Who is responsible for Saginaw Schools missing $7M payment deadl - WNEM TV 5

Who is responsible for Saginaw Schools missing $7M payment deadline?

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A bookkeeping blunder forced a local school district to miss a $7 million payment to the state of Michigan. Now the issue is expected to come up at a Wednesday night meeting.

It’s a mistake that could have potential consequences long down the line.

"We must have full disclosure as to being in default for 10 years. Ten years. And that's huge,” said Rudy Patterson, Saginaw Public School Board President.

Patterson is concerned to say the least.

The district owed the State of Michigan $7 million plus interest. However, in August the state paid the district just over $4 million in a state school aid payment.

Saginaw Public Schools was then left with roughly $2.8 million in the red. The difference had to be paid to the state by August 21, but the district missed the deadline.

"Mr. McClain and Tamara Johnson took it upon themselves to withhold that information from the board,” Patterson said.

Patterson wants to know why he and his fellow board members weren't notified immediately after the August 21 late payment.

"The board voted on June 13 of this year to pay it off in full by August 21 and that payment was made late,” Patterson said.

A financial committee meeting packet given to each of the board members shows Executive Director of Finance Tamara Johnson tried to send the payment as time ticked down toward the deadline.

Johnson had planned to make payment on August 15 to avoid any issues with Huntington Bank.

The bank was in the process of merging with First Merit. She decided not to do it, citing past practice of making loan payments on the due date.

She stated the district likes to keep funds in its account as long as possible. Besides, she thought wiring the money was simple and only took about 15 minutes.

It turned out, this was the first major wire since the merger.

On August 21, the online and telephone processes for wiring money didn't work. 

Johnson ended up driving to the bank and working with bank staff. After multiple attempts, the wire was completed. However, the payment wasn't complete until after 5 p.m. and the deadline was missed.

In a letter from Huntington bank to Saginaw Public Schools, it confirms the wiring of the money was sent between 1 p.m. and 1:30 p.m. on August 21, but the wire for almost $3 million had to clear two levels of approvals - one by the branch manager and the other by the branch itself.

After the approval, the signatures on the wire form did not match what the bank had in its records, leading to more scrutiny of the attempted transaction.

Due to that, the wire wasn't processed until 5:01 p.m. beyond the deadline.

The financial institution went on to apologize for the inconvenience, stating that the bank is ready to work with the state of Michigan to mitigate any misunderstandings.

Meanwhile, Patterson still can’t understand why the payment wasn’t made sooner.

Even though the district is debt free, it has a negative mark on its credit rating.

“That was a huge surprise to us and it's extremely disheartening it doesn't help with the trust factor,” he said.

Patterson said the district’s Executive Director of Finance was authorized by the board to pay off the state back in June.

He said this is a mistake that can’t happen again.

“She should've paid it. She had two months in advance. She did not,” Patterson said.

School Superintendent Nate McClain released a statement saying: 

Due to issues with the merger of Huntington and First Merit, the wire to transmit the $2.8 million State Aid Note payment was unable to be executed on the morning of August 21, 2017 (due date).  After physically going to the bank and following the process to submit the wire, the funds were not received until after 5:00 p.m. on August 21, 2017.  The District has received a paid notice from the Michigan Finance Authority showing that the Note was indeed paid on August 21st. However, this was after the 11:00 a.m. deadline.

The District Administration was notified by bond counsel on August 29th that discussions were taking place at the State level regarding the issuance of a Notice of Default.  No definite determination had been made.  Since that time, District Administration has worked diligently with bond counsel, Huntington, and the State Treasury Department to avoid the notice of Default.  Huntington has been forthcoming in trying to mitigate issues resulting from the late wire transfer.  They have communicated their willingness to resolve the matter with both the Department of Treasury and the District.  After the Department of Treasury scheduled and cancelled a conference call, we received the official Notice of Default on September 13th.  The Notice along with other supporting information was sent to the Board on September 14th.  The goal of the Administration was to provide accurate and definitive information to the Board.    

The future implications for the District are that this Notice of Default will have to be disclosed in our Financial Statements.  This disclosure will include the explanation of banking issues and the fact that the Note payment was received in full on the actual due date.  The second implication is that the District will have to go through a more extensive qualification process for borrowing, rather than automatically receiving qualified status.  The District did not have a need to borrow a State Aid Note this year.  If there is a future need to borrow, this Notice of Default will not prevent Saginaw Public School District from doing so.  Previously, the District’s past practice has been to pay the Note on the due date.  For future reference, payments of such Notes will be completed in advance of the due date.

The following is a letter from Huntington regarding the State Aid Note.

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