Clerk of the Courts Audit. January 26, 2010 Report #685

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1 Clerk of the Courts Audit January 26, 2010 Report #685 Released on: August 12, 2010

2 EXECUTIVE SUMMARY AUDIT REPORT #685 INTRODUCTION STATEMENT OF OBJECTIVES STATEMENT OF SCOPE AND METHODOLOGY STATEMENT OF AUDITING STANDARDS AUDIT CONCLUSIONS OVERALL INTERNAL CONTROL WEAKNESSES OVERALL AUDIT FINDING AUDIT OBJECTIVE # AUDIT OBJECTIVE # AUDIT OBJECTIVE # AUDIT OBJECTIVE # AUDIT OBJECTIVE # EXHIBIT I SUMMARY OF DOLLAR IMPACT OF FINDINGS TO THE CLERK EXHIBIT II EXCESSIVE ACCESS RIGHTS

3 OFFICE OF THE COUNCIL AUDITOR Suite 200, St. James Building January 26, 2010 Report # 685 AUDIT CONCLUSIONS EXECUTIVE SUMMARY Overall Conclusion Based on numerous findings and internal control weaknesses as detailed below, we recommend the Administration perform further analysis to determine what option would be best in improving the ongoing relationship issues between the City and the Clerk. The analysis should be exhaustive and include all viable options to determine how this relationship can be handled in the future to best serve the public. Overall Conclusions by Objective 1. For several county-related fees, the Clerk of the Courts (Clerk) did not assess the appropriate fee amounts as established within the Florida Statutes. Additionally, the Clerk of the Courts did not distribute all revenues owed to the County and the individual Public Records Modernization Trust Funds (PRMTF). 2. In most instances the Clerk properly reimbursed the City of Jacksonville (City) for courtrelated expenditures; however, there is an instance where the City did not bill the Clerk in a timely manner for court-related expenses and the Clerk has not reimbursed the City for costs totaling $562,040 (Clerk s court-related Information Technology (IT) salary costs for fiscal year 2007/08). 3. It appears that the Clerk has utilized the PRMTF dollars in accordance with the Florida Statutes; however, there were discrepancies between the amount spent and reported. 4. The City appears to be funding the Clerk s county-related expenses in accordance with Article V of the State Constitution; however, we did note instances where the City funded the salaries of employees performing court-related functions. 5. The Clerk does not appear to be fully compliant with the Memorandum of Understanding (MOU) with the City that was signed on February 6, More specifically we found: The Clerk has not reimbursed the City for court-related IT costs totaling $586,070 (IT costs from August 1, 2007 to March 31, 2008); however, we were unable to verify that a bill was ever sent to the Clerk s Office. Council approval was not being obtained for expenditures from the $1.00/$.50 PRMTF. The Clerk was not providing the City a monthly summary of activity in the PRMTF. The Clerk was not adhering to the City s purchasing procedures. The overall net impact of the findings addressed in the report is that the Clerk s Office owes the City $1,440,939 (See Exhibit I). 117 West Duval Street Jacksonville, Florida Telephone (904) Fax (904)

4 OFFICE OF THE COUNCIL AUDITOR Suite 200, St. James Building January 26, 2010 Report #685 Honorable Members of the City Council City of Jacksonville INTRODUCTION Pursuant to Section of the Municipal Code, each of the constitutional officers is to be audited by the Council Auditor s Office at least once every five years. The Clerk of the Courts Audit was performed to meet the requirement of Section The Council Auditor s Office also utilized a staff member from the City s Office of the Inspector General to assist with the system review. The Clerk of the Courts (Clerk) is a constitutional office established pursuant to Article V, Section 16 of the Constitution of the State of Florida and Article XII, Section 6 of the City Charter. The functions of the Clerk s Office are to maintain court records, attend court sessions, process civil and criminal court cases, receive and disburse monies for fines, court costs, forfeitures, fees, service charges, alimony, child support, and victim restitution. The Clerk also maintains official records, issues marriage licenses, and processes tax deeds for Duval County (County). The Clerk receives funding from both the State of Florida (State) and the County. Because the City of Jacksonville operates as a consolidated government, the county funding requirements referenced herein are provided by the City of Jacksonville (City). In addition to the county obligations required pursuant to Article V to fund certain court-related items, the City funds the Clerk s county-related functions which include the Tax Deeds Department, Marriage License Department, and Recording Department. In fiscal year 2008/09, the City authorized a budget of $4,291,444 with 41 positions to meet its county obligations. The Clerk of the Circuit Court is the official recorder of all instruments that may, by law, be recorded in the county. Below is a graph that demonstrates the decline in the number of documents recorded by the Clerk s Office, which corresponds with the decline in the number of home purchases. County Documents Recorded by Year 350, ,000 Documents Recorded 250, , , ,000 50, Fiscal Year Total Number of Documents Recorded 117 West Duval Street Jacksonville, Florida Telephone (904) Fax (904)

