01/12/2015 – Financial Report

November 2014 Financial Report

01/12/2015 Work Session

.pdf link icon June 2014 Monthly Financial Report
08/04/2014 – June Financial Report (video and transcript)

Preparatory Q&A with DeKalb Schools

Question:What were the actual and budgeted LEGAL FEES for FY14?
Answer:  The Budgeted Legal Fees for FY2014 were $4,850,000. The actual
expenditures against this line item, net of accruals, was $5,294,405.

Dr. Michael Bell – Chief Financial Officer

This report is for November 2014 of FY’15

Page 1
We are outpacing our projected revenue and under expending our projected expected expenditures. As of the end of Nov ’14 we have collected a total from local and state sources $493 million – $38 million over projected.  Expenditures totaled $265 million – $3 million under projected.

FY’15 budget grew about 4% over FY’14.

Local sources are driving the revenues up.  Ad valorem taxes will slow down the rest of the year.  We will spend at a rate higher than we receive for the rest of the fiscal year.

[00:09:55]

Jim McMahan – Shouldn’t board travel from last June be a part of FY’14?

Bell – There was a latency of processing the paperwork.  If we get it so many months into the year, we can’t accrue it more than 60 days back into FY’14.

McMahan – so if the board can turn in their expenses in a timely fashion, then they can be put in the correct year.

Bell – Yes, if they get turned in on time and processed and sent to purchasing on time, then yes.

Stan Jester – Are the receipts accrued?

Bell – This report is on a modified accrual basis.  When I got here, all revenue received after July 1st would be put against the next year.  It was however prior year taxes.  So, Yes, the revenue is on a modified accrual basis.

Jester – The $493 million total receipts, is that accrued or collected?

Bell – There is no future accrual in that number.  That position through November is collected.

Jester – To date all that money has been collected and is in the bank.

Bell – Yes, minus expenses

Jester – The vendor spend report.  Is that reported on a cash basis?

Bell – There is an accrual process that takes place in the vendor spends report.  If we are in July and the invoice is submitted with a June date we can take that expense and accrue it back to the prior year.

Jester – Can we accrue them without the invoice for example electricity or legal fees?

Bell – We budget electrical expenses at about $15 million a year.  I haven’t looked at the Georgia Power section.  When we get the bill from Georgia Power, there’s a service date on it – we book it against that date.

For example, in December we didn’t get the Georgia Power bill in time, so in December we’ll have two months.  We work from the service bill.  I wouldn’t want to accrue $15 million in the vendor spend report.

Jester – Wouldn’t it have been accrued if we use the electricity and pretty much know what it is, isn’t it accrued by the end of the month?  If we’re doing it by invoice, that sounds a lot like cash.

Bell – We pay the Georgia Power bill when we get the invoice.  It’s not a pure accrual in every case.  This is one of the cases … we pay the bill when we get it.

We could accrue it, but then we would have to adjust for any amount you’re off.

Jester – In the monthly financial report, the electricity bill is on page 7.  Where did we get that $12K?

Bell – There is some slippage in the billing process.  I’m not sure what exactly the $12K is.

Jester – The way I read it, we accrued $12K in November.

Bell – I don’t think that’s an accrual.

Jester – I noticed there was no check to Georgia Power for November.

Bell – That makes sense.

Jester – If we didn’t pay it and it didn’t show up in the November report, that sounds a lot like cash.

Bell – I’d have to check into it.  The vendor spend report is also on a modified accrual basis.  Some people have tried to reconcile the vendor spend report with the financial report … that is impossible.

Some of the expenses in the monthly financial report were payments to vendors.  It doesn’t cross one to one.

Jester – In my time looking at the expenditure categories, there’s one thing I’m concerned about.  For example in FY’14 a number of budget categories were under budget all year.  Then when the actuals come back, they’re over budget.

For example, the LEGAL FEES, were budgeted for $4.8 million.  Every month it was reported under budget.  The end of year report showed LEGAL FEES 7% under budget.  If you recall, what was the actual for LEGAL FEES?

Bell – Over $5 million.

Jester – Right.  It was over budget.  Do you know if that was ever reported to the board or public that we were actually over budget on LEGAL FEES?

Bell – There was a transition from one law firm to another.  The amount that stepped us up was settling out expenses with some of those law firms.  We put together a final end of year document.  It’s from that final end of year document that $5+ million appears.

Keep in mind there is a LEGAL FEES account and LEGAL SETTLEMENTS.

Michael Thurmond – One of the directives I received from the board was to address a decade long problem of over spending on LEGAL FEES.  Some of the problems were WORKERS COMP and some were legal cases that went on and on and were not resolved.

Bell – The point I was trying to make is that there is a flow over adjustment when closing out those situations.

