Performance Audit of the Philadelphia Sheriff’s Office Custodial Accounts


Audit Date: May 12, 2022

Audit Categories

  • Performance
Controller: Rebecca Rhynhart

Audit Tags

  • Custodial Accounts,
  • Sheriff's Office

Executive Summary


The Philadelphia Office of the Sheriff is responsible for managing the sale process for court-ordered mortgage and tax foreclosures of property, including collecting the proceeds of these sales and fees related to administering the sales. Prior to COVID-19, the Sheriff’s Office handled between 4,200 and 4,800 new foreclosures and between 4,000 and 4,200 tax sales each year, resulting in millions of dollars under the Sheriff’s Office management. These funds are then deposited into bank accounts, called custodial accounts. In the summer 2019, the Office of the City Controller became aware that the City of Philadelphia Finance Department and Sheriff’s Office had engaged in preliminary conversations regarding transferring certain functions and custodial accounts from the Sheriff to the City. As such, the Controller’s Office requested that no transfer of accounts or functions occur until after a proper and complete audit of the custodial accounts was conducted.

Pursuant to Section 6-400(c) of the Philadelphia Home Rule Charter, the Controller’s Office undertook a performance audit of the Sheriff’s Office custodial accounts from July 1, 2015 through December 31, 2019 (Initial Period) under Sheriff Jewell Williams’s Administration. The audit scope was expanded to include the first year of Sheriff Rochelle Bilal’s Administration, January 1, 2020 through December 31, 2020 (Expanded Scope). The Controller’s Office engaged Mercadien, P.C. Certified Public Accountants to conduct the engagement.

The audit reviewed the Sheriff’s Office’s internal control procedures and accounting records to determine whether the Sheriff’s Office established and implemented adequate accounting procedures to ensure accurate tracking of fee revenue and disbursements, followed the City’s standard financial, procurement and other processes, and reviewed the custodial accounts for any abnormal financial activity.

The audit found internal control and compliance deficiencies, many of which were significant, in the Sheriff’s Office management, operation and use of its custodial accounts, including inadequate accounting procedures and non-compliance with the City’s standard financial, procurement and other processes. Additionally, auditors were unable to determine whether there was abnormal financial activity in the custodial accounts due to a lack of necessary documentation provided.

Key Findings

Please note: all findings detailed in the report are applicable to both the Initial Period and Expanded Scope of the audit period.

The Sheriff’s Office does not maintain a comprehensive accounting system, or general ledger, to track the overall balance of the accounts or document complete records of financial transactions.  Moreover, the Sheriff’s Office does not maintain adequate recordkeeping procedures for the fee revenue collected and maintained in accounts, nor the revenue that should be remitted to the City. As such, the Sheriff’s Office is unable to accurately account for the fee revenue it collects, and the Office of the Director of Finance is unable to provide full oversight over financial activities of the Sheriff’s Office. While the Sheriff’s Office does provide some revenue to the City, our audit found that it is unlikely that the Sheriff’s Office remits all applicable revenue to the City. Additionally, the Sheriff’s Office is unable to provide an adequate audit trail for its custodial accounts and records are not kept in a way that enable the Controller’s Office to properly fulfill the audit function over the accounts.

As determined by the City Solicitor’s Office, all spending by the Sheriff’s Office, including spending related to conducting property sales, should be included in its approved budget appropriation from the City. The Sheriff’s Office charges advertising costs to other custodial accounts instead of using appropriated funds as required, . Additionally, the audit found that the Sheriff’s Office spends money on discretionary purchases with funds that it collects on behalf of the City without appropriations for this spending.  The Sheriff’s Office makes purchases from the IT and Accounting account, a custodial account funded by transfers from other custodial accounts, primarily the Non-Tax Revenue Account. The Non-Tax Revenue Account is funded by transfers from other custodial accounts (except the IT and Accounting Account).  The IT and Accounting Account exists only to provide funds for spending outside of the City’s budget appropriation process Based on banking activity reviewed, the amount of spending out of the IT and Accounting account for the Initial Period was approximately $8.77 million and approximately $700,000 during the Expanded Scope. Additionally, the Sheriff’s Office represented that it only complies with the City’s procurement policies for spending of appropriated dollars despite being subject to the City’s contract and procurement policies for all contracts. The Sheriff’s Office was unable to provide any evidence that it complies with the City’s contracting and procurement policies and procedures for purchases paid through non-appropriated accounts.

Other findings include arbitrary advertising practices, lack of formal written policies and procedures, undocumented transfers between custodial accounts, inadequate segregation of duties and former employees not removed from online banking access.  Additionally, we observed that the Sheriff’s Office’s bank reconciliation process is inadequate due to the lack of a recorded book balance to reconcile to and therefore cannot be relied upon.

Recommendations

Given the Sheriff’s Office’s management and administration of the custodial accounts, including inadequately documenting and maintaining accounting records for the custodial accounts, not remitting all fees it has collected to the City as required, and indiscriminately spending from the custodial accounts, the Sheriff’s Office is operating outside of the checks and balances established in the Home Rule Charter meant to protect taxpayer funds from mismanagement or misuse. To improve the management and administration of the custodial accounts, the Controller’s Office made recommendations to the Sheriff’s Office including:

  • Implement a comprehensive accounting system based on a double-entry methodology that functions like a general ledger;
  • Remit all fee revenue it collects to the City;
  • Ensure all spending is accounted for in the office’s budget appropriation, as well as reported to, reviewed by and approved by the City;
  • Cease use of custodial funds for discretionary purposes unauthorized by the City; and
  • Develop comprehensive policies and procedures governing the operations of the office.

Additional recommendations can be found in the body of this report.