5 Examples of these recorded instruments include deeds, mortgages, and notices. A fee of $10.00 for the first page and $8.50 for each additional page is charged each time one of these documents is recorded in the Official Records of the Clerk of the Courts Office. Per 2005 House Bill 1935, Section 6, and Section of the Florida Statutes, the detail of the $10.00 fee for recording, indexing, and filing instruments is as follows: Distributed to/used for 1st Page Each Add'l Page City (Clerk's county-related functions) $ 5.00 $ 4.00 Clerk of the Court (Public Records Modernization Trust Fund - Clerk's county-related IT) $ 1.00 $ 0.50 Clerk of the Court (Public Records Modernization Trust Fund - Clerk's court-related IT) $ 1.90 $ 1.90 Florida Association of Court Clerks and Comptroller, Inc. $ 0.10 $ 0.10 City (court-related technology for state trial courts, state attorney, and public defender) $ 2.00 $ 2.00 Total Fee $ $ 8.50 On February 6, 2008, the Clerk and the City entered into a Memorandum of Understanding (MOU). This MOU was entered into because both parties were in disagreement over the interpretation of Revision 7 to Section 14 of the State s constitution (which was enacted into law on July 1, 2004), and the amendments to Florida Statutes concerning the distribution of county revenues and costs charged to the Clerk s Office for Information Technology (IT) expenditures. The agreement specified the following: The Clerk will remit Recording Fees to the City on a quarterly basis. The City permits the Clerk to maintain custody of the Public Records Modernization Trust Fund (PRMTF) in exchange for the Clerk funding all Computer Technology needs without the use of Recording Fees or other City funds. The Clerk will prepay the City monthly for payroll expenses of his court-related employees. All of the Clerk s employees, including the court-related employees are eligible to participate in the City s pension plan and are paid through the City s payroll services. The Clerk agrees to utilize the City s procurement procedures. However, if City funds are not being used for the purchase, the City agrees to restrict its review to examining the legality of the purchase. The Clerk agrees to reimburse the City at fair market value for procurement services. The Council Auditor s Office will be permitted to audit both the Clerk s court-related and county-related functions regardless of the funding source

6 STATEMENT OF OBJECTIVES The objectives of the audit were as follows: 1. To determine whether the Clerk was assessing the appropriate fees for county-related revenues (recording, tax deeds, and marriage licenses) and accurately distributing the revenues to the City and PRMTF. 2. To determine whether the City was properly reimbursed for court-related expenses incurred between October 1, 2007 and March 31, To determine whether the $1.00/$.50 and $1.90 portions of the Recording Fees retained by the Clerk of the Courts within the PRMTF were properly spent in accordance with all applicable laws and regulations. 4. To determine whether the City was funding the Clerk s county-related expenses (recording, tax deeds and marriage licenses) in accordance with Article V of the State s Constitution. 5. To determine whether the Clerk was in compliance with the MOU with the City that was signed on February 6, STATEMENT OF SCOPE AND METHODOLOGY The scope of our audit was October 1, 2007 through March 31, 2009, unless otherwise noted. To complete the audit, we conducted interviews with staff, observed staff performing daily functions, reviewed relevant electronic systems in place and examined supporting documentation. More specifically, we: Obtained data directly from the Clerk s Recording system to assess the amount of revenue collections that should be remitted to the City. Reviewed the fee database set up in the Clerk s Recording System to determine whether amounts charged in the system were appropriate. Reviewed numerous Florida Statutes, as well as the Memorandum of Understanding between the Clerk of the Courts and the City and other relevant laws and regulations. Reviewed invoices submitted by the City to the Clerk for reimbursement of court-related expenses. Examined supporting spreadsheets for expenditures made within the PRMTF to determine whether dollars were spent in accordance with the Florida Statutes. Reviewed supporting calculations for costs associated with county-related expenses. Ran multiple samples, both random and judgmental, using our Data Extraction Software, IDEA, for testing various expenditures and selecting documents recorded in the county s Official Records to evaluate fees charged. It is relevant to note that we did encounter difficulties in obtaining data from the Clerk s Recording System that we requested from the Clerk s Office. This information was essential to the completion of our audit, especially in relation to Audit Objective #1, which required that we determine whether the Clerk was remitting all revenues owed to the County. We originally - 3 -

