Report On Internal Control and On Compliance and Other Matters City of Philadelphia Fiscal Year 14

Audit Date: August 4, 2015
Audit Categories
  • Financial
Controller: Alan Butkovitz
Audit Tags
  • Finance,
  • Grants,
  • Internal Controls,
  • Revenue,
  • Treasurer


City Controller Alan Butkovitz today released the Fiscal Year 2014 Internal Control Report that found almost 130,000 water …

Executive Summary

For Immediate Release
Aug. 4, 2015

Contact: Brian Dries

Controller Butkovitz Finds $110 Million in Water Bills Changed
without Authorization

City Controller says Revenue Department is leaving door wide open for employees
to make improper changes

FY2014 Internal Control & Compliance Audit

PHILADELPHIA – City Controller Alan Butkovitz today released the Fiscal Year 2014 Internal Control Report that found almost 130,000 water bills valued at $110 million were adjusted by Water Revenue Bureau (WRB) employees without authorization or dollar amount restrictions.

The bulk of the total value of adjusted accounts – $94 million – pertained to water accounts with balances over $1,000. These accounts represented almost 12,000 transactions.

More than half, 76,000, of the adjusted transactions were made to customers’ accounts with balances that were less than $100. These transactions represented $3.4 million of the total value.

“There were tens of thousands of water customer accounts that had the potential to be inappropriately reduced,” said Butkovitz. “With the average water bill at $75, these non-reviewed transactions add up to millions of dollars.”

Additionally, almost 12,000 of the total adjusted transactions pertained to water accounts with balances over $1,000. These transactions totaled $94 million and represented the bulk of the total value.

The non-reviewed adjustments were a result of the City’s water billing system, Basis2, lacking an electronic method for supervisors to authorize the adjustments. The WRB indicated that implementing this feature was not feasible, and instead created controls such as dollar limits for certain types of adjustments. However, not every adjustment is subject to these restrictions.

“There needs to be an efficient, technological system that provides the proper checks and balances,” said Butkovitz. “The City is leaving the door wide open for employees to make improper credit adjustments to customers’ accounts without detection.”

The WRB indicated that it was working diligently to identify and correct weaknesses in the water billing system after Controller Butkovitz raised this same finding in the FY2013 audit. However, the current audit disclosed there had been no improvement.

Of the 35 different types of adjustments that can be made to water bill transactions, there are 12 for which the WRB has no restrictions for its users. Some of these unrestricted adjustments in FY2014 included the following:

Type # of Transactions Value of Adjustment Bill reversals/canceled 27,219 $36 million Replacement Bills 4,656 $16 million Transfer of Balances 60,106 $34 million Refunds 494 $627,000

While the WRB had instituted a procedure requiring a review of quarterly credit adjustment reports to identify errors or improprieties, these reports were not always generated or reviewed in a timely fashion. The first two quarterly credit adjustment reports for FY2014 showed indications of supervisory review, but the third and fourth quarter reports contained no evidence of review.

According to Controller Butkovitz, the quarterly reviews need to pay particular attention to large dollar adjustments and instances of accountants performing multiple adjustments on the same customer account.

“Consequently, errors or irregularities in water customer account balances could occur without detection,” said Butkovitz. “The City needs to improve its oversight process or it will continue the risk of having someone take advantage of a weak system.”