HUNTSVILLE, Ala. – Huntsville City Schools has a financial problem that board members say it must resolve. Bob Hagood, Deputy Superintendent of Finance, confirmed the system currently only has a little over one month of operating revenue at the board of education meeting Thursday night.
If it continues on that path the number could dip to $1.8 million by September 2019, board members learned. The district is required to keep one month's operating budget in reserve. For Huntsville City Schools, that's just over $18 million. A shortfall that drastic could cause major problems and a possible state intervention.
Hagood said that due to an accounting error, $5.5 million had to be pulled from this current year's budget to go into the previous year's. The mistake was not discovered until an independent audit recently. That meant the district has less money to work with than it thought.
Hagood recommended that the superintendent freeze unnecessary expenditures in the district, including shutting down purchasing cards, not traveling, and reclassifying some expenditures. He said that to end this fiscal year with one month's operating balance, the district would need to break even during the months of August and September.
"Right now is August-September, and normally this time of the year our expenditures are exceeding revenues that we collect. That's normal for schools," he said. "The current condition-- it does call for drastic measures. I am going to recommend to the superintendent that she freeze unnecessary spending in the district."
"Do you think that's enough to cover this?" Ferrell asked later.
"I would be very happy if it was. But I don't know. I could not answer that question. But it's an attempt," Hagood said.
Elisa Ferrell, Board President, said this could become dire.
"This could potentially become a crisis situation. If we are at $1.8 million next year, we are almost $17 million below budget-- below reserve. And that's a whole lot of teacher units," said Elisa Ferrell, board president. "That's devastating."
Ferrell believes that the board has been spending money it thought it had because of the accounting errors. That's one of her biggest concerns.
"This board has made financial decisions based on the financial information that you have given us. And those may not have been good decisions because we thought we had money and we did not. And had this audit been finished faster, maybe we wouldn't have purchased professional development that we purchased, or software programs or laptops," she said. "Maybe we wouldn't be in a position where we're not sure whether or not in December we have to RIF (reduction in force) people. I have been in a state of fear and fury all week."
Ferrell's other major complaint is that the auditors, and Hagood, each have different projections about where things are heading. She said it is time to have some definitive answers so the board can properly decide how to spend the district's money moving forward.
Hagood said that he has conducted multiple years of finding-free audits in the past, but he would accept responsibility for the error because it happened in his department.
Auditors said they had four findings that impact the state of things. They have not come back to the board to report findings after previous independent audits.
These were correctable accounting errors, auditors said. They were not sure how the errors occurred.
"These things were errors, certainly, but they are all things that can be one-time errors and corrected after that," and auditor said. "We don't really understand why the errors were made, but we do know that some people were in new positions, and had come from other systems when they were in those new positions."
Auditors said one problem was with how the accountants handled something to do with accruing the ad valorem taxes. Another had to do with how the Individuals with Disabilities Education Act expenditures to be reimbursed. The district didn't expend the funds in accordance with the approved line-item budget, which is an error. A third problem dealt with grant money spent on students with high needs, and the district will likely have to pay the money back. Another error came with documenting time and attendance for certain employees. Auditors said the district needed certifications to document work performed, but didn't have those certifications.
The auditors must now notify the state of Alabama about their findings and send in a corrective action plan that Hagood also helped to create.
Michelle Watkins, a board member, has called continually for an audit that runs deep. She said she warned of over-spending, but felt that no one heard her. Until now.
"I came in the door asking for an audit, and I asked for an audit just about at every board meeting until I felt like a broken record," Watkins said. "And now-- let's just say the chickens have come home to roost."
She later added that she feels like the district doesn't have money because Hagood inherited the problem. She has long believed that the district is taking on contracts for services it can not pay for.
— Kristen Conner (@KConnerTweets) August 10, 2018
She also criticized school building costs and deals with the City of Huntsville for access roads.
"Money was spent in this district like we had a free black American Express card," she said. "When the city of Huntsville, along with the former superintendent who was here before I got here, they wanted these new buildings. You wanted these new buildings, but you did it off the backs of Huntsville City Schools. Now we are in debt."
Hill agreed that an audit, a forensic audit is necessary.
Are any jobs on the line right now? No, Ferrell said. She said the board does not intend to allow this to get far enough that staff needs to be cut. But she did not know the status of teacher raises, which went into effect this school year. Other board members questioned whether those could be on the chopping block if the problem is not corrected by a spending freeze.
"We can not fall below reserve," Ferrell said. "This year, we have got to figure out a way to save money so that does not happen. So it is very serious."
Ferrell said the district will need to tighten up its spending and run every purchase through the finance department. It will shut off purchasing cards except for essentials. And the district will wait for accurate numbers to clear up the state of their financial situation.
Ferrell said a forensic audit is now likely. She wants to see who is responsible for the errors and how to best move ahead.
— Kristen Conner (@KConnerTweets) August 10, 2018
"We've found out that we didn't have all the facts last year and we need to make sure we have accurate information so we can make sound decisions as we spend the school system's money," she said in an interview with WHNT News 19 at the end of the night. "Mr. Hagood has showed us figures that are different from what we got from the auditor so we need to take a hard look at that and see what the actual numbers are. The last thing in the world that we want to do is [layoffs.]"