City of Philadelphia - Report on Internal Control and Compliance Fiscal 2016

Why The Controller’s Office Conducted the Examination

Pursuant to Section 6-400 (c) of the Philadelphia Home Rule Charter we conducted an examination of the City of Philadelphia’s (city) 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 city’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 city’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 city’s Comprehensive Annual Financial Report (CAFR) 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 weaknesses and deficiencies in the process that city management uses to prepare the statements. These weaknesses and deficiencies contributed to errors totaling $5.8 billion. Some of the more important matters requiring management’s attention include:

  • Inadequate oversight and review procedures over the city’s financial reporting process, along with ongoing staffing shortages and turnover, continued to hinder the ability of city accountants to produce a timely, accurate, and complete CAFR without significant audit adjustments.
  • Weaknesses in the Treasurer’s Office bank reconciliation process created the potential for material reporting errors and irregularities. Differences between book and bank activity for the city’s primary depository account (consolidated cash) were not being readily identified or investigated. Also, bank account reconciliations were not timely completed, with 23 percent of accounts not reconciled until more than two months after fiscal year-end. Several accounts were not reconciled at all, most notably the city’s payroll and general disbursement accounts, which have not been reconciled since September 2010 and April 2012, respectively.
  • Unauthorized approvals for payroll disbursements increased the risk of improper expenditures.

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.

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