7 requested this information at the beginning of June 2009 and were not provided the initial information until mid-september 2009 after numerous requests. Our report is structured to identify Internal Control Weaknesses, Opportunities for Improvement and Audit Findings as they relate to our audit objectives. Internal control is a process implemented by the Clerk to provide reasonable assurance that they achieve their objectives in relation to the effectiveness and efficiency of operations and compliance with applicable laws and regulations. An Internal Control Weakness is therefore defined as either a defect in the design or operation of the Clerk s internal controls or is an area in which there are currently no internal controls in place to ensure that objectives are met. An Opportunity for Improvement is a suggestion that we believe could enhance the Clerk s operations. An Audit Finding is an instance where management has established internal controls and procedures, but responsible parties are not operating in compliance with the established controls and procedures. Suggested Additional Audit Work In limiting the scope of this audit, we did not pursue the following areas, and as such they should be considered for future audit work: Revenue received by the Clerk on behalf of the City pertaining to court-related operations, such as the $65 fee currently assessed on various cases pursuant to Florida Statutes Cost-benefit analysis of the Clerk s IT being separated from the City s Information Technology Department. STATEMENT OF AUDITING STANDARDS We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. AUDITEE RESPONSES Responses from the auditee have been inserted after the respective finding and recommendation. We received these responses from Jim Fuller (Clerk of the Courts), Kent Olson (City s Budget Officer), and Kevin Stork (City s Comptroller). Preceding the responses to the individual findings, Mr. Fuller s response stated the following: Caveat there are some MOU areas that are not entirely agreed upon by the City and the Clerk. While still under severe financial and personnel constraints to adequately serve the statutory mandates and customer needs of the court, it is the intent of the Clerk to prioritize the - 4 -

8 implementation of high impact SOPs noted in the audit to adequately deal with any substantial operational risks. AUDIT CONCLUSIONS Overall Conclusion Over the past several years, the City has faced numerous challenges with the Clerk of the Courts Office concerning the remittance of Recording Fees to the City. On February 6, 2008, the City and the Clerk entered into a Memorandum of Understanding (MOU) in an attempt to address these problems. As a part of this agreement, the Recording Fees must be remitted to the City no later than the end of the month following the end of the quarter. Since the signing of the MOU, the timing of the remittance of the revenue has not been a major issue. However, there are other items in the MOU that were agreed upon by both parties that have not been adhered to. For example: The Clerk has not reimbursed the City for IT costs incurred on behalf of the Clerk s Office in the amount of $586,069. The Clerk is not utilizing the City s procurement procedures for all purchases. The Clerk made expenditures from the $1.00/$.50 PRMTF without approval via Council appropriation. Also, based on observations during the course of our audit, it appears the Clerk s Office routinely utilizes county-funded employees to assist the Clerk in court-related functions, particularly assisting with the weekly jury pool selection. Based on numerous findings and internal control weaknesses as detailed below, it would be prudent for the Administration to perform further analysis to determine if county-related recording functions should be absorbed into the City s operations. This would allow the City to maintain a greater control over the costs associated with the county-related functions of the Clerk s Office for which the City is financially obligated to fund. Such action would have to be approved as a J-Bill by the City Council and then ultimately approved by the State Legislature. Overall Conclusions by Objective 1. For several county-related fees, the Clerk did not assess the appropriate fee amount as established within the Florida Statutes. Additionally, the Clerk of the Courts did not distribute all revenues owed to the County and the individual Public Records Modernization Trust Funds (PRMTF). 2. In most instances the Clerk properly reimbursed the City for court-related expenditures; however, there is an instance where the City did not bill the Clerk in a timely manner for court-related expenses, and the Clerk has not reimbursed the City for costs totaling $562,040 (Clerk s IT salary cost for fiscal year 2007/08). 3. It appears that the Clerk has utilized the PRMTF dollars in accordance with the Florida Statutes; however, there are discrepancies between the amount spent and reported

9 4. The City appears to be funding the Clerk s county-related expenses in accordance with Article V of the State Constitution; however, we did note instances where the City funded the salaries of employees performing court-related functions. 5. The Clerk does not appear to be fully compliant with the Memorandum of Understanding (MOU) with the City that was signed on February 6, The overall net impact of the findings addressed in this report is that the Clerk s Office owes the City $1,440,939 (See Exhibit I). OVERALL INTERNAL CONTROL WEAKNESSES General recommendations for improving internal controls of the Clerk based on our observations, interviews, and data testing: Internal Control Weakness #1 *No Formal Standard Operating Procedures* The Clerk does not maintain formal standard operating procedures (SOPs) for vault access and the operations of the Recording and Marriage License Departments. Additionally, there are limited policies and procedures in relation to the Clerk s Accounting and Finance (A&F), Tax Deeds, and Purchasing Departments which are either outdated or inadequate. Recommendation to Internal Control Weakness #1 We recommend that the Clerk s Office develop, implement, and continuously update a set of standard policies and procedures for overall and departmental operations within the next six months. Clerk Response to Internal Control Weakness #1 We agree with the advisability of updating or creating new SOPs, but challenge the assumption that there were none in existence and in use for Marriage License and Tax Deeds. More complete SOPs for the Accounting & Finance Department and Cash Handling are currently being developed. The Marriage License and Tax Deeds Departments have been using longstanding, frequently updated Standard Operating Procedures manuals. They are available upon request. Internal Control Weakness #2 *Inadequate Change Management Policy* The Clerk maintains a policy known as the Change Management Policy in order to manage changes to the IT infrastructure surrounding their various systems. Per the Clerk, this policy covers all changes to the Clerk s network and security infrastructure, server back-end support including database administration, as well as application support in the form of updates and patches. The Clerk s Change Management Policy is inadequate, and it is not followed by the - 6 -

