Marshall Orson
I appreciate that we need the metrics about the appropriateness of spending, but this is really a processing problem. It’s not a governance problem. If it went through all of your checks and balances … this is an invoice approved and paid on July 11th. Based on Dr. Bell’s representation, it should have been posted against the 2013 fiscal year …

Superintendent
I think having transparent and effective systems is a part of governance. Regarding attorney’s fees, I made a battlefield decision that we were going to shut down at least what I saw was unfettered spending on attorney’s fees. It has resulted in significant savings … thanks to this board, what will be major reductions in attorney’s fees this year. Once we can put some additional systems and processes in place, and the training of the people who administer the processes, we will have even more savings in the current fiscal year than we are enjoying right now.

Thad Mayfield
Thank you for the responses to some of my questions I sent to you earlier. This relates to the difference in parent spend patterns between 2013 and ’14 for the instructional piece … the disbursements. One of the responses, to explain the difference, has to do with professional and technical services provided to Globe Charter School to the tune of roughly $632K.

What would drive those expenses to be measured against the instructional budget as opposed to the charter school budget.

Dr. Bell – The $632K in my answer in my email doesn’t refer to Globe Charter School. There’s professional and technical services for part of that number, but the Globe Charter School is the payments to Globe for $371K.

Thad Mayfield – So, why is that payment to Globe in instructional?

Dr. Bell – Globe is our startup this year. We are not providing instructional services for them. It was their July and August payment. It may not be in the correct category on the report. I’d have to check.

Thad Mayfield – The justifications for budget adjustments. The response was there were not categorical justifications for budget adjustments. This question may be better suited for the Superintendent’s office. Are there categorical requirements that would enable a department to adjust their budget and it not be clear.

Dr. Bell
There aren’t any formal budget justifications for budget adjustments. There is a rule that we allow budget adjustments exclusive of salary and benefits up to 10% to be modified within the functional area. The budget unit managers have discretion to have budget adjustments when it doesn’t violate that rule.

Thad Mayfield
Maybe we could have a workshop to teach us about the financial reports and the vendor spend reports. As well as how we capture our assets, so we a have a full understanding of the transactions that are taking place.

Superintendent
I think the chairman, several months ago, developed a strategy whereby workshops are setup from time to time so interested board members who desire to dig deeper would have the opportunity to do so. I’d be happy to talk to the managers involved to setup those workshops.

Jim McMahan
Would it be possible to add monthly projections for revenues and expenses. Essentially have a monthly variance report. I’d like to see what we are expecting to spend per month going forward. In addition to that, what we expect our cash balances to be.

Dr. Bell
We’ll look at structuring a variance report. Keep in mind that various individuals can spend when they want to spend, that’s why it’s difficult to straight line an 8.33. In terms of actual disbursements on a cash basis, we’re at 4-5%. On an encumbrance basis, when you take the encumbrance accounting system, we’re about 24-25-26% encumbered. That would be that 8.33 times July, August and September.

You want a summary page, variance report of where we thought we would be with revenue and this is where we are. Where we thought we would be with expenses, this is where we are. OK. We’ll take a look at that.