oversight

DC Courts: Improvements Needed in Accounting for Escrow and Other Funds

Published by the Government Accountability Office on 1999-10-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United States General Accounting Office

GAO                 Report to Congressional Requesters




October 1999
                    DC COURTS

                    Improvements Needed
                    in Accounting for
                    Escrow and Other
                    Funds




GAO/AIMD/OGC-00-6
United States General Accounting Office                                                    Accounting and Information
Washington, D.C. 20548                                                                          Management Division



                                    B-282924                                                                                  Leter




                                    October 29, 1999

                                    The Honorable Thomas M. Davis, III
                                    Chairman
                                    Subcommittee on the District of Columbia
                                    Committee on Government Reform
                                    House of Representatives

                                    The Honorable Ernest J. Istook
                                    Chairman
                                    The Honorable James P. Moran
                                    Ranking Democratic Member
                                    Subcommittee on the District of Columbia
                                    Committee on Appropriations
                                    House of Representatives

                                    Your offices asked that we look at the District of Columbia Courts’
                                    (DC Courts)1 (1) obligations, (2) spending plan and obligations of funds,
                                    (3) payments to court-appointed attorneys, (4) voucher processing
                                    procedures, and (5) accounting for the other funds under its control. We
                                    recently issued our report on the first four items that related to DC Courts’
                                    use of appropriated funds during fiscal year 1998.2 This report covers the
                                    fifth item−accounting for other funds under DC Courts’ control−and
                                    addresses whether DC Courts (1) properly reconciled its bank accounts,
                                    (2) had adequate controls over fines and fees collected, and (3) had
                                    authority to retain amounts deposited into the Crime Victims Fund
                                    account.



Results in Brief                    DC Courts did not properly account for the funds in half of its 18 bank
                                    accounts during fiscal year 1998, as evidenced by its problems in
                                    determining its cash balances and reconciling its accounting records to


                                    1
                                     DC Courts is comprised of the Court of Appeals, Superior Court, and the Court System of
                                    the District of Columbia. The Joint Committee on Judicial Administration is a policy-making
                                    body of the DC Courts and has among its responsibilities accounting and auditing functions.
                                    2
                                     District of Columbia Courts: Planning and Budgeting Difficulties During Fiscal Year
                                    1998 (GAO/AIMD/OGC-99-226, September 16, 1999).




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             supporting documentation. Although DC Courts improved its
             reconciliation procedures during fiscal year 1999 and was able to reconcile
             fiscal year-end balances for 15 accounts, it continued to have difficulty in
             properly accounting for the funds in 3 of its accounts−Child Support, Civil
             Escrow, and Juror Fees. As a result, DC Courts did not have assurance that
             funds collected in the Child Support account were properly accounted for
             and appropriately disbursed, that all payments made for Juror Fees were
             properly reimbursed with appropriated funds, and that funds held in the
             Civil Escrow account for payment of claims and settlements were
             appropriately safeguarded.

             In addition, DC Courts did not have adequate controls and procedures in
             place during fiscal year 1998 to ensure that fines and fees collected were
             accurately recorded. For example, fines and fees collected were recorded
             in two different systems without procedures to ensure that both sets of
             records were in agreement. In addition, accounting and auditing functions
             were not properly segregated within DC Courts’ Financial Operations
             Division. This situation increased the risk of errors occurring and not being
             detected and corrected.

             Although DC Courts was authorized to deposit fines, fees, and penalties
             specified in District law into the Crime Victims Fund to provide financial
             assistance to crime victims, in fiscal years 1998 and 1999 DC Courts also
             deposited other fines, fees, and penalties into the Fund that should have
             been deposited in the U.S. Treasury. According to DC Courts’ records as of
             June 30, 1999, the amounts retained in the Crime Victims Fund account
             without the requisite authority totaled over $11 million. However, as of
             October 15, 1999, the Congress was considering legislation that, if enacted,
             would address this problem.

             This report includes recommendations to DC Courts aimed at improving
             controls over and ensuring accountability of funds in its accounts. In its
             comments on a draft of this report, DC Courts agreed with and stated it had
             implemented our recommendations. DC Courts did, however, disagree with
             our conclusion regarding its retention of certain types of fines and fees, but
             acknowledged that provisions in the District of Columbia Appropriations
             Act, 2000, if enacted, would address this issue.



