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Controller’s audit of School District finds some financial control issues

Butkovitz seeks more auditing authority over District finances and warns of a looming "fiscal calamity" down the road.

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

In his annual audit of the School District, City Controller Alan Butkovitz found essentially sound practices but identified some financial control issues — the most serious of which is $6.5 million still owed to people no longer working for the District.

In a letter to Mayor Kenney and City Council accompanying the audit, Butkovitz cited the District’s own forecast of a looming deficit starting in 2019, reflecting a long history of spending obligations that outpace available revenue. He asks for more auditing authority over District funds, saying that would allow him to identify efficiencies that could result in millions in savings.

The additional authority would allow a "deeper examination" of how money is spent and contracts are awarded, Butkovitz said.

Looking at the big picture, Butkovitz reiterated his call for a five-year District budget to be reviewed by an outside agency, such as the Pennsylvania Intergovernmental Cooperation Authority (PICA).

"City leaders need to explore every possibility to avoid fiscal calamity," Butkovitz said.

At the moment, the District is not in financial crisis. It expects to run a small fund balance this year. But its overall fiscal health is always precarious.

The District initially predicted a $600 million deficit by 2019, but moderated that number after the city’s $2-a-pack sales tax was allowed to extend past that year by Harrisburg.

Uri Monson, the District’s chief financial officer, said that it is always good to have outside people looking at an organization’s finances, but he questioned whether giving the city controller more authority was needed.

The District is already audited, he noted, by several entities besides the controller: the Pennsylvania Department of Education, the U.S Department of Education, the U.S. Inspector General, the state Inspector General.

"We joke about auditors bumping into auditors in our building," he said.

Plus, he added, unlike the others, the City Controller charges for its services, some $400,000 a year.

"We’d have to figure out where those funds would come from and whether we are getting more value from the audit than whatever we are not doing with those monies," he said.

Audits also take up staff time, and that is often in short supply in the District’s largely depleted central office.

The problem with the $6.5 million not paid to people who have left the District is largely a function of inadequate staff to handle the huge turnover in a nearly $3 billion organization with nearly 17,000 employees.

Determining the proper termination pay for any individual is time-consuming and the magnitude of the task was exacerbated over the last few years when there were thousands of layoffs.

"There’s a higher volume [of terminations], and fewer people to process them," he said. "This is a huge organization with constant turnover."

With limited capacity, the payroll department has to balance clearing out an old backlog with keeping up with new terminations, he said. Monson said the District is hiring an additional person in payroll to handle the backlog.

"We are actively working on this," he said.

Other problems cited included millions of dollars in student activity funds in schools at risk of abuse due to lack of compliance with proper procedures, and improper controls over SEPTA TransPasses issued to students. In studying five high schools, more than 200 TransPasses, valued at $3,700, were unaccounted for.

Monson said that the District is doing additional training for school personnel handling student activity funds and TransPasses, but is reluctant to invest a lot of time in this anticipating the rollout of the new SmartCard system promised by SEPTA.

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