Interim Franklin City Manager Lincoln Saunders gave a presentation March 23, offering his analysis of the issues that have existed between the city and Franklin City Public Schools (FCPS) in relation to fiscal year 2025 finances. He also offered his recommendations for resolution of the issues and for measures that will protect against them recurring.

Saunders found areas for improvement in both city and FCPS practices.

He noted that while the school division did apparently overspend its authorized budget by $5.9 million, the expenditures were legitimate and funded, as FCPS had $6.83 million in documented restricted grants, encumbrances, as well as required local match funds that were never formally appropriated.

He stated that FCPS waited too long to submit budget amendments, but added that once it did, the controversy should have wound down rather than escalate through the summer.

At the start of his presentation, Saunders said, “My goal tonight is to present, to the best of my ability, a factual accounting of what has transpired, how we got here, what the numbers actually are and some recommendations for what to do going forward.

“I want to be clear — this presentation is not about assigning blame,” he continued. “Both the city and Franklin City Public Schools bear portions of the responsibility for breakdown in processes and communication.

“My goal is simply to provide a full picture so we can address the underlying issues and do our best to ensure situations like this don’t occur in the future,” he said.

He started with what he called “the headline numbers,” since they have been the figures that have largely been in the public discussion.

“Council appropriated a total of $21.8 million in fiscal year 2025 for Franklin City Public Schools,” he said. “That was your original appropriation plus mid-year amendments that council approved, including a $2.8 million increase in state aid tied to the schools’ enrollment growth.

“Actual FCPS expenditures, however, came in at $27.7 million, and both on the face and in reality, that’s a $5.9 million spend above the authorized appropriation,” he continued. “However, there is a little bit more to the story and to the picture.

“Franklin City Public Schools has an additional $6.83 million in documented restricted grants, prior-year encumbrances, as well as the increase to the local match, which council did approve in October, which I believe totaled to, again, $6.83 million, which, if they are accepted and appropriated, would result in a roughly $925,000 underspend of their annual budget versus the $5.9 million projected overspend,” Saunders added.

His slideshow presentation featured a timeline relevant to the recent financial issues existing between the city and school division.

TIMELINE OF KEY EVENTS

• November 2022-June 2023: FCPS returned $1,000,050 to city for school roof replacements

• August 2023: Council resolved to set aside roof funds for school construction costs

• March 2025: Franklin’s required local match increased by $725,930 based on enrollment growth

“March 2025, the Virginia Department of Education published the updated enrollment numbers, showing that the city of Franklin’s required local match would need to increase by over $725,000,” Saunders said. “At that time, FCPS submitted a budget amendment, but a decision was made at that time to wait for the final (average daily membership) ADM numbers that would come out at the end of the school year before bringing an amendment to council to increase the local match.”

He noted that “given the fact that that number between essentially the mid-year number and the final number reduced from $725,000 to roughly $475,000, there was certainly justification for waiting for the final numbers.”

• May 9, 2025: FCPS vendor payments stopped; credit cards cut off

“Around May 9 I think it’s safe to say the situation escalated significantly,” Saunders said. “Given the concerns that had been relayed regarding schools’ budget, FCPS vendor payments were stopped, credit cards were cut off, and approximately $400,000 in FCPS checks were physically held.”

• May 27, 2025: FCPS submitted $5.48M in grant carryforward amendments to city

“It wasn’t until May 27, several weeks later, that FCPS submitted a $5.4 million budget amendment to carry forward restricted grants into the fiscal year,” Saunders said. “Those amendments can explain a bulk of the discrepancy, but it is also fair to acknowledge that those amendments came significantly late in the fiscal year.”

Franklin Mayor Paul Kaplan said, “That was from 2024, is that right?”

“These would have been prior-year awards,” Saunders said, “so it includes over $2 million in CARES funding that would have been approved several years prior, but these were unexpended restricted grants that the school division had received but had not brought forward into the fiscal year ’25 budget from an appropriations standpoint.”