Background   Since 1970, the financial operations of DC Courts have been managed by
             the Financial Operations Division within the Court System. This division is
             comprised of (1) the Accounting Branch, which is responsible for



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maintaining accounting records and processing payments, (2) the Financial
Revenue Branch, which processes child support payments; collects all fees,
fines, and forfeitures; and accounts for moneys held (escrow funds) in the
Registry of the Court, and (3) the Internal Audit Branch, which audits all
accounts of the Courts (including moneys collected and deposited in the
Registry of the Court, grants, and appropriations).

The Financial Operations Division is responsible for managing DC Courts’
18 different bank accounts, which consist of

• two accounts supporting DC Courts’ operations (one checking and one
  interest-bearing account) that are funded primarily through the annual
  federal payment to the Joint Committee on Judicial Administration for
  court operations;
• two imprest accounts3 (checking accounts) to process juror and witness
  fees that are funded with amounts transferred from DC Courts’
  appropriation accounts;
• twelve escrow accounts, which include the child support account and
  accounts for civil settlements, criminal restitution, probate, and
  individuals, and
• two accounts supporting the Crime Victims Fund (one checking account
  and one interest-bearing account).

For fiscal year 1998, DC Courts contracted with the General Services
Administration (GSA) to provide the payroll and financial-related
administrative support services formerly provided by the District
government4 for the two accounts supporting DC Courts’ operations. Under
this contract, GSA processes financial and budgetary information prepared
by DC Courts, records and reports obligations and expenditures, and
makes payroll and voucher payments with funds transferred from the two
accounts. DC Courts’ Financial Operations Division is responsible for all
the financial-related administrative support services for the remaining
16 accounts, using a combination of automated financial systems and
manual records.


3
 An imprest bank account makes a specific amount of cash available for a limited purpose.
Funds in an imprest account are periodically reimbursed from general funds upon receipt of
vouchers supporting disbursements made from the imprest account.
4
 District of Columbia Appropriation Acts for Fiscal Years 1998 (P.L. 105-100, November 19,
1997) and 1999 (P.L. 105-277, October 21, 1998) required DC Courts to contract with GSA to
perform payroll and financial-related services.




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Objectives, Scope, and   Our objective was to determine whether DC Courts properly accounted for
                         the funds in its 18 accounts. Specifically, we determined whether DC
Methodology              Courts properly reconciled its bank accounts, adequately controlled fines
                         and fees collected, and properly retained amounts deposited into the Crime
                         Victims Fund account. To accomplish these objectives, we

                         • interviewed the chief judges, DC Courts’ Executive Officer, Fiscal
                           Officer, Internal Auditor, financial operations and systems employees,
                           and an official from the District’s Office of Corporation Counsel (OCC);
                         • obtained and reviewed unaudited financial information5 and
                           correspondence prepared by DC Courts and statements from the banks
                           in which those accounts were maintained;
                         • obtained copies of DC Courts’ reconciliations for 17 of its 18 bank
                           accounts6 for the month ended September 30, 1998, and for the
                           unreconciled accounts for the month ended April 30, 1999,7 and traced
                           the book balances and transaction activity to bank statements and
                           subledgers,8 and traced reconciling items to detailed supporting records;
                           and
                         • reviewed relevant legislation, including the Crime Victims Act and the
                           Revitalization Act.

                         We did our work in accordance with generally accepted government
                         auditing standards from December 1998 through July 1999. We requested
                         comments on a draft of this report from the Executive Officer of DC
                         Courts. The Executive Officer, on behalf of the Joint Committee on Judicial
                         Administration in the District of Columbia, provided us with written
                         comments that are discussed in the “DC Courts’ Comments and Our
                         Evaluation” section and are reprinted in appendix I.




                         5
                          On May 19, 1999, DC Courts awarded a contract to perform the first audit of its financial
                         statements for the year ended September 30, 1998, as required by the Revitalization Act.
                         6
                         DC Courts could not provide a bank reconciliation for the Child Support account.
                         7
                          As of July 1999, this was the most recent month that the bank reconciliations were
                         available.
                         8
                          These subledgers reflect detailed transactions that are summarized in general ledger
                         control accounts.




