Judiciary Superior Court of New Jersey Hudson Vicinage

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1 New Jersey State Legislature Office of Legislative Services Office of the State Auditor Judiciary Superior Court of New Jersey Hudson Vicinage July 1, 2000 to June 30, 2002 Richard L. Fair State Auditor

2 LEGISLATIVE SERVICES COMMISSION SENATE BYRON M. BAER JOHN O. BENNETT ANTHONY R. BUCCO RICHARD J. CODEY NIA H. GILL BERNARD F. KENNY, JR. ROBERT E. LITTELL ROBERT W. SINGER GENERAL ASSEMBLY PETER J. BIONDI FRANCIS J. BLEE ALEX DECROCE PAUL DIGAETANO JOSEPH V. DORIA, JR. JOSEPH J. ROBERTS, JR. ALBIO SIRES LORETTA WEINBERG N e w J e r s e y S t a t e L e g i s l a t u r e OFFICE OF LEGISLATIVE SERVICES OFFICE OF THE STATE AUDITOR 125 SOUTH WARREN STREET PO BOX 067 TRENTON NJ ALBERT PORRONI Executive Director (609) RICHARD L. FAIR State Auditor (609) FAX (609) The Honorable Deborah T. Poritz Chief Justice of the Supreme Court The Honorable James E. McGreevey Governor of New Jersey The Honorable John O. Bennett President of the Senate The Honorable Richard J. Codey President of the Senate The Honorable Albio Sires Speaker of the General Assembly Mr. Albert Porroni Executive Director Office of Legislative Services Enclosed is our report on the audit of the Judiciary, Superior Court of New Jersey, Hudson Vicinage for the period July 1, 2000 to June 30, If you would like a personal briefing, please call me at (609) December 18, 2002

3 Table of Contents Page Scope... 1 Objectives... 1 Methodology... 1 Conclusions... 2 Findings and s Bail... 3 Bail Corporate Sureties in Default... 4 Probation Fund... 6 Purchasing... 9 Hold Checks... 9 Vacation Leave Balances Terminated Employees Compressed Work Week Program... 12

4 Judiciary Superior Court of New Jersey Hudson Vicinage Scope We have completed an audit of the Hudson Vicinage for the period July 1, 2000 to June 30, Our audit included financial activities accounted for in the state s General Fund as well as vicinage functions related to the Judiciary-Bail, Probation, Special Civil, and Superior Court funds. The audit does not include the financial transactions of Child Support. The Hudson Vicinage is one of 15 vicinages encompassing the 21 counties in New Jersey. The prime responsibility of the vicinage is the overall operation of the Civil, Criminal and Family Courts, the Probation Services Unit, and Trial Court Services. Expenditures of the vicinage during the audit period were $55 million. Revenues totaled $7 million. The major components of revenue were fees and fines collected by the courts. Objectives The objectives of our audit were to determine whether financial transactions were related to the vicinage s programs, were reasonable, and were recorded properly in the accounting systems. We also tested for resolution of significant conditions noted in our prior report. This audit was conducted pursuant to the State Auditor's responsibilities as set forth in Article VII, Section 1, Paragraph 6 of the State Constitution and Title 52 of the New Jersey Statutes. Methodology Our audit was conducted in accordance with Government Auditing Standards, issued by the Comptroller General of the United States. In preparation for our testing, we studied legislation, administrative code, circular letters promulgated by the State Comptroller, and policies of the Judiciary Page 1

5 and the vicinage. Provisions that we considered significant were documented and compliance with those requirements was verified by interview, observation, and through our samples of financial transactions. We also read the budget message, reviewed financial trends, and interviewed vicinage personnel to obtain an understanding of the programs and the internal controls. A nonstatistical sampling approach was used. Our samples of financial transactions were designed to provide conclusions about the validity of transactions as well as internal control and compliance attributes. Sample populations were sorted and transactions were judgmentally selected for testing. To ascertain the status of findings included in our prior report, we identified corrective action, if any, taken by the vicinage and walked through the system to determine if the corrective action was effective. Conclusions We found that the financial transactions included in our testing were related to the vicinage s programs, were reasonable, and were recorded properly in the accounting systems. In making this determination, we noted certain internal control matters meriting management s attention. We also found that the vicinage has not resolved the significant issue noted in our prior report relating to purchasing procedures. This issue has been updated and restated in our current report. Page 2

6 Bail The vicinage needs to improve procedures for discharging bail funds. Bail is the security given for release of a person who has been arrested as a guarantee of his appearance for trial. It is collected at the county jail and vicinage and forwarded to the vicinage bail unit. These bail cases are recorded on the Central Automated Bail System (CABS), a statewide system used by the vicinage bail units to account for cash receipts, cash disbursements, and receivables. The vicinage has the fiduciary responsibility to account for open bail cases and to refund bail when the cases are concluded. As of April 30, 2002, there were 17,300 open bail cases totaling $155.7 million, including $5.7 million of cash and $150 million property and bonds. Of these, 13,300 cases were more than two years old, and 168 cases totaling $139,500 were in a refund pending status. In our sample of 40 cash bail cases, 38 were found to have been adjudicated for more than one year and one case had been forwarded to municipal court for disposition. However, the bail unit did not notify the sureties, nor did the vicinage have adequate follow-up procedures for old bail cases. As a result, the unclaimed cash, property, and bonds have been allowed to accumulate. The longer bail funds go unclaimed, the more difficult and costly it becomes to locate the sureties. The bail unit uses the criminal case system, Promis Gavel, for discharging bail. As Promis Gavel is not interfaced with CABS, discharging bail is a complex and time-consuming process. Each concluded case must be reviewed on Promis Gavel and manually matched to CABS to determine if bail was posted. The bail unit should review the status of open bail cases and refunding procedures should be initiated for those completely adjudicated. Development of an interface between Promis Gavel and CABS would increase efficiency. Page 3

