July 03 - GBC-Presidents' Roundtable Report: Budget Processes

The budget process used by the BCPSS has not provided the accurate and timely data that flags deficits or matches budget to expenditures. The reasons for this inefficiency are numerous, beginning with the separation of the school system from the city agency system and the time it takes for an entity to design and work out the difficulties out of any fiscal management system. The major reasons that emerged from extensive interviews with the chief operating officer, the former chief financial officer, and the former budget director were:

the schedule for the budget
fiscal management staffing problems
training for those preparing budgets in cost centers
difficulties in matching expenditures against revenue and inability to track operational costs
use of two separate systems
inadequate grants administration.

The BCPSS budget process starts in November of a given year. Units are given about a month and a half to put their budgets together. Budget numbers from each unit go to the Finance Department in mid-December. From December through January, the Finance Department reviews the figures and makes recommendations. December is the cutoff date for submitting budget figures, although it is generally recognized that the cutoff dates are not enforced. Finance Officers who spoke with the review team said that some units do not submit budgets until March or April even though all the units were given target figures and instructions on how to construct their budgets. Between January and March, the Finance Department tries to firm up the budget for submission to the school board.

Public hearings are held prior to submission, a process that precludes public input at the policy level, and after programs are included in the budget for funding, making it difficult to change priorities. Other school systems begin the budget process as early as June and begin with public hearings to offer input on policy issues.

Recommendations:

Begin budget requests earlier.

This would give the budget process the time it needs to move forward in an orderly and controlled manner. Since a culture exists where directives asking for budget numbers are not followed and where those responsible for line items in the budget do not always accept what it budgeted, it is clear that the process needs to be extended so that these issues can be addressed and a new culture of promptness, responsiveness and adherence to the schedule is the norm.
Make all dates for the submission of proposed budget numbers firm.

Those who do not recognize submission dates or who choose to extend the time frame should be held accountable or sanctioned.
Solicit public input earlier in the process so that the budget reflects public priorities.

This may eliminate some of the confusion about the system’s priorities and would provide an opportunity for the public to understand the process while it is on-going rather than reading or hearing about it post facto in the newspaper. Public input might also give the board a broader understanding of whether or not its policies mirror those of parents and other stakeholder groups.
Provide adequate resources and training for those who compile and submit budget numbers.

Unrealistic budget requests may, to some degree, emanate from a lack of understanding on the part of the many people who prepare budget figures of the entire process. The desire to get funding in a manager’s cost centers overrides common sense and budget targets provided by the administration. This is compounded by the lack of sanctions for those who consistently submit unrealistic requests. Overall, there seems to be evidence that there is not enough depth of budget training. The system may want to examine whether those involved in the preparation of budget numbers have been moved into positions for which they may not be well suited or trained.
Make adherence to the process a priority.

This speaks again to the need for a change in culture. Every employee in the system needs to adhere to the budget process and understand that accuracy and promptness are priorities. The message should be reinforced through repetition. Uncertainty about funding sources and their levels has certainly contributed to the unevenness of the budget process. Adherence requires leadership at all levels. The CEO may want to meet regularly with senior staff to reinforce the adherence message.
Pursue requests for outside help.

When the school board became aware of the deficit in fiscal year 2002, it decided to ask for outside help to do long-term budgeting. An RFP was sent out of the board office and six proposals came in. Outside help was not hired because the board determined that the deficit precluded expenditures on any additional contracts. Although that decision appears on face to be fiscally prudent, outside help should have been brought in.

The budget director left in September 2002 and the chief financial officer for the school system left in November 2002 after 13 months in that position. To date a new CFO has not been hired. The procurement officer left in November 2002. Hiring a new CFO is imperative. The system’s budget is equivalent to that of a major corporation and cries out for a full time chief financial officer.