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Weaknesses in           During our review of DC Courts’ reconciliations of its 18 bank accounts for
                        the month ended September 30, 1998, we noted that DC Courts did not
Reconciliation          reconcile or had improperly reconciled 9 of the accounts. As a result, DC
Procedures              Courts officials lacked accurate information on account balances and
                        could not provide assurance that it was properly accounting for financial
                        activity in the 9 accounts. Standard accounting practices include
                        performing a monthly reconciliation of the recorded cash balance and the
                        bank balance to assure the accuracy of the cash balances and to correct
                        any bookkeeping errors. Accounting practices also include reconciling the
                        adjusted book balances to the detailed subledgers and supporting
                        documentation to ensure that the cash balance and the related accounting
                        records agree. DC Courts’ reconciliation procedures require that all bank
                        accounts be reconciled each month.

                        Once we notified DC Courts officials of these problems, they properly
                        reconciled the book balances to the bank balances and detailed subledger
                        or supporting documentation for 15 of 18 bank accounts. However, as of
                        July 1999, the Child Support Escrow (Child Support) account had not been
                        reconciled since May 1998, when a new child support system was
                        implemented. Also, the Civil Escrow and Juror Fees accounts were not
                        properly reconciled and included unsupported or inadequately supported
                        differences between the book and bank balances. The results of our review
                        of these three accounts and their status during fiscal year 1999 are
                        discussed below.


Child Support Account   Since implementation of a new automated child support system in May
                        1998, the Child Support account balances and monthly activity had not
                        been reconciled to the related bank account activity. In addition, DC
                        Courts’ accounting staff had not received specific training in using the
                        financial component of the new system. Throughout our review, DC Courts
                        officials cited problems with the financial component of the new system
                        and its Checkbook Ledger, which has an automatic reconciliation feature,
                        as the primary reason the account could not be reconciled. However, in the
                        interim, DC Courts did not make use of alternative means of obtaining and
                        reviewing all relevant information to verify collection and disbursement
                        activity against bank transactions and determine the cash balance in the
                        account. Without accurate information on the account balance and all child
                        support activity, DC Courts could not provide assurance that all child
                        support payments collected were being appropriately disbursed and that
                        there were no duplicate payments or misappropriated funds.



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DC Courts has responsibility for child support collections and
disbursements. It serves as an intermediary between noncustodial and
custodial parents to ensure that court-ordered child support payments are
made. According to DC Courts’ Fiscal Officer, approximately 28,000 child
support checks are mailed out by DC Courts each month, representing total
monthly payments of over $4 million.

Prior to the implementation of a new child support system in May 1998,
information about DC Courts’ child support cases was maintained in
separate records in different automated systems. DC Courts maintained
collection and payment records and operated a financial system that
processed the collections and disbursements and accounted for all related
financial activity. OCC maintained child support records and the District’s
Department of Human Services (DHS)9 maintained paternity records on the
same mainframe system. The new child support system was developed to
meet new federal guidelines that called for a unified child support system
that would consolidate all financial and programmatic records.

With the implementation of the new system, DC Courts would no longer
directly receive all child support collection data or process the child
support payments. OCC’s contractor, which designed and maintained the
new child support system, inputted electronically transferred child support
payments into the new system that automatically allocated child support
check payments, which are printed and mailed by DC Courts. Meanwhile,
DC Courts continued to receive and deposit all child support payments
made in person and from checks mailed directly to DC Courts and was
responsible for inputting this collection data into the new system. In
addition, the contractor maintained all collection and disbursement
information in the system.

When the new system was implemented as of May 1, 1998, DC Courts’
Internal Audit Branch continued the reconciliation procedure it had used
for the former system. Daily, an auditor reconciled child support amounts
collected by DC Courts cashiers to amounts deposited into the Child
Support account. However, this reconciliation was no longer providing a
complete picture of collections, since it did not include electronic
transfers. To get a sense of how much financial activity this reconciliation
was capturing, we reviewed DC Courts’ collection report for the month of


9
DHS’ Office of Paternity and Child Support merged with OCC’s Child Support Enforcement
Division in April 1998.




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June 1999. We discussed this report with the Chief of the Child Support
Enforcement Branch who identified the types of payments that DC Courts
included in its daily collection reconciliations. These payments represented
about $3.9 million (71 percent) of child support receipts collected by DC
Courts in June 1999.