• July 14, 2025: Payment stoppage disclosed publicly at council work session

• July 28, 2025: Joint City Council and School Board meeting; budget picture laid out

• October 2025: Council approved increased local match amendment ($475,334)

Then Saunders shared a slide with all of the relevant financial numbers lined up together.

BUDGET RECONCILIATION

What the numbers actually show:

• Original council appropriation to FCPS: $18,603,911

• Mid-year amendments (approved): $3,191,250

• Total authorized FCPS budget: $21,795,161

• Actual FCPS expenditures: $27,701,333

“So from a budget appropriations standpoint, there’s a significant gap,” Saunders said.

• Apparent overspend: $5,906,172

• Restricted grant carryforwards (unapproved): $5,480,000

“However, the $5.48 million in restricted grant carryforwards, which again are generally federal or state grants awarded in prior years that had not been fully expended, don’t operate like general operating funds,” Saunders said. “General operating funds at the end of a fiscal year would fall to fund balance or would return to the city.

“Restricted grants operate differently, and it’s important that during the fiscal year those carry forwards happen,” he continued. “Just to add briefly, that can happen either through an estimate of the grant carryforwards that you would introduce in an adopted budget that could then be refined when you close your books and can get to your final numbers of how much remained unexpended and could be carried forward, or it can be done after the close of the books in August and September.

Then he added, “So for reasons we don’t need to get into or for unknown reasons, it does not appear that those carryforward grants were considered either in the introduced and adopted budget or were brought forward by schools earlier in the year.”

• Prior-year encumbrances: $874,076

“In addition to the $5.48 million in restricted grant carryforwards, there was also an amendment for $847,000 in prior-year encumbrances that was not acted upon during the fiscal year,” Saunders said.

• Required local match increase: $475,334

• Adjusted position (under budget): $925,000 under

Saunders said, “So again, if, as is in front of you tonight, council does appropriate those amendments, the unaudited number would show FCPS having a positive balance of $925,000 as opposed to the budget deficiency between their approved budget and what was actually expended.”

To introduce his next slide, Saunders said, “So let’s talk a little bit about the issues that I would just say allowed this to happen.”

KEY ISSUES IDENTIFIED

1.) Budget amendment process failed

• Twenty-six amendments submitted over FY2025; most came late and were not acted upon by the city in time.

2.) Finance director vacancy

• The position was vacant for most of FY2025, eliminating the central control function between city and FCPS finances.

3.) No monthly reconciliations

• No regular comparison of appropriations vs. actual expenditures. An August reconciliation would have flagged issues 10 months earlier.

4.) Beginning balance confusion

• The city and FCPS interpreted the beginning balance differently — operating funds vs. restricted grant carryforwards.

Saunders said, “I’m saying this from just my vantage point having read materials, not citing anyone, but it appears to me that when (FCPS) was discussing their beginning balance, they were including at least a portion of these grant carryforwards as part of what they considered their beginning balance, and as council knows, from a budget appropriation standpoint, it’s not a beginning balance unless they are carried forward into the fiscal year.”

5.) Grant amendments came after payment stoppage

• The $5.48M in grant carryforward amendments were not submitted until May 27 — several weeks after vendor payments were stopped on May 9.

6.) Payments remained frozen

• Even after budget amendments were submitted, payments were not restored. Communication had largely broken down between city and FCPS leadership.

7.) Roof funds never honored

• FCPS paid $1,000,050 for school roofs. After project costs and partial repayments, the city still holds approximately $509,000 in school funds pending reconciliation.

KEY TAKEAWAY

The expenditures were legitimate and funded. The problem was a failure to align funding with formal appropriations, worsened by a breakdown in communications.

Then Saunders brought forward his recommendations for council.

RECOMMENDATIONS

• Ret...

The Tidewater News Latest News

Message History

Delivery option(s)