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From inside and out, a push for better fiscal oversight

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

This piece is from our October edition focused on school funding.

Philadelphia has no shortage of critics, particularly in the Pennsylvania legislature, who are eager to argue that city schools don’t deserve additional funds. The last thing that District officials want to do is to give these critics ammunition. That makes the job of overseeing Philadelphia’s $3.2 billion schools budget a high-stakes task.

A fiasco like the “surprise” $73 million deficit of 2006 can undermine years of persuasion that putting additional funds into Philadelphia schools is a wise investment.

School Reform Commission members and District Chief Financial Officer Michael Masch say they have been building stronger systems for oversight (see below). A finance committee consisting of commissioners Johnny Irizarry, Denise McGregor Armbrister, and SRC chair Robert Archie now meets monthly with staff for in-depth budget discussions.

But this summer, the District struggled to respond to news reports raising questions about its financial management.

A July 29 Daily News column by former District CEO Phil Goldsmith pointed to rising salaries for top officials, including Superintendent Arlene Ackerman’s $338,000 annual rate, and triggered stories questioning District compensation practices. District officials responded that the staff changes at top levels would be “budget-neutral.” But Goldsmith argued that District leaders were “tone-deaf to taxpayers” and that in the current economic climate, “‘budget-neutral’ won’t do the trick.”

Then in a September post, Notebook blogger Helen Gym questioned a million-dollar SRC resolution for new security turnstiles and call boxes at District headquarters – pointing out that in this case and many others, the commission doesn’t vote on contracts until after the work is underway or done.

A District statement said that these after- the-fact resolutions are “rare exceptions” and usually occur due to an “immediate need.” But Gym identified more than two dozen examples from last year and wondered why the installation of turnstiles was urgent.

At a September SRC meeting, Commissioner Joseph Dworetzky asked District staff to add to these so-called “ratification resolutions” an explanation of why they were being submitted after the fact. Ackerman and Masch indicated they would.

Masch told the Notebook that Ackerman “has made it clear to senior managers that she would prefer that we have zero ratification resolutions and gives us a hard time about them.” Masch said the challenge is that the submission process for SRC resolutions is complex, sometimes requiring five or six weeks.

District oversight is also provided by the city controller, City Council, the state Department of Education, and the state’s auditor general.

City Controller Alan Butkovitz has been the most aggressive of these and cites many significant issues his office has flagged over the past five years at the District. The controller is responsible for conducting an annual audit of District financial statements as well as periodic performance audits of its operations.

Butkovitz is concerned that the District does not require competitive bidding on its professional services contracts, which totaled a whopping $242 million last year.

Masch said the District is “making a concerted effort to do competitive RFPs [requests for proposals] for more professional services,” starting out with contracts for bond counsel, underwriters, real estate brokers, and appraisers, and moving into some operational areas. “You already have seen and will see more of educational professional service contracts subject to that kind of RFP process as well,” he added.

Butkovitz does credit Masch with being “more cooperative than previous administrations in meeting our auditing deadlines.” As to whether oversight of the District is adequate, Butkovitz said, “There are numerous oversight and monitoring controls already in place. The emphasis must be placed on performing the oversight and monitoring functions more aggressively and efficiently.”

As for the SRC, its finance committee has been virtually invisible to the public, but its members say they are hard at work reading documents and asking questions. Armbrister said the committee’s role is “planning to secure adequate resources, protecting the ones we have, and making sure we’re properly overseeing them.”

Dworetzky said he sees the SRC’s role as one of oversight – “to look at the overall direction of the organization and make sure there are systems in place that are the kinds of systems a big organization needs to control its finances.”

“I don’t think board members are able to check every expenditure in a $3 billion budget,” he added. But asking questions “on a sampling basis” in areas they know most about produces more than just information, he said. “Managers know we’re holding their feet to the fire.”

Improving financial systems

District CFO Michael Masch cites “enormous progress, particularly in the past two years,” in District financial oversight:

  • The District’s online system for SRC resolutions guarantees that each is vetted, including ensuring that money is in the budget.
  • An SRC finance committee, formed last year, meets monthly and reviews a standard financial report each month.
  • Managers also get monthly reports, and the District has developed a “predictive model” that alerts staff to potential problems staying on budget.
  • The District now provides detailed reporting about its grant funds, which have been incorporated into a “consolidated budget.”

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