Executive Summary
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 2019
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 15 departments did not enforce the sick leave policy properly, resulting in the city paying employees more than $390,000 of sick time for which they were not eligible to be paid. In addition, the use of sick time may increase departmental overtime in departments or functions with mandatory staffing levels.
- Six departments: Streets, Public Health, Behavioral Health, Licenses and Inspections, Aviation and the Free Library of Philadelphia, did not properly enforce the sick leave policy for any of the employees tested, resulting in more than $105,000 in payments to employees for which they were not eligible. Notably, this includes the following findings.
- In Aviation, employees continued to use and be paid for sick leave for which they should not have been paid, totaling more than $34,000. This has been reported as a finding for six years without remediation.
- In Public Health, inappropriate sick leave policy enforcement resulted in tested employees receiving more than $32,000 in sick benefits for which they were not eligible. This finding has been reported for five consecutive years without remediation.
- For the seventh year, inappropriate sick leave policy enforcement in Behavioral Health resulted in more than $21,000 in unauthorized sick benefits being paid to employees.
- Streets employees tested were paid more than $15,300 in unauthorized sick time. According to the city’s online payroll system, nearly seven percent of Streets’ total employees used more than eight sick days without documentation in calendar year 2018. The sick leave finding has been reported for five years without remediation.
- The Fire Department did not properly enforce the sick leave policy for 90 percent of the employees tested. These employees continued to use and be paid for sick leave days taken after their eighth undocumented day, totaling more than $145,500.
- The Philadelphia Prison System did not properly enforce the city’s sick leave policy for 90 percent of the civil service employees tested. According to the city’s online payroll system, nearly 11 percent of Prisons’ employees used eight or more sick days without documentation throughout calendar year 2018. Because the policy was not enforced, Prisons’ employees tested in this audit were paid nearly $80,000 in sick leave time for which they were not eligible. The sick leave finding has been reported for six years without remediation.
- The Department of Human Services did not properly enforce the city’s sick leave policy for more than 80 percent of the civil service employees tested. As a result of the policy not being enforced, DHS employees tested in this audit were paid nearly $30,000 in sick leave time for which they were not eligible. In total, more than seven percent of DHS staff had eight or more undocumented sick days in calendar year 2018 according to the city’s online payroll system. The sick leave finding has been reported for seven years.
Other departments with sick leave policy enforcement deficiencies include: the Managing Director’s Office; Office of Innovation and Technology; Water Department; Philadelphia Parks and Recreation; Office of Fleet Management; and Office of the Sheriff. 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. Of the nearly $1.7 million in overtime tested during the audit, we found that 43% was not properly authorized.
- Overtime in the Streets Department was not properly authorized for any of the 26 instances selected for testing. Improper overtime approval has been a finding for eight years without remediation.
- In the Water Department, overtime was not properly authorized in 94% of instances tested.
- Overtime was paid to Police Department employees without management approving the hours or reason for overtime in more than 50 percent of instances tested.
- Overtime was paid to Division of Aviation employees without management approving the hours or reason for overtime in 27 percent of instances tested. This has been a finding for four years without remediation.
The Controller’s Office found that three other departments did not properly authorize overtime: the Department of Behavioral Health and Intellectual Disability Services; Philadelphia Prisons System; and Free Library of Philadelphia.
For the second year in a row, 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 daily, 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 $16.4 million for fiscal year 2019. Of the 15 sample days tested, the Controller’s Office noted differences in revenue posted by the department and the city’s accounting system totaling nearly $314,810.
Several departments had petty cash and imprest fund-related issues, including 11 departments that did not properly prepare monthly bank reconciliations and 10 departments that had unexplained shortages and overages in the department’s cash accounts. For example, a $15,433 overage in the Finance Department’s Workers’ Compensation Fund Imprest account was not corrected for five months. Failure to reconcile the cash accounts properly increases the risk that errors or irregularities may occur and not be detected, while failure to investigate shortages or overages increases the risk that missing funds will remain unrecovered or that overages will be misappropriated.
Recommendations
The Controller’s Office has developed a number of recommendations to address individual department findings. Recommendations can be found in the body of the report.