In releasing his recent audit of the School District of Philadelphia’s financial statements that found serious financial errors, City Controller Alan Butkovitz today called for more financial oversight and auditing authority for the City and the Controller’s Office over the School District’s finances.
The Controller’s recommendations are due to serious financial deficiencies that were found in the latest Report on Internal Control and on Compliance and Other Matters for the School District of Philadelphia for fiscal 2010. A few of these deficiencies included a $15.3 million food-service loan that had no documentation of how to pay back the loan, and a $42 million period adjustment from a bond swap that was improperly recorded in the books.
“We found a combination of deficiencies in the District’s procedures that led to significant undetected errors that occurred when the District prepared its financial statements,” said Butkovitz, at last week’s press conference. “We deemed the control deficiencies to be a material weakness.”
Butkovitz continued, “One a scale of 1 to 10 – where 10 is the worst – the School District’s combination of weaknesses registers as a 10. These serious errors put us in a difficult position of not trusting financial statements presented to us by the School District.
“Another material weakness was that the School District’s top staff responsible for preparing financial statements couldn’t even readily provide my auditors with a copy of the formal manual of financial statement preparation and review procedures. In our opinion, this is serious.”
Accounting standards and rules require the Controller’s Office to report material weaknesses because of their significance in terms of the reliance to investors and bond rating agencies put on the School District’s financial statements.
To resolve any future errors on the School District’s financial statements, Butkovitz made the following recommendations:
- the School District must present a five-year plan to an independent authority, such as the Pennsylvania Intergovenmental Cooperation Authority (PICA), and have the plan approved.
- the City’s Finance Director should have some involvement in the School District’s finances, budgeting and accounting practices.
- the Controller’s auditing duties need to be expanded through legislation to include pre audit and performance functions at the School District.
“The School District has resisted us in performing these functions and limits us to post audit duties of their financial statements,” said Butkovitz. “More auditing would help identify inefficiencies and questionable spending practices prior to the twelfth hour.”
“With a $629 million deficit, coupled with a material weakness in their accounting procedures, it is clear that greater oversight and more financial accountability is needed at the School District of Philadelphia.”
To view a copy of the Report on Internal Control and on Compliance and Other Matters for the School District of Philadelphia for Fiscal 2010, please visit the Controller’s website at www.philadelphiacontroller.org
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