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Thursday, August 28, 2008

NY Courts Audit Reveals $14 Million Discrepancy

NY Courts Audit Reveals $14 Million Discrepancy
by The New York Lawyer and The Associated Press - August 27, 2008

New York City finance officials are promising to keep better track of money collected from bail, foreclosures and other court-ordered payments after state auditors found records were off by $14 million. State Comptroller Thomas DiNapoli said in an audit released yesterday that one court-related bank account was nearly $11 million short of the amount in city ledgers. Another account had about $3 million more than the records showed. The city Department of Finance said citizens got all the money they were due. The agency blames the accounting errors on a decades-old computer system, set to be replaced by January. While it said no one has been denied money to which they are entitled, the agency is working to untangle the discrepancies by next month. That may prove laborious: Mr. DiNapoli said some records are handwritten court receipts.

Here's the Report from Comptroller Thomas P. DiNapoli:

OFFICE OF THE NEW YORK STATE COMPTROLLER, DIVISION OF STATE GOVERNMENT ACCOUNTABILITY - NEW YORK CITY DEPARTMENT OF FINANCE
ACCOUNTABILITY OVER COURT, TRUST AND BAIL FUNDS - Report 2007-N-8

AUDIT OBJECTIVE

Our objective was to determine whether the New York City Department of Finance (Finance) adequately assured that it maintained an accurate accounting for court, trust and bail funds.

AUDIT RESULTS - SUMMARY

The New York City courts collect bail paid on behalf of defendants, payments pursuant to court orders, funds from estates controlled by public administrators and other miscellaneous revenue. These monies must be forwarded to the City’s Department of Finance (Finance) for deposit and safekeeping. According to the New York City Charter, Finance must maintain separate ledger accounts whenever court, trust or bail transactions are received, and must keep an accurate accounting of all such funds. As of December 31, 2006, Finance’s Statement of Condition indicated that court and trust funds totaled $273.7 million and bail funds totaled $50.6 million.

Finance is able to reconcile the totals on the Statement of Condition with the corresponding amounts on deposit with banks. However, the separate ledgers for the court funds showed a total of $284.5 million as of December 31, 2006; a discrepancy of $10.8 million that has not been reconciled with the amount shown on the Statement of Condition for this date. In addition, the separate ledger for the bail funds showed a total of $47.3 million as of December 31, 2006; a discrepancy of $3.3 million that has not been reconciled with the amount shown on the Statement of Condition as of this date. Because the amount of funds reflected in the supporting separate ledgers substantially disagrees with the amount shown on the Statement of Condition (and the amount on deposit), we conclude that Finance lacks adequate assurances that it has an accurate accounting over court and trust and bail funds.

Finance officials state that they have not been successful in reconciling these differences and believe the differences are due to errors in the accounting system that processes the detailed transactions. They state that the accounting system is out of date and a new system is required, but funds are not available for a new system.

We made three recommendations to improve accountability over funds including monitoring the existing discrepancies during a monthly reconciliation between the separate ledgers and the Statement of Condition to ensure that any changes to the unresolved discrepancy amounts are identified and explained. In addition, Finance will need to formulate a long term strategy for handling the existing discrepancies and for transitioning to an updated integrated accounting system.

Finance officials agree with the report’s recommendations and state that plans are underway to replace the antiquated system with a new system by January 1, 2009.

This report, dated August 26, 2008, is available on our website at: http://www.osc.state.ny.us. Add or update your mailing list address by contacting us at: (518) 474-3271 or Office of the State Comptroller, Division of State Government Accountability, 110 State Street, 11th Floor, Albany, NY 12236

BACKGROUND

Section 2601 of the Civil Practice Law and Rules requires that all monies paid into the New York City courts be forwarded to the City’s Department of Finance (Finance).

These monies include bail postings made on behalf of defendants, payments made pursuant to court orders, trust funds from estates controlled by Public Administrators (such estates have no known heirs or no heirs able or willing to administer the estates), and other miscellaneous funds. Payments made pursuant to court orders commonly involve landlord/tenant disputes and surplus monies from foreclosures.

