Summary of FY 2023 School District of Philadelphia Internal Control Comments

Audit Date: May 22, 2024
Audit Categories
  • Annual,
  • Financial
Controller: Christy Brady

Executive Summary

During our FY 2023 School District of Philadelphia (School District) audit, the City Controller’s Office noted a deficiency in internal control other than a significant deficiency or a material weakness, that is not required to be reported under Government Auditing Standards that should, nonetheless, be addressed by management, and presents an opportunity for strengthening internal controls and operating efficiency. The same condition was also reported in the FY 2022 School District Report on Internal Control and on Compliance and Other Matters (Internal Control Report). Additionally, we noted that School District management resolved four prior year conditions reported in the FY 2022 Internal Control Report.

Condition: In our prior year report, we commented that the School District owed $1.4 million to almost 200 former employees that separated from service as far back as 2016. As of June 30, 2023, the School District processed 1,318 of the backlogged termination payment cases of which 1,189 were from 2022 and the remaining 129 were from 2021 and prior.

At the conclusion of our fiscal 2023 audit, we found that termination payments totaling $1.7 million due to more than 300 former School District employees that separated from service, still had not been distributed.

Criteria: Under the current labor agreements with many of its unionized employees, when an employee separates from School District employment, they are entitled to termination pay for the unused time within 30-75 days of their separation. Termination pays for employees under age 55 could be subject to Pennsylvania’s Abandoned and Unclaimed Property Law (escheat law). For employees under 55, the School District is required to pay the separated employee directly by check. Pennsylvania’s escheat law indicates that unclaimed wages or other compensation for personal services that have remained unclaimed by the owner for more than two years after it becomes payable or distributable are presumed unclaimed. The law further states that all abandoned and unclaimed property is subject to the custody of the Commonwealth.

Effect: The School District appears to be in violation of applicable labor agreements. Regarding the termination pay of former employees under the age of 55 whose pay has remained uncollected for more than two years, the School District may also be in violation of Pennsylvania’s escheat law. As of June 30, 2023, almost $65,000 should have been escheated to the Commonwealth.

Cause: In previous years, School District management had difficulty dedicating the necessary resources to address outstanding termination pay owed to employees that have separated from the School District.

Recommendation: School District management should prioritize processing any outstanding termination payments owed to separated employees to ensure that the School District is in compliance with current labor agreements. Also, management should remit the unclaimed amounts due to the Commonwealth two years after they become payable or distributable to former employees that separated under the age of 55.