10 Clerk s employees. The Change Management Policy was created from a template and was not modified to meet the Clerk s operational needs. The address used in the Change Management Policy does not exist. Additionally, the change request form that is to be filled out and approved for each change order does not appear to be used. Per policy, the change management group is supposed to meet regularly, but there is no indication that these meetings have ever occurred. Recommendation to Internal Control Weakness #2 The Clerk should revise and enforce the Change Management Policy to ensure the stability and security over the Clerk s systems. Clerk Response to Internal Control Weakness #2 The Clerk notes that, rather than inadequate as claimed, it has been a policy under continual revision. A current change order policy is available upon request. Informal meetings with staff are held as needed to manage any required changes. Internal Control Weakness #3 *Inadequate Password Policies and Settings* The Clerk s password settings in the Clerk s official Recording System, OnCore, and the Clerk s Accounting System, Navision, need to be improved. While we recognize there is a login required to access any computer in the Clerk s Office, we noticed the following areas of concern in relation to the password settings for the Clerk s Recording System: 1. There is not a maximum password age requirement that would force employees to change their passwords. 2. The minimum password length is set to one character. 3. The password length is limited. 4. Case sensitivity is not allowed. 5. Only alphanumeric characters are permitted. The Clerk indicated verbally that they addressed these issues; however, we have not been provided evidence to date. Additionally, Clerk s A&F employees were not instructed to change their passwords in the Clerk s Accounting System with the belief that passwords could only be changed by the Clerk s IT Department. As a result, these employees never changed their passwords since the inception of the Clerk s Accounting System; however, this issue has since been addressed by the Clerk s Office. Recommendation to Internal Control Weakness #3 The Clerk s Office should revise their Recording System and Accounting System password policies and settings to enhance computer security by forcing users to employ strong passwords. Good password policy and implementation of that policy is intended to maximize the security over the data

11 Clerk Response to Internal Control Weakness #3 The Clerk is constantly striving to better security but does not agree that his structure has been properly classified as inadequate. The Clerk s password structure has been as follows: OnCore s Password Policy: 1. A user must first possess an Active Directory username and password to access the network with which OnCore resides on. 2. The user is required to have a password between 7 and 15 characters. 3. The password is case sensitive. 4. The password can contain Alpha-Numeric characters. 5. The password can contain symbols and/or punctuation. 6. The password expires every 30 days, where the user is required to create a new password. 7. A unique password is required at every reset and previously used passwords cannot be reused. 8. The user is locked out after 3 failed login attempts. This change in policy was set in place while the auditors were still on site and was to be mentioned in the audit. Additionally, the Windows policy was in place since Navision s Password Policy: 1. A user must first possess an Active Directory username and password to access the network with which Navision resides on. 2. Navision did have static passwords. These passwords contained Alpha Numeric characters and punctuation. They were a minimum of 6 characters. These passwords were set on the SQL Server level by Systems Management, as Navision does not have its own password table. Users are now able to manage their own passwords. Also we were working on upgrading Navision to SQL Server 2008 where we will be adopting the Microsoft SQL Password Standards. We plan to have the Navision Upgrade to SQL 2008 completed by the end of this quarter. Internal Control Weakness #4 *Excessive Access Rights & Segregation of Duties* The rights to the Clerk s Accounting System and Recording System lack oversight and need to be revised. We noted various weaknesses related to the lack of segregation of duties and degree of access to the system. We found that various users had extreme access rights that allow them to make all possible changes to the Clerk s Accounting System and to the Clerk s Recording System, which places the security of the data at risk. In both systems there was a complete lack of segregation of duties. For example, Accounts Payable staff in the Clerk s A&F were all assigned the same level of group access in the Clerk s Accounting System, rather than segregating the Clerk s functions. This could allow someone to add a fictitious vendor and also process payment to a vendor. Although other control testing as well as detailed testing in each objective below enabled us to place reliance on the system data, limiting access is crucial to protecting the integrity of the data. For details on the weaknesses listed above, please, refer to the Exhibit II

12 Recommendation to Internal Control Weakness #4 The Clerk s management should carefully review the Recording System and Accounting System access rights to ensure that separation of duties is continuously enforced and that access is appropriately restricted to users who have a valid need. Clerk Response to Internal Control Weakness #4 Access and user rights are matters of constant concern to the Clerk. Oncore The Clerk s Office has significantly reduced and revised user s rights for OnCore. It is important to understand IT staff must maintain a certain level of access in order to meet the daily requirements of system functionally. Due to business procedures and the location of satellite offices it is necessary for non-supervisory staff to have the same system rights as a supervisor. We will continue to work with vendor of OnCore to enhance the application to allow more granularities for security. Documentation is available upon request. Navision With regards to the Navision application the permissions have been and are still in the process of being refined to specific job roles. We anticipate completion of this project by the end of the third quarter Internal Control Weakness #5 *Former Employees with Access to Systems* The Clerk s Office does not maintain adequate controls that ensure timely inactivation of access rights for terminated personnel. Allowing former employees access to data places the organization at risk for data to be destroyed or tampered with. For example, the former Chief Assistant Clerk, who retired on January 4, 2008, was an Authorized Signer up until May 19, 2009 for six out of the seven Clerk s bank accounts. An Authorized Signer is authorized to act, give instructions, access information, use bank services, and process transactions on behalf of the Clerk s Office. Additionally, we obtained a list of terminated employees for fiscal year 2007/08. Eight out of the 17 terminated employees user accounts in the Clerk s Recording System were still active as of March 31, Recommendation to Internal Control Weakness #5 We recommend that the Clerk develops a set of procedures to ensure immediate inactivation of access rights for terminated personnel