Finance receives these monies from various City courts, New York City Public Administrators, the New York City Department of Correction (bail funds), and other City agencies. In accordance with Section 1504.3c(iii) of Chapter 58 of the New York City Charter, Finance must open and maintain separate ledger accounts whenever court, trust or bail funds are received, and keep an exact accounting of all such funds.

Finance’s Client Services Unit (CSU) is responsible for the monies and maintains a computerized accounting ledger for these court, trust and bail funds. According to Finance’s Statement of Condition (financial statement), as of March 31, 2007, the court and trust funds totaled $281.2 million and the bail funds totaled $52.8 million. (Other miscellaneous funds of $4.1 million are also included on the Statement of Condition but were not subject to our review.)

AUDIT FINDINGS AND RECOMMENDATIONS

Accounting for Funds

We found that Finance routinely reconciles the amount of funds showed on the Statement of Condition with the amount of funds on deposit. However, we conclude that Finance lacks adequate assurances that it has an accurate accountability on court, trust and bail funds because Finance cannot reconcile the amounts in the separate ledger accounts for the court, trust and bail funds with the amounts on deposit with the bank.

For example, on December 31, 2006, the Statement of Condition indicated that the court funds on deposit totaled $273.7 million, while the detailed accounting records calculated by the mainframe system totaled $284.5 million, a discrepancy of about $10.8 million. Similarly, on that same date, the Statement of Condition for bail funds indicated a balance of $50.6 million, on deposit while the detailed accounting records calculated by the mainframe system totaled $47.3 million, a discrepancy of about $3.3 million.

A Finance official explained that Finance does not perform a reconciliation to resolve the discrepancies because the mainframe system used to calculate the individual ledger accounts is an antiquated mainframe computer system that is unreliable and inaccurate. Officials also stated that Finance was exploring the option of a new system which would provide individual account balances and a recording of transactions at the various collection points. However, Finance officials stated that agency resources did not permit the development of a new system at this time.

We agree that a new system is needed. However, we conclude that the following steps should also be taken:

• Monitor the existing discrepancies to ensure they do not substantially change. If a substantial change is noted, immediately investigate it to isolate and correct the problem.

• Explore the acquisition of a simpler system similar to what a bank uses to keep the bank balances in line with the detailed ledger account balances.

• Develop a strategy for resolving the existing discrepancies before converting to a new system.

Recommendations

1. Implement an updated integrated computer system that maintains individual account balances for court, trust and bail funds, and fully and accurately accounts for the funds.

2. Monitor existing discrepancies to ensure they do not substantially change. If a substantial change is noted, immediately investigate it to isolate and correct the problem.

3. Develop a strategy for resolving the existing discrepancies before conversion to a new system.

AUDIT SCOPE AND METHODOLOGY

We conducted our audit in accordance with generally accepted government auditing standards. We audited Finance’s controls over court, trust and bail funds for the period January 1, 2003 through August 31, 2007. To accomplish our objective, we interviewed Finance officials and reviewed New York City and New York State laws, rules and regulations related to the operations of the New York City Department of Finance. We also reviewed selected account files, records and related documentation maintained by Finance.

As is our practice, we notified agency officials at the outset of the audit that we request a representation letter in which agency management provides assurances, to the best of their knowledge, concerning the relevance, accuracy and competence of the evidence provided to the auditors during the course of the audit. The representation letter is intended to confirm oral representations made to the auditors and to reduce the likelihood of misunderstandings. In the representation letter, agency officials assert that, to the best of their knowledge, all relevant financial and programmatic records and related data have been provided to the auditors. Agency officials further affirm that either the agency has complied with all laws, rules, and regulations applicable to its operations that would have a significant effect on the operating practices being audited, or that any exceptions have been disclosed to the auditors. However, officials at the New York City Mayor’s Office of Operations have informed us that, as a matter of policy, mayoral agency officials do not provide representation letters in connection with our audits. As a result, we lack assurance from agency officials that all relevant information was provided to us during the audit.