DC Courts and OCC officials told us that the new child support system was
intended to allow DC Courts to easily access historical data on amounts
collected and paid for each case. They also stated that a Checkbook Ledger
feature available in the new system would provide daily child support
transactions and bank activity, which would improve accountability of
collections and disbursements and automatically reconcile the bank
account. As of July 1999, DC Courts officials stated that the Checkbook
Ledger feature did not work and accounting staff had not received training
in its use.

However, the financial component of the new system provides data that
would enable DC Courts to perform manual reconciliation procedures. It
contains (1) detailed lists of all checks disbursed with detail on whether
they cleared the bank10 and checks that were outstanding, (2) a monthly
summary of collections, and (3) the ability to perform a data search to
corroborate certain information on a child support case. Using this
information, its daily reconciliations, and the detail provided to DC Courts
for all electronic fund transfers, DC Courts should have complete
information to verify all collection and disbursement activity against bank
statement activity and to determine the cash balance in the account.
However, DC Courts’ Child Support Branch Chief stated that the
accounting staff does not periodically review the information provided by
the system for completeness and accuracy, nor do they use this information
to report or reconcile amounts. The Child Support Branch Chief also stated
that the check register and outstanding check lists do not include checks
issued on May 19 and May 28, 1998, because the check numbers used for
those 2 days did not appear in the system. Since the disbursement data are
not reviewed and the checks with missing numbers have not been tracked
to determine whether the amounts cleared the bank, DC Courts does not
have complete information on disbursements.




10
  DC Courts’ Child Support Branch Chief stated that the contractor upgraded the system to
include the checks cleared by the bank in November 1998.




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                             As of July 1999, DC Courts had not attempted to reconcile the child support
                             information in the new system with bank activity. DC Courts’ Child Support
                             Branch Chief stated that they are waiting for the Checkbook Ledger to
                             automatically perform the required reconciliation. In August 1999, a
                             contractor manager stated that along with OCC and DC Courts, they were
                             trying to resolve DC Courts’ outstanding concerns regarding the financial
                             component of the new system. The manager also stated that a contractor
                             employee was trained in the use of the Checkbook Ledger and was
                             preparing to train DC Courts’ staff by the end of fiscal year 1999.


Civil Escrow Account Funds   During our review of the Civil Escrow and Juror Fees accounts
Loaned to Juror Fees         reconciliations for the month of September 30, 1998, we noted that DC
                             Courts could not determine the correct cash balances or provide adequate
Account
                             documentation to support identified amounts. As a result, DC Courts could
                             not ensure that funds in these accounts were properly collected and
                             disbursed.

                             The Civil Escrow account holds individual small claims, landlord and
                             tenant settlements, and other civil claims awarded by DC Courts for which
                             the claimant has not yet received payment. As of September 30, 1998, the
                             recorded cash balance was more than $2.7 million for a total of about
                             5,000 active escrow subledger accounts, each representing an outstanding
                             settlement or a claim. In reviewing this account, we found that for almost
                             2 years, portions of the accumulated balance in the Civil Escrow account
                             had been temporarily loaned to the Juror Fees account to pay daily juror
                             fees until amounts could be reimbursed with appropriated funds. This use
                             of escrow funds increased the risk that sufficient funds would not be
                             available to pay all claims and settlements.

