Report On Internal Control and On Compliance and Other Matters School District of Philadelphia Fiscal Year 2019


July 23, 2020
Annual, Financial Rebecca Rhynhart FY19 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, 2019 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 that could have a direct and material effect on financial statement amounts.

FY19 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 several matters involving the District’s internal control over financial reporting that need management’s attention. Some of the more important matters identified include:

  • Since fiscal year 2008, the Controller’s Office has reported that the District is not processing termination payments in a timely manner. In our fiscal year 2018 report, we noted that the District owed $4.8 million in termination pay to more than 1,600 former employees who had left District employment. In this report, we found that the District had processed 1,499 cases of the backlog, but still owe termination payments totaling $4.3 million to nearly 600 former District employees (as of June 30, 2019). Our report also found that more than $60,000 should have been escheated to the Commonwealth. Though improved, termination payments are still not processed in accordance with labor agreements.
  • During the course of the audit, the Controller’s Office visited 11 inventory locations and found poor oversight of school equipment including computers, smart boards and musical instruments. Of the 135 items selected for testing, 48 percent of the items, valued at $88,000, could not be located and were presumed missing or had been removed from their locations without proper documentation. While at the 11 locations, an additional 135 items were haphazardly selected for testing, of which 39 percent could not be identified in the District’s accounting records. Failure to accurately account for equipment increases the risk for errors in financial statements and potential fraud.
  • In a limited review of student activity funds (SAFs) for 20 school locations, totaling more than $1 million (as of May 31, 2019), we observed a lack of compliance with the established procedures for properly maintaining those funds, placing them at greater risk for fraud 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. District Management should develop a plan for consequential action for personnel that are unable to accurately account for school equipment, as well as rewards for schools that maintain accurate inventory. 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.