Audit of internal control over financial reporting
Why The Controller’s Office Conducted the Examination
We conducted an examination of the School District of Philadelphia’s (District) basic financial statements as of and for the fiscal year ended June 30, 2016 for the purpose of opining on their 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.
What The Controller’s Office Found
The Controller’s Office found that the District’s financial statements were presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America and issued a separate report that accompanies the District’s Comprehensive Annual Financial Report for the fiscal year ended June 30, 2016. The audit procedures used to arrive at our conclusion regarding these financial statements led us to identify a number of matters involving the District’s internal control over financial reporting that need management’s attention. Some of the more important matters include:
- Inadequate payroll processing procedures related to updating withholdings and deduction tables increase the risk of incorrect employee deductions occurring, which could lead to insufficient collections for payments to external entities, or large amounts owed back to employees.
- Payrolls continue to be processed without proper administrative approval which increased the risk of errors and improper payroll expenditures
- Adequate resources were not applied to process termination pay and escheatable amounts in a timely manner. Consequently, the District continued to hold over $6.6 million that should have been paid out to former employees that have separated from service, some as far back as 2001. In doing so, the District appears to be in violation of applicable labor agreements, and, Pennsylvania’s escheat law.
- Insufficient enforcement of established policies and procedures for the $5.0 million of Student Activity Funds increase the risk of theft and misuse.
What The Controller’s Office Recommends
The Controller’s Office has developed a number of recommendations to address the above findings. These recommendations can be found in the body of the report.