The rapid turnover of top management positions in the Finance Department and the inability to fill the position of chief financial officer suggests underlying problems that go beyond budget and administration and speak to the work environment at the school system. It may be difficult to find and keep quality people unless those issues are identified and resolved.

Lack of staff in the Finance Department has been an ongoing problem. There have not been enough people in key positions to monitor the budget or analyze expenses. However, in the last year, the Finance Department has been successful in hiring additional staff. Both budget and accounting are units of the Finance Department. Budgeting staff has increased from six to ten. Accounting staff has increased from three to five.

When the Finance Department moved to preparing monthly full accrual statements in fiscal year 2002, it became clear that the department was understaffed and not capable of handling the voluminous financial reports generated. Now, statements are prepared every two months, but the department may still be receiving more data than they can reasonably analyze at present staffing levels.

Finally, the BCPSS appears to be supporting far more administrative staff, other than in financial management, at top administrative levels than may be necessary. Recent state figures have indicated that BCPSS spends more on administration than any other school system in the state. Although the system has unique and difficult challenges (e.g. special education requirements, high concentration of poverty, etc.) this issue needs to be comprehensively studied and suitable adjustments made.

Recommendations:

Hire and retain a new CFO.

The system should engage a CFO with knowledge of the system’s budget strengths and weaknesses. He or she will need to work closely with the current COO whose knowledge of the process, expertise, and tireless efforts have already effected improvements in the process.
Have the new CFO evaluate the bi-monthly reports to determine what level of reporting is needed to control spending.

This may result in different levels of reports for different facets of the organization. For instance, individual schools may only require a simple budget format to provide actual and encumbrances comparison whereas the Non-Public Placement Office may require a full accrual statement on a monthly basis.
Assess the work environment.

Evaluate the current work environment and formulate a strategy for improvement so that turnover in key financial positions does not occur with the frequency it currently does. This will require a culture change and strong direction from the new CEO and CFO.
Assess the need for and number of academic and administrative staff throughout the system, track positions accurately.

Tracking positions on both the academic and the administrative side has been a constant problem and one that the system hopes to address with its new human resources management system. To date, schools have not candidly reported to the Finance Department when they have excess personnel who might be moved to, and efficiently employed at, another school and the same is true of departments. This caused redundancies, overstaffing and utilization of personnel in positions that they may not be the most qualified to hold.

Examination of actual budget documents from the years including and following the separation of the school system from the city indicated other areas where the Finance Department may want to consider making changes. Most notably, it was difficult for those examining the documents to match actual expenditures against budget figures. It would be helpful to the system to have the ability to examine a single budget document that contains the previous year’s adjusted budget, the previous year’s actual expenditures, the current year’s budget, the current year’s expenditures to date and the proposed budget for the next fiscal year for each cost center. Currently, these numbers are not available without comparing the budget documents to the audit reports.

There are several other ways the financial management process can be improved, ranging from instituting an approval process for vacant positions, to having the board approve contracts before they are issued. The system relies too heavily on temporary help and outside contractors. Some of this hiring has been done to effect compliance with court orders governing the teaching of special education students, but this does not preclude the ability to tighten up the hiring processes and plan ahead for anticipated staffing needs.

Recommendations:

Require budget approval before vacant positions can be filled.

Overuse of temporary help has been an ongoing budget problem within the BCPSS. The system needs to comply with system policies governing the employment of temporary help. Furthermore, the Human Resources Department could develop and disseminate approved starting salary rates, expecially for part-time or contractual hires.
Review cost projection process and timing.

Look at whether projections are sufficiently current for the next year’s budget and consider points along the schedule where they can be updated. When preparing the following year’s budget request, some school systems have preliminary cost projections in November with updates factored in as late as the first week of April.
Hold managers accountable to procurement deadlines.

Both deadlines and policies need to be published, posted and distributed to all managers. Inform key vendors of strict enforcement of procurement procedures and policies and actions to be taken if procedures are not strictly followed.
Pay bills on time.

