In accordance with the Home Rule Charter, the City Controller’s Office examines the financial affairs of city departments as part of the audit of the city’s basic financial statements. The focus of the examination is to determine if management of each department has suitably designed and placed in operation internal controls to ensure accurate financial information and compliance with any laws and regulations related to revenue and expenditure activities. This review, referred to as the Departmental Audit, includes findings about operational and financial deficiencies that need to be addressed with department heads by the Finance Director, as well as recommendations from the Controller’s Office and responses from departments regarding the findings. Departments are tested on a tiered system based on whether their revenue or expenditure amounts or their processes may significantly impact the city’s financial statements.
Key Findings – Fiscal Year 2018
The City of Philadelphia’s sick leave policy, which addresses civil service employees, aims to reduce unnecessary use of sick leave. Under the policy, employees who miss eight days of work due to illness in a given year without documentation should not be paid for additional sick days taken (specific conditions apply). The Controller’s Office found that 12 departments did not enforce the sick leave policy properly, resulting in the city paying employees about $320,000 of sick time for which they were not eligible to be paid for. In addition, the use of sick time may increase departmental overtime in departments or functions with mandatory staffing levels.
- In three departments: Water, Aviation, and Behavioral Health and Intellectual Disability Services, the sick leave policy was not properly enforced for any of the employees tested. In the Water Department, these employees continued to use and be paid for sick leave that they should not have been paid for, totaling almost $27,000. This is the second year for this finding. In Aviation, inappropriate sick leave policy enforcement resulted in tested employees receiving more than $15,100 in sick benefits for which they were not eligible. This finding has been reported for five consecutive years without remediation. Employees tested in Behavioral Health were paid more than $50,400 for sick leave benefits that they were not eligible to receive. The sick leave finding has been reported for six consecutive years without remediation.
- For the fifth year in a row, the Philadelphia Prisons System did not properly enforce the city’s sick leave policy. According to the city’s online payroll system, nearly 12 percent of Prisons’ employees used eight or more sick days without documentation throughout calendar year 2017. Because the policy wasn’t enforced, Prisons’ employees tested in this audit were paid nearly $112,000 in sick leave time for which they were not eligible.
- The Department of Human Services did not properly enforce the sick leave policy for 80 percent of the employees tested. These employees continued to use and be paid for sick leave days taken after their 8th undocumented day, totaling more than $32,000.
- For the fourth year, the Streets Department did not properly enforce the city’s sick leave policy for 85 percent of the employees tested. Because the policy was not enforced, Streets employees tested in this audit were paid more than $24,200 in sick leave time for which they were not eligible. In total, seven percent of Streets Department staff had eight or more undocumented sick days in calendar year 2017 according to the city’s online payroll system.
Other departments with sick leave policy enforcement deficiencies include: the Managing Director’s Office, Office of Innovation and Technology; Department of Public Health; Philadelphia Fire Department; Free Library of Philadelphia and Philadelphia Parks and Recreation. It is worth noting that several departments do not follow or enforce a sick leave policy for exempt employees. Without a policy for them, exempt employees may not be penalized for excessive use of sick leave.
Another finding addresses overtime approval and authorization. Proper approval and authorization for overtime requests is an essential internal control to ensure overtime is required and appropriate. Allowing employees to work overtime on a discretionary basis or without following proper authorization practices may result in unnecessary payroll expenses by the city.
- Overtime was paid to Police Department employees without management approving the hours or reason for overtime in 20 percent of instances tested.
- Overtime was paid to Division of Aviation employees without management approving the hours or reason for overtime in 39 percent of instances tested. Five employees tested earned more than $345,000 in overtime during the fiscal year, including four employees who more than doubled their annual salaries.
- The Water Department could not provide any documentation authorizing overtime in 43 percent of instances tested. The department’s response, which said overtime is approved by email or the approval of timesheets, is not in accordance with the standard accounting procedures of the city’s Finance Office and would not be sufficient for overtime approval.
The Controller’s Office found that five other departments did not properly authorize overtime: the Streets Department; City Council; Department of Behavioral Health and Intellectual Disability Services; Free Library of Philadelphia; and District Attorney’s Office. The District Attorney’s Office and City Council earn compensatory time.
Several departments had inventory related issues, including not properly removing $10 million worth of assets identified as “unable to locate” for three or more years from the city’s personal property database, and being unable to locate items valued at more than $247,000, at their department during testing. A failure to maintain accurate personal property or inventory records increases the risk of misstating personal property assets and/or overstates the value of personal property assets.
The Controller’s Office found that the Department of Licenses and Inspections did not reconcile housing inspection license renewal revenue to the city’s financial accounting system on a daily basis, as required. Failure to reconcile cash receipts to the city’s accounting system daily increases the risk of misstatement of revenues and creates an opportunity for misappropriation of funds. The total housing inspection license renewal revenue was $15 million for fiscal year 2018. Of the five sample days tested, the Controller’s Office noted differences in revenue posted by the department and the city’s accounting system totaling nearly $129,368. This is a first time finding. The Department of Licenses and Inspections responded that they will implement the Controller’s Office recommendation to reconcile this revenue to the accounting system daily.
The Controller’s Office has developed a number recommendations to address individual department findings. Recommendations can be found in the body of the report.
Previous Year Findings
A number of city departments took corrective action on some prior year findings. Noteworthy are the Office of Homeless Services and the Philadelphia Fire Department, which implemented seven and five recommendations, respectively.