"Unless School District management can provide compelling evidence to alleviate this doubt, our Independent Auditor's Report will include an explanatory paragraph to reflect our conclusion of substantial doubt to continue as a going concern," Butkovitz wrote.
In the letter, available at philadelphiacontroller.org, Butkovitz listed several "conditions" in which the district finds itself, including:
* Continued ineffectiveness in solving its growing budget gap.
* Inability to identify additional funding streams.
* Deferral of fiscal year 2012 expenditures to the future.
* No formal plan to address the projected fiscal-year 2013 budget gap.
The district issued a statement by email yesterday afternoon responding to Butkovitz's letter. "Management will address each of the items, as requested," according to the document. "It is important to note that there has been no finding that the District cannot continue as a 'going concern.' The District continues to meet both its debt service obligations and payroll.
"The Controller's letter is further confirmation of the difficulties the District faces; those difficulties having been discussed by the School Reform Commission (SRC) last week. The SRC has the authority and the determination to correct the current course and intends to do so."
Knudsen, 69, retired CEO of Philadelphia Gas Works, took over Friday as the district's chief recovery officer and acting superintendent, under a six-month contract paying him $150,000.
Butkovitz, reached by phone yesterday, said he was "encouraged" by Knudsen's hiring and by the presence of freshman SRC Commissioner Feather Houstoun, chairwoman of the SRC financial committee.
What he didn't like, he said, was that the district's proposed plan wasn't followed through.
"When you put down a plan and the reality goes the other way, that's a big alarm," Butkovitz said. "There's a history of the district trying to sweep financial problems under the rug or postpone them or borrow their way out of them, and now they're really at the end of the road on that.