For the past few years there has not been an integrated payroll system making it difficult to track funds for salaries. Also, since position requests come in from so many different sites, it is hard to coordinate the requests to the need of the system. The school system uses Oracle software but in order to use the data from the city system, it has to be justified from and reconciled with the city’s Legacy software system. The computer system the school administration uses cannot adequately provide the details that the finance staff needs to make accurate budget projections, to track personnel, or to manage a grants system of about $250 million dollars. The problems of separation from reliance on the city system have not been resolved. This year BCPSS used an obsolete human resources cost model that forced the system to estimate costs rather than use actual salary figures. However that inefficiency appears to have been reconciled.

A new human resources management system was scheduled to be online by July 3, 2003. The system promises to share “accurate and live information” and generate paychecks, benefits data, and position management. School systems that have more advanced management systems have cautioned that it takes a significant amount of time to get the systems running smoothly. It may be in the best interests of BCPSS not to create expectations that it cannot fulfill. Reports to the review team indicated that BCPSS has had some difficulties in getting employees to attend and complete computer training for the new system. This again indicates that there is an underlying culture within the system that tolerates resistance and non-compliance on the part of employees.

Grants management has been identified as a problem. Reimbursements for costs associated with the grants have not been submitted in a timely fashion, accordingly costs that could have been shifted from general funds to grants funding were not always moved. The pattern has been to spend from general funds first and then seek to secure the grants monies. For years grants monies have been significantly under-spent. However, in the last year significant improvements have been made in the grants management department. An audit of the grants function was recently completed and a new grants manager was hired, improving the department.

Recommendations:

Review the grants administration process and staff.
Determine if the grants management staff is properly trained in fiscal matters.
Review organizational structure to ensure grant budgeting and spending processes are coordinated with all other operating expenditures.
Make sure grants are spent or reimbursement is timely sought before utilizing other sources.
Require that budget and grant management staff review federal and state funds for possible unrestricted offsets to the general fund.