13 Clerk Response to Internal Control Weakness #5 Clerk s Accounting The weakness related to the Chief Assistant to the Clerk as a signer on the bank accounts is more of a perceived weakness than an actual one. If it were to be assumed that the Chief Assistant to the Clerk was to be more apt to practice dishonest behavior after his retirement than before (since nothing changed with regards to the authorized signature), then a couple of protective processes need to be noted. Firstly, the Chief did not have direct access to any bank account information, check stock, bank account numbers, access passwords, internet security, etc. that would have made such an authorization carte blanche and a significant risk. The primary function of the standard bank authorization was to provide a back-up signer in the event that a signature was required and the Clerk was not available. The initiation of any of the authorized activities would have come solely from the accounting department who held the controlling banking information and passwords. The immediate non-removal of his name from the bank signature card was an oversight and there is no evidence that this was a significant risk under the circumstances. Secondarily, additional security is offered through the vigilance of several individuals involved in managing the daily bank reconciliation. Any suspicious activity would have been caught immediately. However, the audit was correct in finding this weakness and procedures have been put in place to eliminate this problem. Clerk s IT Established procedures for employment changes are submitted from the department supervisor via the electronic help desk. IT staff makes the necessary adjustments when the effective date occurs. The Clerk of Court is currently working on an in house application that will work in conjunction with HR and all clerk departments to provide a list of application access and security permissions per employee to assist with ensuring the access levels are maintained. This check list will be used when there is any change to the employee status. The Windows password policy was in place since Internal Control Weakness #6 *Check Request/Security* In the Tax Deeds Department, check requests can be prepared by any of the three employees in the Department. The memo used to request a check only requires a supervisor to initial the request, and the Clerk s A&F does not maintain a file with initials of approved supervisors for verification purposes. This could allow an employee in Tax Deeds to fraudulently obtain funds. Additionally, at least one of the Clerk s checkbooks is kept in a cabinet that is not locked in the Clerk s A&F Department. The Clerk s Office should utilize proper controls over checks to reduce risk of misappropriation of funds. Recommendation to Internal Control Weakness #6 A supervisor s signature should be required for any check request. The Clerk s A&F Department should create a file containing the signature, not the initials, of each individual approved to authorize check requests. For every check request, the Clerk s A&F Department should verify the signature on the request against the signature on file. Additionally, the Clerk s Office should secure all checkbooks when not in use

14 Clerk Response to Internal Control Weakness #6 The Clerk accepts the auditor s recommendation. An SOP addressing these weaknesses has been developed and disseminated to the various departments for appropriate action. OVERALL AUDIT FINDING Finding #1 * Overcharging Clerk for Indirect Costs* The State/Court function of the Clerk s Office was overcharged for indirect costs. Per Whereas Clause #7 of the MOU (which by Section F.1. was incorporated into the terms of the MOU), the City can seek reimbursement for procurement services at a fair market value from the Clerk s Office. The City charges the Clerk for its procurement services through the Indirect Cost Allocation. Due to miscommunications between the City and the Clerk s Office, the Clerk was inaccurately charged via the Indirect Cost Allocation for some disallowed costs. The City overcharged the Clerk s court-related functions in the amount of $195,466 and $99,955 in fiscal year 2007/08 and first half of fiscal year 2008/09, respectively. Although state funds were used to pay these costs in the past, the indirect allocation was properly allocated to the Clerk s courtrelated budget for fiscal year 2009/10. Recommendation to Finding #1 To continue properly allocating indirect costs to the Clerk s Office, the City s Budget Office should directly provide the City s Accounting Division (AD) the amount of the indirect cost charged for each fiscal year since it is the City s Budget Office s responsibility to calculate the amount of the annual indirect cost. The City needs to reimburse the State via the Clerk s Office for these disallowed charges totaling $295,421 through our audit period. The City may also owe the Clerk for overstated indirect costs for the period of April 2009 through September 2009, which fell outside of our audit period. Clerk Response to Finding #1 The Clerk will work with the City to resolve this matter. City Accounting Division Response to Finding #1 The Accounting Division (AD) agrees with the recommendation that the City needs to reimburse the State the disallowed indirect charges of $295,421. This has not been corrected to date because we wanted this to be in conjunction with the receipt of the $562,040 reimbursement to the City recommended in Finding 2-2. AD performed additional reviews and owes the Clerk $99,955 for overstated indirect costs for the period outside the audit. We will net that against the receivable due from the Clerk as noted in Finding

