Guest Commentary: There’s Real Money In Those City Hall “Accounting Errors”

Guest Commentary: It'southward Existent Coin In Those 'Accounting Errors'

Philly's erstwhile controller on how the missing millions are simply the latest in the city's history of financial missteps

Jun. 29, 2018

Imagine 2 businesses. In Business A, running totals are kept continuously on all depository financial institution accounts, listing all deposits, expenditures and balances. Employees have to turn in detailed receipts in social club to get reimbursed. No ane is allowed to take part equipment domicile, or if they practice, they have to sign it out with a baby-sit and then bear witness they returned it before they go their adjacent paycheck. The people who social club supplies are unlike from the ones who bank check them in and pay for them. Checks are reviewed monthly by someone other than the one writing them. All borrowings have a detailed ledger showing the amount and purpose of every expenditure from that borrowing.

Things are dissimilar at Business organisation B. Checks are written without maintaining a current balance. Employees are reimbursed with or without detailed receipts and dunned for them later. Portable computers are not tagged with identifiers, and when "lost" are replaced from inventory with no accuse considering no 1 knows who terminal had control over them. The aforementioned person orders supplies and pays for them. Expenditures are fabricated from borrowed funds without a detailed running ledger, but are explained every bit needed by scrambling through receipts, notations and unrecorded retention of transactions.

You lot can't pitch multi- billion dollar serial borrowings for supposedly the same thing without running into "The Male child Who Cried Wolf" syndrome. That is the ultimate cost of the administration's financial incompetence.

At the finish of the yr, auditors come in and can't find what happened to $100,000 at one business organisation. They don't know whether it was stolen, mistakenly deposited in the wrong account, mistakenly paid to the wrong vendor or never existed in the kickoff identify, being the result of arithmetic errors by someone handling the checkbook.

Which business suffered this loss, A or B? The respond's obvious. The entire point of Business A'southward no nonsense approach is to send a message: "Don't mess with u.s.a.. Nosotros'll observe you and hold you answerable."

The current Urban center Hall scandals involve two separate kinds of bookkeeping "errors." The first one, involving a missing $27 meg is extremely serious. It has been pooh-poohed past both high level city officials and by the outside accountant hired to figure out what happened to information technology. That accountant was already paid $500,000 to locate $half-dozen,000,000 of what was originally a missing $33 1000000.

The second error involved a discrepancy of nearly $1 billion between what the city has listed as avails, liabilities and equity and what the correct numbers for those categories are. This is not cash but is nevertheless important. It would make a big difference, for instance, if the city owned $1 billion of real manor, or whether it was $2 billion, or nothing. The scandal here is that the city is supposed to get this right, and so have its work validated past the controller. Instead, the city has for years depended on the controller to actually work out this number, which ways that there is no contained torso validating the work. It too is a symptom that the city doesn't have plenty people, and the right technology to really empathize its financial position, or manage its coin.

Since 2010 the Controller'south office has highlighted this trouble every year in its annual fiscal audit. Finance Manager Rob Dubow has regularly responded that the city is working on it, is going to add together staff and upgrade technology. That response is being repeated now past the Kenney Administration. That response would not be acceptable to Concern A. Nosotros need to be like Business A.

Restoring staff sufficient to practice the monitoring and testing of the metropolis's spending will save millions more than in precious tax dollars than cutting out the people who exercise the watchdogging.

Unfortunately, this is only the tip of the iceberg of the city's financial management crunch. The city regularly misstates mid-yr estimates of costs. Fire house brownouts, for example were supposed to save $3 million. Instead they cost $3 meg. Soda tax receipt estimates missed their target by nearly $20 one thousand thousand. Major decisions are therefore existence based on wishful thinking.

All of this is dwarfed by the School District, which pitched $three billion in borrowing on the basis that 75 schools would be built. Nowhere near that number was built and it would have been impossible to build that many for that toll. The School District's liabilities now exceed their assets by about $3 billion, which were largely used for operating expenses. Now nosotros demand $7 billion to fix or supercede sick school buildings. You tin can't pitch multi- billion dollar serial borrowings for supposedly the same matter without running into "The Boy Who Cried Wolf" syndrome. That is the ultimate cost of the administration's fiscal incompetence.

What is the solution to all this? Betwixt 2010 and 2022 the Finance Section staff was cut from 169 to 118 employees. During that aforementioned fourth dimension the Treasurer's office was cut from 13 to 8 employees. Fraud experts teach that there is a full general 5 percent risk of fraud. So in a $iv.7 billion budget like Philadelphia's, about $235 million is at risk of theft or fraud if strong financial controls are not in identify.

Restoring staff sufficient to practise the monitoring and testing of the city's spending will relieve millions more in precious tax dollars than cutting out the people who practice the watchdogging. At the same time, the city needs to practice a comprehensive engineering upgrade instead of continuing its practice of patchwork fixes that have already acquired tens of millions of dollars in wasted spending on systems that don't piece of work.

Alan Butkovitz was Philadelphia'southward City Controller from 2006 to 2018.

Header photo: Pixabay

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Source: https://thephiladelphiacitizen.org/guest-commentary-its-real-money-in-those-accounting-errors/

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