                             The Juror Fees account was established as a $100,000 imprest fund to
                             enable DC Courts to pay jurors daily and periodically receive
                             reimbursement with appropriated funds. During fiscal year 1998, the Juror
                             Fees account averaged more than 9,800 transactions totaling about
                             $136,000 each month. Based upon the imprest level established and
                             monthly activity, DC Courts would have to request reimbursement from
                             GSA every 2 weeks to ensure that sufficient funds were available to pay
                             juror fees. However, we found that rather than promptly reimbursing the
                             Juror Fees account with appropriated funds, DC Courts decided in
                             February 1997 to allow the account to be reduced to a zero balance and
                             arranged for the automatic transfer of funds from the Civil Escrow account
                             to cover cleared Juror Fee checks and prevent checks from being returned



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for insufficient funds. DC Courts linked the two accounts so that the Civil
Escrow account would provide overdraft protection to the Juror Fees
account. Then, periodically, DC Courts would submit documentation of
paid amounts to GSA for reimbursement of the Civil Escrow account,
through the Juror Fees account, from appropriated funds.

Some of the specific problems we found in reviewing the Civil Escrow and
Juror Fees accounts’ September 30, 1998, bank reconciliations were as
follows:

• DC Courts’ records indicated that the Civil Escrow account had an
  unreconciled difference between the adjusted book balance and its
  subledger account of $2,000, an unsupported difference in the amount of
  adjustments made to the subledger of almost $15,000, as well as
  inadequate detail to support $286,000 in amounts loaned by the Civil
  Escrow account to the Juror Fees account that were not reimbursed for
  a 2 1/2 month period.
• The Juror Fees account’s reconciliation had unsupported outstanding
  checks of $78,000 and anticipated deposits of over $465,000 for which
  reimbursement had not yet been requested and which DC Courts
  labeled as deposits-in-transit. Of the $465,000 that DC Courts stated
  were deposits-in-transits, it had not requested reimbursement for
  $146,000 of this amount for over a year. This represented unreimbursed
  juror fee payments from April 1998 that were not deposited into the
  Juror Fees account until June 24, 1999. DC Courts officials could not
  explain why they did not request reimbursement of these amounts from
  GSA until after the fiscal year ended.

These problems continued into the summer of 1999. As of July 1999,
DC Courts’ most recent bank reconciliations, which were for the month
ended April 30, 1999, still reflected unreconciled amounts and unsupported
reconciling items. For example, the Civil Escrow account’s reconciliation
still reflected a $2,000 difference and a lack of documentation to support
almost $15,000 of adjustments and the unreimbursed funds loaned to the
Juror Fees account. DC Courts could not provide an explanation for these
problems. These situations resulted in DC Courts still not being able to
support its cash balances in its Civil Escrow and Juror Fees accounts as of
July 1999.




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Other Internal Control     During our review of DC Courts’ September 30, 1998, reconciliation
                           process, we identified two additional internal control weaknesses related
Weaknesses                 to (1) inadequate procedures to ensure the accuracy of fines and fees11
                           recorded in two different systems and (2) accounting and auditing
                           functions that were not segregated.


Inadequate Procedures to   DC Courts did not have adequate procedures for accounting for the
Ensure Accurate            collection of fines and fees or for maintaining records for the amounts
                           transferred to the Crime Victims Fund account each month from the
Accounting of Fines and
                           Register of Wills, Criminal, and Family escrow accounts. DC Courts
Fees                       separately input the fines and fees data into two unconnected
                           (nonintegrated) systems−the DC Courts’ Finance and Remittance (CFAR)
                           system, which reported fines and fees collected and an accounting system12
                           that maintained the general ledger and was the source of information used
                           to reconcile the cash balance to the bank balance. Because these
                           transactions were entered twice manually, DC Courts should have verified
                           the accuracy of the data in both systems to reduce the risk of data entry
                           errors occurring and not being detected promptly. After we discussed the
                           need for this reconciliation with DC Courts, the Fiscal Officer attempted to
                           reconcile the collection data between the CFAR system and accounting
                           records for fiscal year 1998. At the conclusion of our fieldwork, there was
                           an unresolved difference of about $2,400. Further, with fundamental
                           problems in DC Courts’ reconciliations to bank activity and detailed
                           subledgers, there was a greater risk that errors would not be detected.

                           During fiscal year 1999, DC Courts had made changes to start addressing
                           these issues raised during our work. The changes included (1) establishing
                           one automated accounting system for all court operations and (2) hiring a
                           contractor to create an interface between the CFAR system and the new
                           accounting system, which would eliminate the need to separately input
                           data and perform monthly reconciliations of collection data each month. In
                           July 1999, DC Courts installed the new accounting system and was
                           developing the interface. DC Courts continued to manually enter collection
                           data into both systems without verifying the accuracy of the data.