Jester – Understandable.  That being said, was the fact that we were over on LEGAL FEES in FY’14 publicly brought before the board?

Bell – When that final report is put in front of the board, it would have been stated.  It will be contained in the final audit.

Jester – Has that audit been sent to the DOE?

Bell – No.  It’s still in process with the DOE.  They haven’t started it yet.  Also, remember we substantially under spent the overall budget.  We have a $40 million dollar fund balance because we under expended the budget and over collected the revenue.

Thurmond – Part of that fund balance was a result of the Heery case.

Jester – So, are we comfortable with the actuals across the board on the FY’14 report?

Bell – We had a bump up in December in FY’15

Jester – Something for the board to consider, maybe we can get the actuals sooner than later.  I would like to see them.

One more question, when the LEGAL FEES go over budget, what appropriated funds do you use to pay for that overage?

Bell – Sometimes it’s settlements.  Traditionally, the massive overages came out of the fund balance.  As long as we stay under our budget, we don’t have to touch the fund balance.

Jester – Would you say the budget is not really fungible?  We can only really spend what we appropriate.

Bell – That’s generally an accurate statement with the exception of authorizations that take place during the year.  One of the things we did last year that we’ve never done is a mid year adjustment.  We are working on bringing a similar type document to the February meeting for about 1.4% in adjustments.

The superintendent has emergency funds that give him some flexibility.

Jester – The sooner we get these things before the board, the sooner we can discuss them the better.

Along those lines, the Superintendent mentioned last month he was going to bring before the board $2.5 million to hire government affairs and legal expertise.  Where are we on that?

Thurmond – With the direction from the chairman, he’s asked me to develop a comprehensive plan in response to the proposed legislation that is being proposed to annex a portion of our county into the city of Atlanta.

I want to emphasize something.  One of the great successes of this school district has been the fact that we got control of runaway legal fees.  For 10 years we watched millions of dollars drained from the budget by legal fees.

The recommendation that I will make is in response to the annexation where DeKalb will have to transfer over $400 million in property to the Atlanta Public Schools that has been paid for by DeKalb tax payers.  My responsibility based on what the chair has asked is develop a strategy and then report back to the board.

Jester – A number of people might debate some of those numbers, but this isn’t the right forum for that.  Would you say we have reserved from the fund balance that $2.5 million as we speak?

Bell – No.

Jester – So, it’s not reserved yet?

Bell – It’s assigned.  If you check the fund balance policies of the school district, there are different statuses for different components of the fund balance.  What Mr. Thurmond did, at the request of the chairman, was direct me to assign an amount of money inside that $40 million.  The superintendent has the authority under his discretion to assign components of the fund balance.

That’s been done and you’ll see that in next month’s report.  It will be on the balance sheet.  If and when that money needs to be spent, then it will come before the board to be budgeted.  It’s currently not in an expenditure posture.

Jester – At the last board meeting, the Superintendent said he was going to bring this before the board to reserve it, not that you have to.  Are you actually going to bring this before the board?

Thurmond – No.  At the direction of the chair, the chair asked me to develop that comprehensive strategy to respond to this threat of the integrity and sustainability of DeKalb County.

Jester – So, you’re not going to bring this before the board like you mentioned last month.

Thurmond – No.  The chair has directed me to develop that strategy.

Jester – If this were to come before the board, what budget account would this fall under?

Bell – I couldn’t say.

Marshall Orson – You’ve made a couple references to the modified accrual basis.  One of areas of discomfort is the randomness of what falls into the accrual basis and what falls into the cash basis.  My sense is that the state has asked that all systems be on an accrual basis.  Do we have time table and enough resources to get to that?  How can we get to a place where we end that confusion?

Bell – The twists in between is an accrual basis is the modified accrual basis.  Local governments all over the state and county operate primarily on a modified accrual basis.  It is difficult here because we need a new software system.  It is currently labor intensive and dated system.  In order to get better real time reporting, we’re probably going to need a new FMIS.  Mr. Brantley and I have spoken about that and it’s not going to be cheap.  I’ve done 4 in my career and don’t relish doing another one.

Our modified accrual is not a violation of any standard.  It’s acceptable for all of our debt representations.

Orson – I understand that, when your close is on your books.  I’ve been in the corporate world.  You obviously can’t keep your books open forever.

This seems like a systems limitation.  If we need to make then investment, then let’s make it.  We need accurate information.

To Mr. Jester’s point, in every budget there are high and low variances.  To your point, what’s the bottom line figure.  I want to throw out the idea, that at the end of the year, we have a highlights report.  Something to share which categories we were over and which we were under.  The overall story that we were $9 million to the good is a good story, but we will constantly be inundated with questions unless we share this data in an easy to digest form.

Thurmond – That’s an excellent idea and anything to increase transparency the administration supports.  This is the ultimate in a good news story.