Report On Internal Control and On Compliance and Other Matters School District of Philadelphia Fiscal Year 2018


June 20, 2019
Annual, Financial Rebecca Rhynhart FY18 Internal Controls School District

Executive Summary


Why The Controller’s Office Conducted the Audit

In accordance with the Philadelphia Home Rule Charter, the Office of the City Controller audited the School District of Philadelphia’s (District) basic financial statements as of and for the fiscal year ended June 30, 2018 for the purpose of opining on its fair presentation. As part of this audit, we reviewed the District’s internal control over financial reporting to help us plan and perform the examination. We also examined compliance with certain provisions of laws, regulations, contracts, and grant agreements to identify any noncompliance which could have a direct and material effect on financial statement amounts.

FY18 Report Findings

The Controller’s Office found that the District’s financial statements were presented fairly, in all material respects. During our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses or significant deficiencies. However, the audit work identified a number of matters involving the District’s internal control over financial reporting that need management’s attention. Some of the more important matters identified include:

  • For years, the Controller’s Office has reported that the District is not processing termination payments in a timely manner. In our fiscal year 2017 report, we noted that the District owed $6.7 million in termination pay to more than 2,300 former employees who had left District employment. In this report, we found that the District had processed 1,236 cases of the backlog, but still owe termination payments totaling $4.8 million to more than 1,600 former District employees (as of June 30, 2018). Our report also found that more than $980,000 should have been escheated to the Commonwealth. While District management has increased staff and dedicated resources to addressing termination pay, the backlog still exists.
  • In a limited review of student activity funds (SAFs) for 20 school locations, totaling nearly $2.5 million (as of May 31, 2018), we observed a lack of compliance with the established procedures for properly maintaining those funds, placing them at greater risk for theft or misuse. Although District management has taken steps to increase monitoring of these funds’ activities, school level personnel are not following the policies and procedures. Our review found inactive accounts, negative account balances, untimely bank reconciliations, and missing documentation to track the collection of student activity funds. The lack of compliance has been a reported finding since fiscal year 2008.

What the Controller’s Office Recommends

The Controller’s Office has developed a number of recommendations to address the findings in this report. Some of the more significant recommendations to the above findings are noted below.

We recommend that District management continue to work to eliminate the backlog of termination pay cases and remit the money due to the Commonwealth in compliance with Pennsylvania’s escheat law. To prevent the misuse of SAFs, we recommend that management ensures school employees responsible for management of the SAFs are trained properly and held accountable for compliance with the policies and procedures.