In addition to being the State Auditor, the Comptroller performs certain other constitutionally and statutorily mandated duties as the chief fiscal officer of New York State. These include operating the State’s accounting system; preparing the State’s financial statements; and approving State contracts, refunds, and other payments. In addition, the Comptroller appoints members to certain boards, commissions and public authorities, some of whom have minority voting rights. These duties may be considered management functions for purposes of evaluating organizational independence under generally accepted government auditing standards. In our opinion, these functions do not affect our ability to conduct independent audits of program performance.

AUTHORITY

The audit was performed pursuant to the State Comptroller’s authority under Article V, Section 1 of the State Constitution and Section 33 of the General Municipal Law.

REPORTING REQUIREMENTS

A copy of this report, in draft, was sent to Finance officials for their review and comments. Their comments were considered in preparing this report.

Finance officials agree with the report’s recommendations and state that plans are underway to replace the antiquated system with a new system by January 1, 2009. Within 90 days after final release of this report, we request that the Commissioner of the New York City Department of Finance report to the State Comptroller advising what steps were taken to implement the recommendations contained herein, and where recommendations were not implemented, the reasons why.

CONTRIBUTORS TO THE REPORT

Major contributors to this report are Kenneth Shulman, Sheila Jones, Harry Maher, Brenda Maynard, Natalie Sherman and Dana Newhouse.

APPENDIX A - AUDITEE RESPONSE

5 comments:

duh said...

But that's what the court's do in NY: take money. So there will naturally be a discrepancy. duh

Anonymous said...

In Upstate NY, the auditor was the same man who worked at this project for 2-3 yrs off and on....and guess where he worked from?...the appointed and heavily- hacked chief clerk's office.

This office was secluded, personal and easily influenced by the poitical staff!

It was always shocking to enter this office and find this man working like he had possession of that office and intimidating to any employee who intended to conduct work related business in there, because this person from the outside, acted as though he was an OCA employee hiding something...and you were disturbing him sitting in silence staring at you!

This shortage does not surprise me one bit...since most of the upstate hack supervisors in charge of the budget are incompetent, barely educated and ignorant of anything financial!

So.....OCA has the methods and means and desire to use the computer to destroy almost anything, and then dare to use it's outdatedness as a defense for the misplacement of A HORRENDOUS AMOUNT OF STATE FUNDS! I must question this completely!

OCA has such a vast number of alleged bright and expert computer people in every catergory..even ones that specialize in altering documents for any and all illegal purposes!

My knowledge about them leads me to conclude, that they have illegally tendered these funds somewhere else, covered up funds that have been taken in, and purposely thwarted any efforts to be recognized as skiming or illegally withholding these monies!

BS to any story OCA has concocted to cover up this loss..INVESTIGATE THE REAL STORY!

Anonymous said...

the previous comment sounds like upstate columbia county too. comptroller hevesi began doing audit and found many discrepancies in the probation dept with funds and whatnot. audit of foster care and medic aid in the county allegedly had an initial $2 million discrepancy and then later a $1 million discrepancy and fbi was poking around for a bit asking questions and then no one knows. the county has had a very high Foster Care and Medic Aid rate based upon statistical comparison to other counties and the numbers skyrocketed in the last 4-6 years of dethroned King George Pataki. the Social Services Law mandates that foster care placement be used as a last resort yet in this county close to albany with strong gop connections "keeping the rolls up" and foster care and medic aid money flowing was the norm

Anonymous said...

Incredible, but not surprising. The courts are supposed to be audited for all their functions, not just money. However, money is probably the easiest to follow, and it seems clear, that there is a big problem.

The whole system is rotten, and as the saying goes "The fish rots from the head down" and this is exactly what the Court System in New York exemplifies.


Wonder what Patterson is going to do now?

the boxer said...

who wants to bet that there is a whole lot more than $14 million "missing" ???????

Blog Archive

See Video of Senator John L. Sampson's 1st Hearing on Court 'Ethics' Corruption

The first hearing, held in Albany on June 8, 2009 hearing is on two videos:


               Video of 1st Hearing on Court 'Ethics' Corruption
               The June 8, 2009 hearing is on two videos:
         
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               CLICK HERE TO SEE Part 2