15 City s Budget Office Response to Finding #1 The Budget Office agrees with the finding and has made changes to avoid a recurrence of this problem. AUDIT OBJECTIVE #1 To determine whether the Clerk is assessing the appropriate fees for county-related revenues (recording, tax deeds, and marriage licenses) and accurately distributing these revenues to the City and the PRMTFs. Internal Control Weakness 1 1 *Cash Handling* The Clerk s Office is not in compliance with the City s SOPs on cash receipts nor does it have adequate supplemental SOPs to provide further guidance on cash processes that are unique to the Clerk s operations and involve multiple departments. We were provided a document that only addressed the operations of the cashroom which was last updated in We noted various areas of concern and listed them below: Violations of City s SOPs for Cash Receipts (1) The Tax Deeds Department within the Clerk s Office does not have a cashiering system in place to ensure that all collections are appropriately deposited. a. The current system consists of a spreadsheet that is maintained based on the cash receipt book, both of which are easily subject to manipulation. b. Three employees share one cash drawer. c. The cash drawer is not locked during business hours. (2) In the Recording, Marriage License, and Tax Deeds Departments, the cash counts are not performed in a secure room. (3) Employees are allowed to cash personal checks, and these checks are not immediately restrictively endorsed. (4) In the Recording Department, unendorsed checks are left in mail bins overnight which are not secured. (5) Cash registers are balanced in the morning. This combined with the fact that there are inadequate controls over the keys to the deposit bags makes it difficult to hold one individual responsible in the event funds are missing. (6) Change funds for each cashier are not counted nightly. Therefore, no control is in place to stop an employee from borrowing money from the individual change fund and replenishing it later. (7) No check listing is prepared in the Mailroom or Recording Departments where mail is processed. (8) Employees working with cash do not take a one week (five working days) vacation annually

16 (9) Access to the Recording Department main change fund/petty cash drawer maintained by a supervisor is not restricted. (10) The Tax Deeds Department does not strictly endorse checks For Deposit Only immediately after the cashiering process. Violations of Good Cash Security Practices (11) Currently, the individual dropping the deposit bags off at the vault in the Marriage License area signs off beside each bag number when the individual receiving the bags reads off the numbers of the bag. The individual dropping the deposit bags off could sign off beside additional bag numbers and the individual receiving the deposit bags would not know. For example, the individual could sign that they dropped ten bags off while dropping only nine bags off. (12) The daily cash counts are not blind counts. Cashiers know how much money they should have to balance their register; therefore, they may add money to (or take from) the daily deposit to make the drawer balance for the day. (13) The Supervisor in the Recording Department performing the close-out only counts cash and does not count checks or other forms of payment. (14) Access to vaults is not restricted to a limited number of employees. The key to the gate of the first floor vault is kept in a cabinet that is not locked during the day. This cabinet is located in a high traffic area; therefore, it is possible to retrieve the vault gate key without raising suspicion. The gate is the only barrier to restrict unauthorized entry during normal business hours. (15) Number of employees known to have an alarm code to a vault include: a. 18 employees to the first floor vault in the Marriage License area b. 7 employees to the vault in the Felony Department c. 7 employees to the vault in the Evidence Department d. 10 employees to the fourth floor vault (16) Alarm codes have not been changed since 1993 with the exception of the Evidence Department s alarm code which was changed in (17) Number of employees known to have an access code to a vault include: a. 6 employees to the first floor vault in the Marriage License area b. 3 employees to the vault in the Evidence Department c. 5 employees to the fourth floor vault (18) Vault codes have not been changed in the last five years. Recommendation to Internal Control Weakness 1 1 Overall, the Clerk s management should follow the City s Cash Receipts Policy; in addition, the Clerk should implement supplemental policies as needed. Policies should be communicated to all applicable Clerk employees. Such policies are intended to safeguard cash collections. In relation to the items not specifically mentioned in the City s Standard Operating Procedures as noted above, we recommend the following actions regarding the numbered violations above: (11) Employees receiving deposit bags at the vault should look at each bag, check that it is locked and sign off on the sheet by the corresponding bag number. The employees

