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Finance Committee 9/22/10

Black text is mostly objective, red text is mostly subjective in nature.

Every year at this time FinComm holds an organizational meeting.  They’re generally short and light on content.  This year was much more full as the first topic was the school budget overrun.  I arrived about 5 minutes late, and it had already started.  I noted that 4 school committee members were present, a few people I recognized, a few I didn’t, and even two people who appeared to be reporters.  Reporters at a FinComm meeting!  Wow!

Superintendent Dr. Kathie Bodie was talking, already started as I arrived.  She ran through some of the revenue target and expenditure misses that we were all mostly up to date on, including special ed.  She talked about the difficulties of knowing “where you are” in the budget because of journal entries out of grant funds into the general fund.  They started doing those in late May to understand where the budget was.

She talked about the position control and better accounting methods that are going into place.

She noted that some teachers get paid over just the school year, and some get paid the whole year, by their choice.  To pay that July and August salary, you roll money over from the ending fiscal year to the new year.  That rolled over money is rolled over and co-mingled with the new year (FY11 in this case) and summer school money.  She said that they “knew we were going to be short rolling over.”

They thought that with with belt tightening and projections improvements in FY11, that they could pay for that overage with fy11 money.  The auditor said they can’t do that mechanism, and  that leads to the need to the need for the special town meeting.  “We tried to solve the problem, the mechanism wasn’t acceptable, and so we need the special town meeting.”

School Committee Chair Curro spoke next and said “It was a big surprise to us as well as you.”  He said we worked on fy11, took eye off fy10.  He listed things being done including: process audit, organizational issues, system issues, self-reflection.  Recommendations by October 29

Finance Committee members then started asking questions.

The first question was about the system, and why it had worked in the past and broke this year.

I asked a series of pointy questions about when the problem was discovered. I wanted to know when it was clear there was a deficit, i.e. when they knew that they were using FY11 money to cover FY10.  That was never discussed during our budget meetings, so the timing is important.  Dr. Bodie said she knew that there was going to be “short rolling over” on June 11. But, that fact didn’t become public until August 26th.  I expressed frustration.  This is the part of the story that just can’t be explained away.  There is just no reasonable explanation for why this information took so long to be shared.  There are other parts of this problem, too, but few are as clear-cut.  On June 11th, she should have started a fire drill.  What she actually did was tell Al Tosti that things would be OK.

There was a question/discussion about how we actually know in September how many 12 months teachers there are, but we don’t encumber the money until June.  That has changed.  Discussion of how the practice is to roll over the balance at the end of the year- regardless if it is too much, or in this case too small. Too much is a “good” thing – gives you extra money for the coming year. That extra money is then your buffer.

There were a couple questions about if this Jobs Grant money could be legally used this way.

There were several points about how the FY11 budget is very tight. If we have another $400,000 special ed problem, we don’t have a way to cover it.   If there are shortages, we need to know.

There were discussions about special ed.

We talked about the need for better communications.

There were several questions about the FY10 budget.  There is no meaningful accounting yet of FY10 budget v. actual. Ruth Lewis is working on it. CFO is working on state numbers which is another slice on it. The CFO noted that the last fy10 budget v actual was in October, but discontinued because it did only 80% of the budget.  She went on to say  “and that was remiss. I should have put something in place and I didn’t.”  That was the first apology I’ve heard her say.  It’s a big step, to me.  Up until then, the dialog had all about what was hard and external factors that made it someone else’s fault.

There was a question about the school department’s FAQ that it released saying that the schools needed to “reduce their reliance on funding beyond the Town appropriation.”  We encouraged the school to get more grants, not less.  That FAQ was a head scratcher, for sure, but there were so many other things going wrong that I didn’t focus on it.  The FAQ essentially says, “stop doing grants, and get more money from taxpayers.”  It’s not a well-thought notion.

There were several more questions, but I’ve paraphrased them or linked them to ones above.  My bottom line is this: they knew they were in trouble in the fall of ’09, but didn’t have the wherewithal to track the problem and mitigate the problem.  Then, when the problem finally became more defined, they didn’t share the information in anything close to a timely fashion.  It’s an extremely disappointing performance from the leaders of our school department.

At that point the school people left (except Kathie Bodie, who stuck around) and most of the audience left, and the reporters left.  Which is kinda funny, because they walked out just before we talked about the pending $48 million deficit in the next 5 years, which really is much much worse.

Town Manager reviewed the pending 5-year outlook.  I took notes, but I’m too tired to copy them here.  See the FinComm booth on Saturday at Town Day, and we’ll give you a copy of the outlook.  I’m working the booth from 1:30 to 3.

We set the next meeting for November 1 and 3 in advance of the Special Town Meeting.

We re-elected chair Al Tosti,  vice-chairs Foskett, Fanning, and Jones, and secretary Peter Howard.

We have vacancies: pct 6, 11, 17.

We prepared for Town Day.

We talked briefly about Minuteman’s regional agreement.

We adjourned.


Comment from Denise Burns
Time: September 23, 2010, 12:06 pm

Hi Dan,

This problem is not unique or different than the one I brought to the full town BRTF in June of 08 triggering the selectman to request a slightly deeper audit of the books.

It is related to the accounting practices set up by Levenson that decreased the SC ability to provide oversight. The ability to circumvent those controls was always there for emergencies. But it didn’t become a practice until Levenson was Supt.

For the full time I served on the committee I had issues with the financial information coming to us. Johnson inherited this mess. I had strongly recommended to her that she have a full audit before taking over the books and getting them into shape. However, lots of the information is transfer of knowledge that do not believe Bodie had a grasp on. As a member of the LABBB board, she would have known how their credit/reimbursement works and would have known and should have shared that was not coming in this year. Johnson’s only error was that she didn’t fix it fast enough.

At town meeting last year when the altered audit report was presented to remove the flagging of internal control deficiencies – when asked by Ms. Mahon if she would be addressing those – Bodie first tried to say there was no deficiency and then tried to say that she didn’t have to address those. Watch the tape of the meetings. Both meetings where this was addressed. It wasn’t until the auditors stepped in that she was willing to address those.

There has to be a reason they worked so hard to try to be able to keep those internal controls from being fixed. Find that, and you find your problem. The language in the auditors report is very specific when it says that they didn’t find misappropriation from the LIMITED testing that they did. This was not a forensic audit.

Also in my experience, usually the offense isn’t nearly as bad as the cover up. It would be to the town’s advantage to truly get to the bottom of it.

I am not a finance person. But I recognize a dance when I see one. When Kirsi Ampe asked for a report back in May to show how we were spending to date and was told that it would take too much time to have by the next meeting…well…you know that can be pulled in a minute. The Spin of it is what would take too much time to do. And therein lies the problem.

Thanks for asking the tough questions last night.

Comment from Alan Jones
Time: September 23, 2010, 2:44 pm

Regarding FAQ #6, I believe that the CFO clarified her meaning. My understanding of the intent is that basic operating expenses should be paid for primarily through appropriations from taxpayer receipts, which should be more stable and reliable than outside funds. Grants and one-time funds should be used only for their designated purposes, and not be used to fund basic services. In particular, new staff funded by grants should be informed up front that their continued employment is contingent on renewal of the grants.

Comment from Denise Burns
Time: September 23, 2010, 3:32 pm

Yes! That is one of the issues I had addressed with Nate Alan. He was mixing it in together and I heard lots of concern from staff that our grants could be jeapordized because it could be construed as surplanting existing functions rather than supplementing (ie Title I requires that you provide additional services to the specific schools, not pay for existing services at the specific school)