	Greater Baltimore Committee - Presidents' Roundtable Review Team of the Baltimore City Public School System's Fiscal Management Practices and Budget Process V. FINDINGS OF THE REVIEW TEAM BY ISSUE CATEGORY B. Budget Processes
The budget process used by the BCPSS has not provided the accurate and timely data that flags deficits or matches budget to expenditures. The reasons for this inefficiency are numerous, beginning with the separation of the school system from the city agency system and the time it takes for an entity to design and work out the difficulties out of any fiscal management system. The major reasons that emerged from extensive interviews with the chief operating officer, the former chief financial officer, and the former budget director were: the schedule for the budget fiscal management staffing problems training for those preparing budgets in cost centers difficulties in matching expenditures against revenue and inability to track operational costs use of two separate systems inadequate grants administration. The BCPSS budget process starts in November of a given year. Units are given about a month and a half to put their budgets together. Budget numbers from each unit go to the Finance Department in mid-December. From December through January, the Finance Department reviews the figures and makes recommendations. December is the cutoff date for submitting budget figures, although it is generally recognized that the cutoff dates are not enforced. Finance Officers who spoke with the review team said that some units do not submit budgets until March or April even though all the units were given target figures and instructions on how to construct their budgets. Between January and March, the Finance Department tries to firm up the budget for submission to the school board. Public hearings are held prior to submission, a process that precludes public input at the policy level, and after programs are included in the budget for funding, making it difficult to change priorities. Other school systems begin the budget process as early as June and begin with public hearings to offer input on policy issues. Recommendations: Begin budget requests earlier. This would give the budget process the time it needs to move forward in an orderly and controlled manner. Since a culture exists where directives asking for budget numbers are not followed and where those responsible for line items in the budget do not always accept what it budgeted, it is clear that the process needs to be extended so that these issues can be addressed and a new culture of promptness, responsiveness and adherence to the schedule is the norm. Make all dates for the submission of proposed budget numbers firm. Those who do not recognize submission dates or who choose to extend the time frame should be held accountable or sanctioned. Solicit public input earlier in the process so that the budget reflects public priorities. This may eliminate some of the confusion about the system’s priorities and would provide an opportunity for the public to understand the process while it is on-going rather than reading or hearing about it post facto in the newspaper. Public input might also give the board a broader understanding of whether or not its policies mirror those of parents and other stakeholder groups. Provide adequate resources and training for those who compile and submit budget numbers. Unrealistic budget requests may, to some degree, emanate from a lack of understanding on the part of the many people who prepare budget figures of the entire process. The desire to get funding in a manager’s cost centers overrides common sense and budget targets provided by the administration. This is compounded by the lack of sanctions for those who consistently submit unrealistic requests. Overall, there seems to be evidence that there is not enough depth of budget training. The system may want to examine whether those involved in the preparation of budget numbers have been moved into positions for which they may not be well suited or trained. Make adherence to the process a priority. This speaks again to the need for a change in culture. Every employee in the system needs to adhere to the budget process and understand that accuracy and promptness are priorities. The message should be reinforced through repetition. Uncertainty about funding sources and their levels has certainly contributed to the unevenness of the budget process. Adherence requires leadership at all levels. The CEO may want to meet regularly with senior staff to reinforce the adherence message. Pursue requests for outside help. When the school board became aware of the deficit in fiscal year 2002, it decided to ask for outside help to do long-term budgeting. An RFP was sent out of the board office and six proposals came in. Outside help was not hired because the board determined that the deficit precluded expenditures on any additional contracts. Although that decision appears on face to be fiscally prudent, outside help should have been brought in. The budget director left in September 2002 and the chief financial officer for the school system left in November 2002 after 13 months in that position. To date a new CFO has not been hired. The procurement officer left in November 2002. Hiring a new CFO is imperative. The system’s budget is equivalent to that of a major corporation and cries out for a full time chief financial officer. The rapid turnover of top management positions in the Finance Department and the inability to fill the position of chief financial officer suggests underlying problems that go beyond budget and administration and speak to the work environment at the school system. It may be difficult to find and keep quality people unless those issues are identified and resolved. Lack of staff in the Finance Department has been an ongoing problem. There have not been enough people in key positions to monitor the budget or analyze expenses. However, in the last year, the Finance Department has been successful in hiring additional staff. Both budget and accounting are units of the Finance Department. Budgeting staff has increased from six to ten. Accounting staff has increased from three to five. When the Finance Department moved to preparing monthly full accrual statements in fiscal year 2002, it became clear that the department was understaffed and not capable of handling the voluminous financial reports generated. Now, statements are prepared every two months, but the department may still be receiving more data than they can reasonably analyze at present staffing levels. Finally, the BCPSS appears to be supporting far more administrative staff, other than in financial management, at top administrative levels than may be necessary. Recent state figures have indicated that BCPSS spends more on administration than any other school system in the state. Although the system has unique and difficult challenges (e.g. special education requirements, high concentration