                           11
                            Fines and fees are collected by DC Superior Court’s Civil, Criminal, Family, and Probate
                           Divisions and by the DC Court of Appeals.
                           12
                            During fiscal year 1998, DC Courts used several different accounting applications and
                           manual records to account for fines and fees and other nonappropriated funds.




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Lack of Segregation of   During fiscal year 1998, DC Courts’ audit function was not organizationally
Duties                   separated from its accounting function. Specifically, Internal Audit Branch
                         staff who performed independent audits of accounts and other court
                         operations also performed monthly bank and daily collection
                         reconciliations. This situation resulted in auditors performing accounting
                         tasks that they could also be responsible for auditing, which is an
                         inappropriate mix of operational and oversight roles.

                         In March 1999, DC Courts Executive Officer stated that he had transferred
                         the staff that performed bank reconciliations and other accounting
                         functions from the Internal Audit Branch to another branch of the Financial
                         Operations Division. More importantly, however, as of July 1999, the
                         Internal Auditor continued to have the primary operational responsibility
                         for reviewing monthly reconciliations. While the risk of loss is somewhat
                         less because we did not identify any internal audit staff that handled cash,
                         mixing operational and audit responsibilities has long been viewed as
                         inappropriate from an internal control perspective. Until the Internal Audit
                         Branch is completely segregated from accounting and other operational
                         tasks, the risk of errors or fraud is increased. To the extent that internal
                         audit staff perform operational and accounting functions, they would not
                         be available to perform their central role of performing independent
                         reviews.



Unauthorized Deposits    During fiscal years 1998 and 1999, DC Courts deposited some court fines,
                         fees, and penalties in the Crime Victims Fund, rather than in the U.S.
to the Crime Victims     Treasury as required. Specifically, DC Courts’ records indicated that as of
Fund                     June 1999, over $11 million in fines and fees were inappropriately retained.
                         As of October 15, 1999, legislation was being considered that would provide
                         DC Courts with the authority to deposit all court fines, fees, and penalties
                         in the Crime Victims Fund, use funds necessary to operate the program,
                         and return any unobligated amounts in excess of a specified level to the
                         U.S. Treasury.




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In April 1997, a District law13 established the Crime Victims Compensation
Program under DC Courts’ jurisdiction prior to the enactment of the
Revitalization Act.14 The District law provides that payments of up to
$25,000 from the fund can be made to crime victims for economic loss.
Payments can also be made for shelter, burial costs, or medical expenses.
The District law also provides that the Crime Victims Fund may be credited
with (1) appropriations made to it, (2) fines assessed on persons either
convicted of serious traffic or misdemeanor offenses or persons convicted
or pleading guilty or no contest to felony offenses, (3) amounts recovered
by the District from offenders or third parties by subrogation to the victim’s
rights as a result of payments of claims to victims, (4) repayments of
overpayments or false claims payments from claimants, and (5) amounts
received from any source, including grants from the federal government.15
The authority to deposit specified collections to the Crime Victims Fund
was an exception to the general requirement in section 450 of the Home
Rule Act that DC Courts deposit collections to the District General Fund.16

However, the Revitalization Act, under which the federal government
assumed responsibility as of fiscal year 1998 for funding DC Courts,
amended section 450 of the D.C. Home Rule Act to change its effect on
DC Courts. Instead of being required to deposit moneys in the District’s
General Fund or in the Crime Victims Fund, the Revitalization Act amended
section 450 to provide that all moneys received by DC Courts be deposited
in the U.S. Treasury or the Crime Victims Fund.17 Following passage of the


