The Case of the Missing Millions
May. 04, 2018
Council budget hearings are rarely the stuff of high drama. In fact, they're usually pretty scripted and, as a result, rather boring. Ane member of Mayor Nutter'due south staff recounted for me this week all the belatedly nights of meticulous training that administration would undergo in order to avoid making headlines when questioned by Quango.
Well, this twelvemonth'southward upkeep hearings have deviated from the rule. When City Councilman Allan Domb questioned Treasurer Rasheia Johnson near the metropolis's accounting practices—revealing an unconscionable $33.3 million hole betwixt what's on the city books and what's in the city'southward main bank account—information technology was ane of those rare moments when government's gross incompetence is laid bare for all to see. Under incisive, disbelieving questioning from Domb, Johnson and Deputy Treasurer Chris Schwartz stammered their way to conceding that some of the metropolis's books weren't reconciled for seven years and that the administration doesn't know where 33 million of your tax dollars went.
Adopt the audio version of this story? Listen to this article in CitizenCast below:
Check out the hemming and hawing in response to Domb's questions beginning at the 2 minute mark below, and Domb's dumbfounded responses ("I'thousand flabbergasted!"):
Let's exist clear nearly what happened here. From 2010 upwards until last summer, the city did not reconcile its payroll or general disbursement accounts, and, according to Finance Manager Rob Dubow and Johnson, both of whom I spoke to yesterday, did non reconcile its consolidated greenbacks business relationship since 2014. That's the main account funding city operations, which typically has hundreds of millions of dollars running through information technology and for four years it was non reconciled against the daily revenue of the city, which would have been in keeping with all-time practices.
That's where the $33 1000000 hole is, which Dubow and Johnson say has at present been whittled downwards to $27 one thousand thousand. And so: The city has, at best, misplaced $27 one thousand thousand of taxpayer money and hired an accounting firm for $500,000 to find it…at a time when the Kenney assistants is seeking nevertheless another property tax increase.
The city has, at best, misplaced $27 million of taxpayer money…at a fourth dimension when the Kenney administration is seeking yet some other property tax increase. Are you lot feeling like they'll handle that revenue responsibly? Doesn't exactly inspire confidence, does it?
Are you lot feeling like they'll handle that revenue responsibly? Doesn't exactly inspire confidence, does it?
This amounts to governmental malpractice, and it warranted more just the one story in the Inquirer. Most of all, it warranted some leadership from Mayor Kenney, who opted for semantic game-playing and defensiveness:
Somewhere, Harry Truman—upon whose desk sabbatum a sign reading "The Buck Stops Here"—is gyrating in his grave. The Mayor says "reconciling is non missing." Well, if your answer to the question "Where's the 27 meg?" is "I don't know," guess what? Information technology's missing .
What nosotros have here is a cultural trouble. Regime in the People's Republic of Philadelphia is not just plodding; it turns a bullheaded eye to crisis. (See: Pensions, the unfunded liability of which now takes up roughly xvi percent of the city's budget). It'due south telling that 2 of the newest faces in city government—Domb and Controller Rebecca Rhynhart—have reacted with a sense of urgency conspicuously lacking from the Mayor and Dubow.
"Any person in small concern will tell you, if your greenbacks register is $50 off, you stay belatedly and figure it out," Rhynhart says. "I don't come across that urgency here. And I've told the Mayor that. This is the people's money and much more care needs to be taken."
"We're a $iv.6 billion corporation," Domb says. "If we had a Lath of Directors, this never would have been allowed to occur. Whatever business organization possessor will tell yous, if their books are even slightly off, they're staying up all night to get to the lesser of it."
Rhynhart doesn't make Kenney's "reconciling is non missing" distinction. "The records show that the City should have $33 million more in the bank than information technology does," she says. "In the auditing world, that's listed as a 'material weakness,' a deficiency in internal control over financial reporting. That's a large deal."
Rhynhart says that reconciling is a core function of the Treasurer'due south Office, and she should know, having headed that function under Mayor Nutter, reporting to Dubow. "If the payroll account reconciliation fell a month or two behind, I'd order overtime and so we could go upward to speed," she says, noting that the city'due south virus of not-reconciliation started later her tenure as Treasurer. "The Finance Department needs to get its act in order with some urgency. A civilisation change needs to happen. Any person in modest business will tell you, if your cash annals is $50 off, you stay late and figure it out. I don't run across that urgency here. And I've told the Mayor that. This is the people'southward money and much more care needs to be taken."
