Performance Audit of the City of Philadelphia Bad Checks Policies and Procedures December 2013

Audit Date: January 16, 2014
Audit Categories
  • Performance
Controller: Alan Butkovitz
Audit Tags
  • Finance,
  • Permits and Fees,
  • Revenue,
  • Taxes,
  • Treasurer

Executive Summary

For Immediate Release:
January 16, 2014

Contact: Brian Dries

Butkovitz Finds $14 Million in Bad Checks Returned to City
City Controller says half of sampled checks remained uncollected

Performance Audit of Bad Checks – City of Philadelphia

PHILADELPHIA – City Controller Alan Butkovitz today released an audit of bad checks submitted by individuals to the City of Philadelphia that found $14 million was returned by the bank.

For fiscal years 2009 through 2012, the bank returned 13,000 bad checks for payment of taxes, licenses, fees and permits. These checks were returned due to insufficient funds, closed accounts or other reasons causing the bank to not cash the check.

To take a closer look, Controller Butkovitz selected a random sample of 83 returned checks valued at more than $200,000 and discovered that nearly half of the checks remained uncollected.

“The City is in no position to allow missed opportunities to collect much-needed revenues,” said Butkovitz. “It is clear this is a broken system that needs immediate attention and correction.”

The Controller’s audit determined that the poor collection efforts were a result of the City’s Bank Return Item Unit not identifying and flagging repeat offenders, not reconciling total bad checks processed by the City to the number of checks received from the bank, and allowing checks to be submitted with insufficient information, such as a name, address or phone number.

“It’s unfathomable the City is leaving millions of dollars uncollected due to individuals writing bad checks,” said Butkovitz. “It’s equally troubling that we found there are no consequences for individuals who repeatedly submit bad checks.”

In addition to the City losing revenues, it incurred $78,000 in bank fees from all returned checks during the three-year audit period.

To improve collection procedures and increase revenues, the Controller recommended the following:
• The city needs to analyze bank return data and identify areas that need attention,
• Require repeat offenders to pay with certified check, money order, credit card or electronic fund transfer,
• Reconcile returned checks from all city agencies, and
• Accept only checks with appropriate identification.

“It’s time our City changes its attitude toward revenue collections,” said Butkovitz. “We can no longer accept the status quo.”