13
 The Victims of Violent Crime Compensation Act of 1996, D.C. Law 11-243, 44 D.C. Reg.
1142, 2601 (April 9, 1997), DC Code Ann. Sections 3-421 through 3-438 (1999 Supp.).
14
 National Capital Revitalization and Self-Government Improvement Act of 1997, Public Law
No. 105-33, Title XI, 111 Stat. 712 (1997).
15
     DC Code Ann. Section 3-435 (1999 Supp.).
16
 Prior to January 2, 1975, DC Courts’ Fiscal Officer was required to deposit all fines,
forfeitures, fees, unclaimed deposits, and other money in the U.S. Treasury. P.L. 91-358,
Section 111, 84 Stat. 473, 511 (1970), as amended, DC Code Ann. Section 11-1723 (1981).
Section 450 was enacted as part of the Home Rule Act and provides in its first sentence that
the “General Fund of the District shall be composed of the District revenues which on
January 2, 1975, are paid into the Treasury of the United States and credited either to the
General Fund of the District or its miscellaneous receipts….” DC Code Ann. Section 47-130
(1981). Accordingly, fines, forfeitures, fees, unclaimed deposits, and other moneys that were
DC Courts revenues deposited in the U.S. Treasury before the Home Rule Act became part
of the General Fund of the District under Section 450 prior to the Revitalization Act.
17
     DC Code Ann. Section 47-130 (1999 Supp.).




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              Revitalization Act, DC Courts began to deposit in the Crime Victims Fund
              all the money it received from fines, fees, and penalties.

              In our opinion, the Revitalization Act’s amendment to section 450 did not
              alter the District law governing the Crime Victims Program and the Crime
              Victims Fund or otherwise address the authorized sources for funding the
              Crime Victims Fund identified in the District law. Accordingly, we conclude
              that the Revitalization Act did not expand DC Courts’ authority to deposit
              collections in the Crime Victims Fund beyond amounts collected from the
              sources identified in the District law governing the Fund. DC Courts should
              have deposited collections from other sources in the U.S. Treasury. DC
              Courts’ records indicated that it retained about $11 million in fines and fees
              as of June 1999 that should have been deposited in the U.S. Treasury.

              On June 29, 1999, we briefed your offices on this matter. As of October 15,
              1999, the Congress was considering legislation that, if enacted, would allow
              DC Courts to deposit all fines, fees, and penalties in the Crime Victims
              Fund account to be used to pay crime victim claims.18 This legislation
              would be retroactive to April 1997,19 and would require that all unobligated
              amounts in the account in excess of $250,000 as of September 30, 2000, be
              returned to the U.S. Treasury annually beginning with fiscal year 2000.20



Conclusions   Without performing regular and proper reconciliations between the
              recorded cash balances, bank balances, and the related supporting
              documentation, DC Courts could not properly account for the funds in the
              Child Support, Civil Escrow, and Juror Fees accounts and increased the
              risk of these funds being inappropriately spent. Rather than waiting for the
              new child support system to automatically reconcile the child support
              account, DC Courts should have manually reconciled the account to
              thoroughly account for amounts collected and disbursed. In regard to the
              Civil Escrow and Juror Fees accounts, DC Courts’ improper reconciliation
              procedures and inadequate documentation to support reconciling amounts
              increased the risk of errors in these accounts. Also, DC Courts’ failure to


              18
               Section 160 (c) of H.R. 3064. Identical language was included in Section 160 of H.R. 2587,
              which was vetoed by the President.
              19
                   Section 160 (e) of H.R. 3064.
              20
                   Section 160 (d) of H.R. 3064.




              Page 13                GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
                  B-282924




                  request the reimbursement of juror fee payments regularly and the lack of
                  detailed documentation to support the amounts loaned from the Civil
                  Escrow account to the Juror Fees account made it more difficult to
                  properly account for financial activity in the two accounts.

                  Meanwhile, a lack of segregation of duties between DC Courts’ Internal
                  Audit Branch and other Financial Operations Division’s staff increased the
                  risk of errors occurring and not being detected and corrected and reduced
                  resources available for independent reviews. Improving its accounting for
                  the funds in its accounts would enable DC Courts to provide better
                  assurance to the citizens of the District that moneys entrusted to DC Courts
                  are properly safeguarded and spent for the intended purposes.



