Franklin concerned about FCPS cashflow issue
Published 12:23 pm Wednesday, October 27, 2021
Franklin City Manager Amanda C. Jarratt briefed the City Council at its Oct. 25 meeting about an issue with the cashflow related to Franklin City Public Schools that led to the school division having a negative allocated cash balance as of Oct. 25.
Jarratt explained that a gap between the time that federal grant funds have been spent by the school system and the time the school system is reimbursed has led to that negative allocated cash balance. She said that what has contributed to this funding gap has been delays in the school system filing claims for reimbursement, sometimes filing in excess of 30 days after the money was spent.
“Why is there this lengthy delay from the time the money is being sent and the reimbursement is being asked for?” Jarratt said when outlining the questions city staff has for the school system. “That’s a question that we can’t answer.”
She noted that the situation has required the city to front cash to the school system to help sustain its cash balance while the system awaits reimbursement from the federal government.
Jarratt opened her presentation on the cashflow issue by going through a timeline of events because the issue has such a serious impact on the city’s finances, she said.
Two weeks prior, she learned of the cashflow problem and checked to see if a called meeting was legally required. It was not, but she said the mayor, vice mayor and herself met on the phone with the chair and vice chair of the Franklin City School Board, FCPS Assistant Superintendent Jeffrey Ryder, who manages the school division’s finance department and federal programs, and Superintendent Dr. Tamara Sterling.
For clarity during her presentation to the council, Jarratt reminded members how the city is the fiscal agent for a number of entities, including FCPS.
“So we share a joint bank account, but there’s certain funds that are allocated for their use and for their management over time,” she said. “So we were notified that week of Oct. 11 that the cash balance at the school system was down to $11,000, and we knew based on just general practice that payroll was happening.
“The finance department emailed Mr. Ryder and notified him that their allocated balance was down to $11,182.27 and that on Oct. 15, payroll and accounts payable, which totaled $470,000, was going to be disbursed,” Jarratt continued. “This brought them into a negative balance, which means the City of Franklin, out of our general fund, was fronting them money, and it’s ebbed and flowed, but at that point, a negative $28,310.
“So when we were down to that $11,000 amount and knew that payroll and other disbursements had to be made, that’s when we called the meeting so we could express our disappointment, our shock and the need to communicate effectively to work through these issues,” she said.
After checking with the city’s finance department the morning of Oct. 25, Jarratt said FCPS’ allocated balance was still a negative balance of $10,150.67.
“We’re now tracking deposits and withdrawals, and we’ve asked them to hold on all payments that don’t have to be made in this moment to allow this situation to rectify itself,” she said.
On Oct. 22, the school division received a deposit of $186,000 of CARES-related revenue, Jarratt said, but she added that this was actually the first time in this fiscal year that the city had received any CARES-related reimbursement from the school system.
“So what the school system tells us and what we’ve observed from our research is that it’s the grants, the federal funds, that are causing this cashflow management issue,” she said.
Jarratt then made a point to dispel a certain characterization of the school’s low and negative cash balance.
“I believe it was referenced previously and I’ve just heard it said, ‘This is normal,’ ‘This happens,’ and that is not the case,” she said in disagreement with those assessments. “We did a two-year cashflow analysis, which I can provide to you as an attachment, but prior to this, the lowest the cashflow had ever gotten on the school system side was $600,000, so this is not normal, and it does put the city in a position where we have to ask questions and navigate the situation.”
She noted that the city understands and is used to grant programs.
“Right now, every school system and every locality in the county is dealing with federal and state grant programs that sometimes have to operate on a reimbursement basis,” she said. “And again, we fully are sympathetic to that and understand it. However, the timing of the claims is where we have grave concern because of the negative impact to the city’s cash standing.”
Repeating what had been said at a previous meeting, Jarratt stated that typically when a group files for a reimbursement for a federal grant, it can take from eight to 30 days before the money is reimbursed, highlighting the importance of filing the claim for reimbursement in a timely manner.
“It’s not our job to manage the day-to-day workings of the school system,” she said. “That’s the school board, the superintendent and their financial staff’s responsibility. The vice mayor and mayor can attest to the fact that I shared my displeasure of the requirements that are being put on our finance staff to navigate this issue and other assistance with the audit, which I’ll get to later. But our finance staff is obligated to the City of Franklin and managing our issues, and to imply in any way that it’s their obligation to also go behind another entity is quite unfair, it’s not standard practice, and we don’t have access to their information.
“Our practice is that when we have a grant that’s reimbursable, as soon as the money’s spent, you file for that reimbursement,” she added. “Waiting in excess of 30, 60 days creates this cashflow issue.”
A slide in her visual presentation listed some information that city staff highlighted as items for the school system to address.
The slide stated that school staff had said in September that “the total dollar value of the pending claims were not significant…”
The presentation went on to reference a table on a previous slide, stating it showed that on Sept. 30, the city should have received $188,810 in CARES-related cash receipts based on the 8-to-30-day reimbursement timetable. “This is significant to the city,” the presentation added.
“The city finance department has no responsibility for the internal control of FCPS Finance,” the presentation continued. “It does not see when federal, state or local revenue claims/fees of any source are billed for any of the funds of FCPS. Request was made on Oct. 22 for the dates the claims were filed for all the disbursements shown on the previous table. It was denied.
“On Friday, Oct. 22, the city received a request from FCPS for a CARES-related cash disbursement of $348,936.22. At this point, the city does not know when the clock starts on the ‘8-to-30-day’ ‘funding gap.’”
The last bullet point on that slide stated, “In addition, the city expected to receive the school audit on Sept. 30, but (it was) not received. There were numerous findings related to internal controls with the School Activity Funds which was previously sent to City Council.”
Jarratt said she is hopeful she and her staff can work through the obstacles that have arisen and resolve the cashflow issue together with school system leaders.
“We have set an in-person meeting with the superintendent and myself and our finance staff to try to work on policies that we can put into place to prevent this sort of thing from happening again,” she said.
Ward 4 Councilman Dr. Linwood Johnson said, “From information that we’ve heard, we definitely need to have a meeting with the school board, because basically, the City Council appoints the school board, the school board works with the school division. We have to make sure that nothing like this happens again. I’m an advocate for the school, and I want to make sure our students, teachers, staff, everyone is taken care of. This is something that we need to embrace immediately … We can’t exist like this because the city has obligations as well. We can’t keep fronting the school. The city will go broke.”
Jarratt then made a point to distinguish this situation from a past financial issue the school system had.
“We’re very concerned about where we’re at, but this is not the situation where you had several years ago where they overspent without the reimbursement coming in,” she said. “They have the reimbursement coming in, it’s just the timeliness of it which has put the city into a deficit from their allocated balance, so I do want to make sure that that is clear for the public.”
Mayor Frank M. Rabil was in agreement with Johnson.
“I think we definitely have to have a joint meeting to make sure everybody understands the finances,” he said. “(The school system is) providing us a list of reimbursements that are coming in so that we can look at that.”
Jarratt added, “We’re monitoring the deposits and the cash balance every day, and we’re sending an email to their staff, and we requested a list of their large expenditures they’re going to have, and I received that Friday. So we’ll take a look at that tomorrow and encourage timely requests for reimbursement once the payments are made.”
Rabil said, “I think that both our finance groups and their finance groups are working together to get this resolved.
“Trying to,” Jarratt said.