17 picking the bags up in the morning should look at each bag and sign off next to the corresponding bag number on the sheet after verifying that each bag is locked. (12) Blind counts should be implemented so the cashier does not know what is supposed to be in the cash drawer at the end of each day. (13) The Clerk s Office needs to implement procedures whereby it will be possible to determine who has control over cash and checks at all times. For example, the employee counting drawers should not just count cash, but should count checks and credit card charges turned in by each cashier daily as well. (14) Access to all vaults needs to be restricted to a limited number of employees to reduce the risk of an unauthorized entry. (15) The alarm code for all vaults should be further limited to essential personnel. (16) The alarm codes for the vaults should be updated, and the codes should be updated on a set schedule in the future as determined by management. (17) The access code for the vaults should be further limited to essential personnel. (18) The access codes for the vaults should be updated, and the codes should be updated on a set schedule in the future as determined by management. Clerk Response to Internal Control Weakness 1 1 The auditor s recommendations will be carefully reviewed and considered one at a time to evaluate their applicability to the Clerk s operational needs. Some may be found to be adaptable, some may not. The process and speed of implementing changes will be dependent upon the availability of resources and daily operational needs in the near term. Internal Control Weakness 1 2 *Tax Deeds Department A/R System* The Tax Deed Department is tasked with conducting tax deed auctions and billing applicants service charges and fees associated with the auction process. The Tax Deeds Department currently has no automated accounts receivable system to ensure that all tax deed application fees have been paid. This results in an increased risk for errors and irregularities to occur during the collection process, as well as an increased risk that funds could be misappropriated. Currently, the Tax Deeds Department receives the applications for tax deeds via the Tax Collector s Office. After 300 to 500 applications are accumulated, the bills are sent to the applicants. The employee makes a copy of each invoice and puts it on a table in the Tax Deeds Department. When payment is received, the employees remove the copy of the invoice from the stack and stamp it with the receipt number. A blue copy is made and placed in the folder. The stamped copy is returned to the applicant. The Tax Deeds Department knows that all applicants have paid when there are no invoices left on the table. Recommendation to Internal Control Weakness 1 2 The Clerk s Office needs an accounts receivable system for the collection of the tax deed application fees that would enable the Clerk s Office to know all outstanding balances, broken down by customer and due dates. Due to the limited number of employees in the department we understand a strict segregation of duties may not be possible; however, we do feel that there

18 needs to be a system that is verified by the Clerk s A&F Department. An example of a system could be: o The supervisor could gather all of the tax deed application information and create a cost statement of everything that is to be billed. o The cost statement could be sent to Clerk s A&F Department so that when money is received it could be verified against the amount billed. o The cost statement should also be sent to another employee in the Tax Deeds Department who would create the receivable and send out an invoice to the tax deed applicant. o Another employee, different from the original two, could be in charge of receiving and depositing payments. She should forward the deposit information to the supervisor. o The supervisor could then verify the amount against her original cost statement calculations and list of properties. At this point, the supervisor could mark the receivable as paid for the department s record purposes. o The Tax Deed Department could notify the Clerk s A&F Department that the amount has been paid. At this point, the Clerk s A&F Department could verify the amount billed was received and deposited by the Tax Deed Department. Clerk Response to Internal Control Weakness 1 2 The Clerk is in the process of purchasing and installing Tax Deed software that should mitigate the inefficiencies noted. Internal Control Weakness 1 3 *Inadequate Deferred Billing Collections* The Recording Department utilizes deferred billing procedures to record liens for certain large volume customers. The Clerk s A&F Department does not know the amounts that were billed or to whom they were billed. There is no official tracking of outstanding balances owed to the Clerk s Office, and the Clerk s A&F Department does not know whether all amounts billed were in fact collected under the current system. Additionally, based on legal advice obtained from the Office of the General Counsel, it appears that the Clerk may not have the legal authority to defer the receipt of revenues. Per Section (2) of the Florida Statutes, the Clerk of the Courts is to record certain specified instruments (e.g. deeds, leases and judgments) upon payment of the service charges prescribed by law. Also, Attorney General Opinion (AGO) states that a public officer has no inherent or implied authority to extend the time of payment or otherwise extend credit for the payment of fees or service charges which he is authorized and required by law to collect. However, per the Office of the General Counsel, there is also some guidance in the statutes that broadens the acceptable forms of payment, which could lend some credence to offering the deferred billing to its customers when the public benefit outweighs the costs. Recommendation to Internal Control Weakness 1 3 We recommend that the Clerk obtain an official legal opinion from the Office of the General Counsel to clearly determine whether or not deferred billing is an acceptable practice. If it is determined to be a legal practice, we recommend that the Clerk s Office revamp the process for

19 billing and collecting deferred payments to ensure complete collection of accounts receivables. The Clerk s A&F Department should be given a list of all amounts billed by entity. The Clerk s A&F Department could then verify that each payment is received. If the payments are not received, the Clerk s Office should remove the entity s deferred billing eligibility. Clerk Response to Internal Control Weakness 1 3 This process currently requires manual handling. The major block here is the inability of the current software system to handle deferred billing items. The Clerk will pursue either improving procedural processes or receive legal input to discontinue this service for the specified customers. Finding 1-1 *Clerk s Office Not Accurately Assessing and Distributing Fees Collected* Pursuant to the Florida Statutes, the Clerk is required to collect and distribute certain revenues on behalf of the County and State. The Clerk is currently not remitting all county revenues collected via the Recording System to the City so that they can be utilized to offset costs incurred by the County. Based on the available information per the Clerk s Accounting System, as well as bank account information, we are unable to determine how these funds were spent or whether they were remitted to the State and used on court functions. Based on the testing performed, we have determined the following: o Of the 53 fees from the statute tested, we found: 11 (or 20.75%) fees were not being properly distributed to the City to offset costs incurred by the City, which resulted in at least a $350,000 negative impact to the City. The $350,000 amount is based on revenue obtained per the Clerk s Recording System and includes approximately $250,000 in copy fees; however, due to the set-up of the system we are unable to determine how much of the $250,000 copy fee revenue is County and State revenue. Currently all of it is remitted to the State. 4 of the 11 fees not being properly distributed were also set up in the Clerk s Recording System at the wrong rate per the Florida Statutes, which resulted in at least a $250 negative impact to the City. o Of the 65 fees in the Clerk s Recording System tested, we found: 7 (or 10.77%) did not have a statutory basis, which resulted in $13,067 in fees being collected with no statutory basis. Recommendation to Finding 1-1 All revenues deemed to be county revenues should be remitted to the County and spent on county obligations. County revenue should not be spent on court-related functions unless authorized by the City. Additionally, the Clerk s Office should maintain records for the statutory basis for all fees charged in the Recording System and verify at least annually that the fee amount is correct and being remitted to the proper agency. Given that fees are often modified during each State Legislative session, it is vital that the Clerk has a formal mechanism in place to ensure that any