Recommendations   To improve DC Courts’ accounting for and controls over funds it maintains
                  in accounts, we recommend that the Joint Committee direct the Fiscal
                  Officer to do the following:

                  • Adhere to existing procedures that require that every account be
                    reconciled to the bank statement and supporting detail and/or
                    subledgers each month. These reconciliations should be completed
                    promptly, such as within 30 days of the receipt of the bank statement. In
                    regard to the Child Support account, DC Courts should review all
                    collections and disbursements and perform a manual reconciliation
                    each month, until the automated reconciliation function of the new child
                    support system can be used.
                  • Request reimbursement of all unreimbursed juror fee payments. Once
                    all amounts are reimbursed, DC Courts should immediately transfer to
                    the Civil Escrow account all amounts that were temporarily borrowed
                    and terminate the overdraft protection relationship between the Civil
                    Escrow and Juror Fees accounts.
                  • Determine the appropriate level to reestablish the Juror Fees account as
                    an imprest fund and the appropriate time intervals to request
                    reimbursement of juror fee payments to replenish the fund. The
                    established fund level combined with the reimbursement interval should
                    ensure that there are sufficient funds for the Juror Fees account to
                    operate independently.
                  • Transfer all bank reconciliation responsibilities and related accounting
                    functions from the Internal Audit Branch to other branches within the
                    Financial Operations Division in order to appropriately segregate duties.




                  Page 14         GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
                      B-282924




DC Courts’ Comments   DC Courts acknowledged its difficulties in properly accounting for
                      financial activity in three of its accounts. DC Courts stated that our
and Our Evaluation    observations and recommendations made during this review have assisted
                      it in identifying areas of its financial operations that needed improvement
                      and in taking measures to address each of these areas. DC Courts stated
                      that it has implemented all recommendations. It did, however, disagree
                      with our conclusions regarding its retention of certain types of fines and
                      fees. Following our discussion of this issue with the House Appropriations
                      Committee, Subcommittee on the District of Columbia, provisions were
                      added to the District of Columbia Appropriations Act, 2000, which, if
                      enacted, would address DC Courts’ retention of fines and fees. DC Courts
                      acknowledges that these provisions, if enacted, would address this issue.

                      We are sending copies of this report to Representative Eleanor Holmes
                      Norton, Ranking Minority Member, Subcommittee on the District of
                      Columbia, House Committee on Government Reform; Senator Kay Bailey
                      Hutchinson, Chairwoman, Subcommittee on the District of Columbia,
                      Senate Committee on Appropriations; Senator Richard Durbin, Ranking
                      Minority Member, Subcommittee on the District of Columbia, Senate
                      Committee on Appropriations and Subcommittee on Oversight of
                      Government Management, Restructuring and the District of Columbia,
                      Senate Committee on Governmental Affairs; and Senator George
                      Voinovich, Chairman, Subcommittee on Oversight of Government
                      Management, Restructuring and the District of Columbia, Senate
                      Committee on Governmental Affairs. We are also sending copies to the
                      Honorable Annice Wagner, Chairwoman, Joint Committee on Judicial
                      Administration, DC Courts; the Honorable Jacob J. Lew, Director, Office of
                      Management and Budget; and Grace Mastelli, Deputy Assistant Attorney
                      General, Department of Justice. Copies will be available to others upon
                      request.




                      Page 15         GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
B-282924




If you have any questions, please contact me or Steven Haughton at
(202) 512-4476. Key contributors to this assignment were Marcia
Washington, Lou Fernheimer, Jeffrey Jacobson, and Richard Cambosos.




Gloria L. Jarmon
Director, Health, Education and Human Services
Accounting and Financial Management Issues




Page 16        GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
Page 17   GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
Appendix I

Comments From the District of Columbia
Courts                                                                                  Appendx
                                                                                              Ii




              Page 18   GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
Appendix I
Comments From the District of Columbia
Courts




Page 19           GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
Appendix I
Comments From the District of Columbia
Courts




Page 20           GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
Appendix I
Comments From the District of Columbia
Courts




Page 21           GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
Appendix I
Comments From the District of Columbia
Courts




Page 22           GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
                   Appendix I
                   Comments From the District of Columbia
                   Courts




(916285)   Leter   Page 23           GAO/AIMD/OGC-00-6 DC Courts Accounting for Escrow and Other Funds
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