The story is told by Troy Graham in yesterday's "Heard in the Hall" entry on Philly.com. I've added the article below as it's an important chapter in our city's strggle against waste, fraud, and abuse:
Controller Alan Butkovitz today identified seven areas that could impact the city's ability to properly report its finances.
This stuff is slightly technical for the financial layman, which Heard in the Hall should be considered, so below is the full release from Butkovitz's office. Enjoy.
PHILADELPHIA – City Controller Alan Butkovitz today released the findings from his audit of the City's Fiscal Year 2010 Comprehensive Annual Financial Report (CAFR) that included seven separate conditions resulting in a material weakness over the City’s ability to properly report its finances.
A material weakness is determined to exist when there is a “reasonable possibility” that the process used to prepare a financial report will not prevent or detect and correct mistakes in the report on a timely basis.
“Our Office is required by auditing standards to report material weaknesses so that management can take corrective action and ensure investors and bond rating agencies of timely, accurate, and reliable financial information for making informed decisions,” said Butkovitz.
The seven conditions contained in the material weakness include the following:
- continued staff turnover and reductions in the city's Finance Office, compromising the process necessary for preparing an accurate CAFR;
- poor procedures to ensure accurate reporting of city receivables;
- lack of procedures for preparing the deposits and investments footnote, which led to numerous misclassified or omitted deposit and investment accounts;
- insufficient procedures to make certain the City’s Water Fund is accurately reported;
- failure to obtain timely financial statements from component units included in the CAFR;
- inadequate accountability over departmental custodial accounts; and
- failure to automate the year-end closing process for the city's Aviation Fund to decrease the risk for financial statement errors.
“As a result, top managers are now being forced to prepare significant sections of the CAFR, eliminating their independent review of CAFR work that would normally be performed by subordinates -- and in turn reviewed by them in their supervisory role,” said Butkovitz. “Consequently there was, and still remains, an increased risk of errors in financial reporting.”
“During the course of this audit my staff found $1.1 billion in errors which were ultimately corrected by the City,” said Butkovitz. “While I understand the budget constraints facing all city departments, it is imperative for the Finance Office to have the appropriate number of staff to ensure that the financial statements and information presented are accurate.”
Along with the material weakness, another finding included the Department of Human Services’ (DHS) ongoing failure to submit quarterly reports of expenditures for reimbursements within the required 45 days of the end of reach quarter. For all of fiscal 2010, DHS had been consistently late in submission of the reports.
“With the city experiencing fiscal constraints, timely reporting of Act 148 reimbursement invoices would have improved the city’s cash flows,” said Butkovitz. “I strongly urge DHS to comply with Act 148 and submit their reports for reimbursement within the mandated 45 days.”
The Controller’s other concerns from the audit report include:
- The city’s lack of a comprehensive capital asset system.
- Inadequate inventory procedures for all city real property.
- Continuing concerns with the operation of the Basis 2 Water Billing System.
- The failure to revise the city’s Standard Accounting Procedures (SAP) to reflect various automated processing applications and practices currently in use.
- Non-compliance with Act 148 reporting requirements.