In fact, former Controller Alan Butkovitz brought these accounting practices—or the lack thereof—to the attending of Dubow beginning in 2014. In my telephone call with Dubow and Johnson yesterday, Dubow acknowledged that and they both said they knew about the missing (what was and so) $40 million concluding summer. Johnson says they did, in fact, react with urgency. "When I came on board and realized reconciliations weren't completed, step ane was to put a plan in identify and change the culture," she says. "Footstep ii was additional staff after Rob provided resources for boosted staff." That, according to Johnson, translated into one boosted rent, and so that there's now two and 1-half people dedicated to accounting and reconciliation, in addition to the pricey outside firm that'south simply getting started.
Doesn't exactly sound like anyone's been pulling all-nighters, does it? Johnson, proceed in mind, was named Treasurer at the start of the Kenney administration in January of 2016. That's over ii years ago, and all the city has to prove for its efforts is a lower corporeality of missing taxpayer dollars, ane additional hire, and sizable invoices from an outside bookkeeping firm? Sounds more than like a public relations—as opposed to a reform—plan.
Dubow has been the city'due south Finance Director for a decade, and he has a stellar reputation, both for his municipal finance acumen and for his inside political skills. "Ultimately, I'k responsible," he tells me when I enquire who should exist held answerable for this embarrassment. When I tell him the lack of basic bookkeeping principles feels to me like the city has failed in its fiduciary responsibility to taxpayers, he doesn't quibble. "That'southward why we're fixing it," he says.
Domb cautions me that there'southward a systemic issue at play here that goes beyond Dubow. "I can't blame Rob, this is too large a task for one guy," he says. "With a budget of $4.6 billion, nosotros're a huge corporation and we're not investing enough in fiscal controls. Each department should have a Chief Financial Officeholder who reports to Rob, not to the department head, and then there'due south real oversight."
The Mayor says "reconciling is not missing." Well, if your answer to the question "Where'south the 27 million?" is "I don't know," guess what? Information technology'south missing.
Merely Dubow says Domb's cure wouldn't have helped. "This really came downward to staffing problems in the Treasurer's part," he says. If he's right, though, the programme going forward from Dubow and Johnson doesn't exactly inspire confidence. It's incremental—a hire here, a reassignment in that location, an outside agency to help—and then far, and so are the results, the "whittling down" of the missing money from $forty million to $26 million.
Domb sees this as role of a "this is how we've always done it" pattern in metropolis government. He'due south wrestled of late with the Department of Prisons, for example, which is resisting his common sense call for a xv percent budget reduction in light of the thirty percent drop in the number of inmates incarcerated. He pledges to stay on top of the metropolis's accounting shortcomings.
For her role, Rhynhart says "I won't let this go," even as she admits it'southward uncomfortable to criticize Dubow, who she once reported to: "But I didn't run to exist comfy," she says. Next calendar month, the release of her function'south Internal Controls Report volition likely revisit the issue.
I keep coming back to the issue of leadership and accountability. When Los Angeles discovered $42 one thousand thousand had been lost due to an accounting error, the city's chief administrative officer Miguel Santana didn't obfuscate or offer excuses. He endemic it. "When all your focus is on providing resource and surviving another year, proactive review of our fiscal management can get lost in there," he explained, an instinct which—who knows?—may take been at play hither.
And last twelvemonth, after the city of Spokane, Washington went through successive annual audits that found those dreaded cloth weaknesses in its accounting practices, Mayor David Condon sent a alphabetic character to his manager of bookkeeping: "I wish you the very best in your future professional endeavors," he wrote.
You lot'd like to see the Mayor take ownership and impose accountability. After all, it's the brownie of his administration that'south at pale when his underlings are scrambling to find millions of missing dollars—while he's asking for more in taxes. Rob Dubow has been the Managing director of Finance for a decade and has served the metropolis honorably. But sometimes fresh optics bring new solutions. Sam Katz, the sometime head of fiscal oversight board PICA once said, "Maybe we should accept term limits for all senior city officials," and that seems entirely concerning now, as the Kenney administration tries to come back from a bad self-inflicted wound.
Description: In a quote above, City Controller Rebecca Rhynhart says the Metropolis should have "$33 million more in the bank than information technology does." Her office has not even so confirmed that the missing amount is at present $27 million.
Source: https://thephiladelphiacitizen.org/the-case-of-the-missing-millions/
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