Butkovitz Criticizes City for Unnecessary $64 Million Cost Increase

Audit Date: September 8, 2010
Controller: Alan Butkovitz

Executive Summary

For Immediate Release:
Sept. 8, 2010

Contact: Harvey Rice

Butkovitz Criticizes City for Unnecessary $64 Million Cost Increase
City paid firm $6 million who failed to evaluate
over 900 workers’ compensation cases

Click here to view report

PHILADELPHIA – City Controller Alan Butkovitz today released a report on the City’s 2009 Comprehensive Annual Financial Report – which found the city paid a third-party worker’s compensation administrator $6 million, but the administrator failed to evaluate 927 open cases, resulting in $64 million in future costs to the city.

The $267 million workers’ compensation program is run by the Risk Management Division of the Finance Department who then contracts with a third-party administrator to evaluate open cases and determine employee status for returning to work. In 2009, only 88 of the 1,015 cases were fully evaluated by the third-party administrator.

“Failure to review 927 open cases caused the City’s future estimated costs for the program to increase by $64 million,” said Butkovitz. “Workers’ compensation evaluations are critical to assessing the status of employee injuries and determining their ability to return to work.”

After the Controller’s Office found the un-reviewed cases and inquired why hundreds were not evaluated, the third-party administrator explained that they were concentrating only on police and firefighter cases.

“The City needs to move quickly and get a firm handle on its workers’ compensation program,” said Butkovitz. “It must require its third-party administrator to fulfill the provisions of its contract and conduct on-going medical evaluations of ‘all’ open workers’ compensation cases, not just police and firefighters.”

Another deficiency uncovered in the Controller’s audit review included the Department of Human Services’ (DHS) failure to timely submit a $61 million invoice to the Commonwealth of Pennsylvania for its Children and Youth Social Service program. The invoice was due on Aug. 14, 2009, and it was not submitted until 245 days later.

“DHS’s failure to submit this invoice on time occurred when the City faced a serious cash shortage and it forced the city to unnecessarily borrow funds to cover the shortfall, incurring a $200,000 interest charge,” said Butkovitz.

“Because DHS was consistently late in filing quarterly reimbursement requests throughout 2009, it added to the City’s already strained cash flow problems,” said Butkovitz. “The Department needs to submit timely reimbursement requests to the state to avoid any adverse impact on the City’s cash flow.”

The current audit review also provides an update to the on-going problems with the City’s Water Revenue Bureau’s billing system, which incurred an increase of $19 million in outstanding balances last year. The total receivable balance is $209 million.