of poverty, etc.) this issue needs to be comprehensively studied and suitable adjustments made. Recommendations: Hire and retain a new CFO. The system should engage a CFO with knowledge of the system’s budget strengths and weaknesses. He or she will need to work closely with the current COO whose knowledge of the process, expertise, and tireless efforts have already effected improvements in the process. Have the new CFO evaluate the bi-monthly reports to determine what level of reporting is needed to control spending. This may result in different levels of reports for different facets of the organization. For instance, individual schools may only require a simple budget format to provide actual and encumbrances comparison whereas the Non-Public Placement Office may require a full accrual statement on a monthly basis. Assess the work environment. Evaluate the current work environment and formulate a strategy for improvement so that turnover in key financial positions does not occur with the frequency it currently does. This will require a culture change and strong direction from the new CEO and CFO. Assess the need for and number of academic and administrative staff throughout the system, track positions accurately. Tracking positions on both the academic and the administrative side has been a constant problem and one that the system hopes to address with its new human resources management system. To date, schools have not candidly reported to the Finance Department when they have excess personnel who might be moved to, and efficiently employed at, another school and the same is true of departments. This caused redundancies, overstaffing and utilization of personnel in positions that they may not be the most qualified to hold. Examination of actual budget documents from the years including and following the separation of the school system from the city indicated other areas where the Finance Department may want to consider making changes. Most notably, it was difficult for those examining the documents to match actual expenditures against budget figures. It would be helpful to the system to have the ability to examine a single budget document that contains the previous year’s adjusted budget, the previous year’s actual expenditures, the current year’s budget, the current year’s expenditures to date and the proposed budget for the next fiscal year for each cost center. Currently, these numbers are not available without comparing the budget documents to the audit reports. There are several other ways the financial management process can be improved, ranging from instituting an approval process for vacant positions, to having the board approve contracts before they are issued. The system relies too heavily on temporary help and outside contractors. Some of this hiring has been done to effect compliance with court orders governing the teaching of special education students, but this does not preclude the ability to tighten up the hiring processes and plan ahead for anticipated staffing needs. Recommendations: Require budget approval before vacant positions can be filled. Overuse of temporary help has been an ongoing budget problem within the BCPSS. The system needs to comply with system policies governing the employment of temporary help. Furthermore, the Human Resources Department could develop and disseminate approved starting salary rates, expecially for part-time or contractual hires. Review cost projection process and timing. Look at whether projections are sufficiently current for the next year’s budget and consider points along the schedule where they can be updated. When preparing the following year’s budget request, some school systems have preliminary cost projections in November with updates factored in as late as the first week of April. Hold managers accountable to procurement deadlines. Both deadlines and policies need to be published, posted and distributed to all managers. Inform key vendors of strict enforcement of procurement procedures and policies and actions to be taken if procedures are not strictly followed. Pay bills on time. For the past few years there has not been an integrated payroll system making it difficult to track funds for salaries. Also, since position requests come in from so many different sites, it is hard to coordinate the requests to the need of the system. The school system uses Oracle software but in order to use the data from the city system, it has to be justified from and reconciled with the city’s Legacy software system. The computer system the school administration uses cannot adequately provide the details that the finance staff needs to make accurate budget projections, to track personnel, or to manage a grants system of about $250 million dollars. The problems of separation from reliance on the city system have not been resolved. This year BCPSS used an obsolete human resources cost model that forced the system to estimate costs rather than use actual salary figures. However that inefficiency appears to have been reconciled. A new human resources management system was scheduled to be online by July 3, 2003. The system promises to share “accurate and live information” and generate paychecks, benefits data, and position management. School systems that have more advanced management systems have cautioned that it takes a significant amount of time to get the systems running smoothly. It may be in the best interests of BCPSS not to create expectations that it cannot fulfill. Reports to the review team indicated that BCPSS has had some difficulties in getting employees to attend and complete computer training for the new system. This again indicates that there is an underlying culture within the system that tolerates resistance and non-compliance on the part of employees. Grants management has been identified as a problem. Reimbursements for costs associated with the grants have not been submitted in a timely fashion, accordingly costs that could have been shifted from general funds to grants funding were not always moved. The pattern has been to spend from general funds first and then seek to secure the grants monies. For years grants monies have been significantly under-spent. However, in the last year significant improvements have been made in the grants management department. An audit of the grants function was recently completed and a new grants manager was hired, improving the department. Recommendations: Review the grants administration process and staff. Determine if the grants management staff is properly trained in fiscal matters. Review organizational structure to ensure grant budgeting and spending processes are coordinated with all other operating expenditures. Make sure grants are spent or reimbursement is timely sought before utilizing other sources. Require that budget and grant management staff review federal and state funds for possible unrestricted offsets to the general fund.

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