20 changes in fees are reflected in the system. These changes, especially new fees, should also be communicated to the City so that it can be agreed where the revenue should be remitted. Clerk Response to Finding 1 1 With respect to the specifics of this finding, the Clerk disagrees with the amount determined to be a negative impact to the City. Of the $350k liability claimed, only $89k has been identified by the Clerk as having come from Recording and Marriage License activities. This $89k was remitted to the state, having been mischaracterized as being Clerk s fees. The balance of the funds identified by the auditor was remitted to the state as part of the revenue generated from Copy Center activity. It is questionable that any significant portion of the additional noted revenue generated through the Copy Center actually would have been a liability to the City since the Copy Center falls under the function of the state budget and the bulk of copying activities of the courthouse takes place in this department. The Clerk has been unable to duplicate the $250 rate claim, but will happily fix if proven. Any non-statutory fees referred to would be revenue neutral and established based upon certain courtesy services rendered to the public and that were not anticipated by statute. The fees collected would be used to offset costs associated with providing these reasonable services requested by the public. Finding 1-2 *Clerk s Office Not Utilizing Tax Deed Revenues for County Obligations* The county is charged with the process of administering tax deed sales; therefore, fees collected for processing tax deed sales should be remitted to the county to offset the cost of administering tax deed sales. These revenues are not processed through the Clerk s Recording System for county documents. The Clerk does not utilize the following tax deed related revenues to offset tax deed costs: (1) $60 fee pursuant to F.S (21) for processing a tax deed application. (2) $10 fee pursuant to F.S (22) for distributing surplus funds from a tax deed sale. (3) 3% per first $500 and 1.5% per each subsequent $100 pursuant to Section of the Florida Statutes for entering surplus funds into the registry (this fee is not charged by the Clerk s Office). (4) $5 per $100 fee pursuant to Section of the Florida Statutes for the transfer of unclaimed funds to the City. We were able to estimate the revenues associated with all tax deed fees except for the revenues associated with the $10 fee. Between October 1, 2007 and March 31, 2009, the Clerk s Office collected (or could have collected) at least $131,000 to assist in the costs of operating tax deed sales: (1) At a minimum, $100,000 in tax deed fee revenue associated with the $60 processing fee. (2) Not able to determine

21 (3) At a minimum, $7,500 in tax deed fee revenue associated with placing surplus funds from a tax deed sale in the court registry. (4) At a minimum, $23,500 in tax deed fee revenue associated with the $5 per $100 fee for transferring unclaimed funds to the City. Recommendation to Finding 1-2 Pursuant to legal advice provided by the Office of the General Counsel, the tax deed auctions are a county function. Therefore, the revenue generated from the process should be utilized to offset costs incurred in relation to operating tax deed sales. Clerk Response to Finding 1 2 The Clerk accepts the audit recommendation but questions the amount claimed by the audit. Limited available Clerk resources will delay the immediate final resolution of this accounting but our office is prepared to work with the City for any resolution required. Finding 1-3 *Theft of Funds Not Reported to Council Auditor s Office* A theft at the Clerk s Office was not reported to the Council Auditor s Office, as it is required by Sec of the Municipal Code. The amount of funds stolen was reported to total $630. Recommendation to Finding 1-3 The Clerk should comply with the Municipal Code Sec , which states the custodian shall report the apparent loss, unexplained disappearance or theft to the Council Auditor's Office at the same time as it is reported to the Office of the Sheriff as required by Section The Clerk s Office should notify all department heads of this requirement to ensure they are aware of this requirement. Clerk Response to Finding 1 3 A report was issued to the Sheriffs Office and the State Attorney declined to prosecute. The Clerk s office has promulgated this additional notification requirement to department management so that any future incidents will be properly reported to the Council Auditor. Opportunity for Improvement 1-1 *Cashroom Schedule* The Clerk s Office should operate all functions in the most efficient and effective manner possible. The Clerk s cashroom operations are not held in a time-efficient manner. For up to half an hour, supervisors of various departments wait in the cashroom for the next available cashroom employee to process their deposits and change orders