7 The Vicinage immediately responded to this finding and began remediation in April of A Bail Project team was formed to examine each bail on the open bail report beginning with the oldest to determine its proper status. As of April 2002 there were 16,042 bail cases from 2001 and earlier which required research. Since beginning the open bail project, 2,273 bails have been resolved, and another 437 will be resolved shortly through disbursement to the surety or designation for escheatment. Resources are being dedicated to expedite processing of the open bail backlog and procedures are now in place to ensure proper disposition of new bail cases. An automated interface between the Promis Gavel and CABS system has been developed and installed in eight counties. This interface establishes links between the two systems to facilitate sharing of upto-date information and also generates lists to notify the Finance Division that a bail is ready to be refunded, discharged or forfeited. The Promis Gavel- CABS interface is expected to be available in all counties statewide by June This interface of the two systems is anticipated to expedite timely bail processing. Bail Corporate Sureties in Default Sureties in default should be removed from the statewide registry. When a defendant fails to appear and the judge orders a bail forfeiture, the Administrative Office of the Courts Directive #3-02 states that bail forfeitures that are not satisfied or have a motion to vacate the forfeiture filed within 75 days of the date of the notice of forfeiture will result in the entry of a judgment. Such judgment will result in the removal of the names of all of a corporate surety company s licensed insurance producers and limited insurance representatives from the statewide Bail Registry. This registry is maintained by the Clerk of the Superior Court who serves a notice to the defaulted Page 4

8 surety, allowing them an additional 15 days to satisfy the judgment; otherwise their names should be removed from the bail registry pursuant to Rule 1:13-3(e). As of June 30, 2002, the vicinage bail reports indicated the vicinage is owed $9.8 million in uncollected settlements and forfeitures. There were 84 default judgment cases totaling $1.8 million in uncollected corporate surety bonds that were more than one year old. These cases were entered into default judgment and a consent judgment order had been issued. The vicinage s bail unit notified the County Council and informed the Clerk of the Superior Court of all default judgments. However, the Clerk of the Superior Court does not aggressively pursue the removal of such sureties from the statewide bail registry and prohibit their activity in the state. As of August 7, 2002, 4 out of 12 corporate sureties with defaulted cases more than one year old have been suspended from issuing additional bonds. We recommend delinquent sureties in default of judgments be removed from the statewide Bail Registry and be prohibited from performing such activity in the state until the defaults are satisfied. As noted in the audit finding, a variety of actions must be coordinated before a surety may be precluded from posting bail, including formal signature of a judgment document. For a number of the cases cited in the audit with default judgment dates in CABS over one year old, the judgment was signed more recently, i.e., in September or October As of December 6 th preclusion notices have been issued to seven of the sureties in default on Hudson bails. A notice is scheduled to be sent on December 20 th to the last corporate surety with defaults on Hudson cases over a year old. Page 5

9 Probation Fund The vicinage should strengthen controls and review procedures for revenue collection. The Probation Fund is established on the state s Comprehensive Financial System to account for fines and restitution payments received from probationers pending their remittance to the proper payee. The Administrative Office of the Courts (AOC) cash receipt procedures require each vicinage to deposit daily receipts into a central account controlled by AOC. The vicinage, however, is required to maintain records that account for these deposits and identify the payables created when these funds are collected from the probationers and pending their remittance to the proper payee. The vicinage collected $7.3 million during the audit period. Probationers are permitted to make payments at the vicinage and at seven locations throughout the county. These seven locations are not equipped with a cashier s station. The Comprehensive Automated Probation System (CAPS), which is the state s system to account for financial transactions of the probation division, does not record the collection points of these payments. Pre-numbered receipts are used at all locations; however, our review of the completed probation receipt booklets containing copies of the cash slips given to the probationer by their probation officer showed that these booklets are not reconciled to CAPS or to the vicinage s financial deposit or other accounting reports. The lack of reconciliations create a high risk that an error or defalcation could occur and not be detected. The practice of collecting fines, fees and restitutions by probation officers, who are responsible for enforcing compliance by probationers, diminishes control. Collections should be done at an independent collection location or by an employee not responsible for enforcement. The lack of control increases the risk that not all revenue items collected Page 6

10 will be properly deposited and recorded on the state s financial system. We noted that another vicinage recently ended this practice of collection by probation officers, requiring all probationers to report to the cashier s station during normal operating hours. Also, the cost of 1,200 trips annually by the armored car carrier to transport the receipts from these seven locations to the bank may outweigh the vicinage s argument that collections may be reduced if the current practice is changed. The vicinage probation unit is responsible for disbursing the fines and restitutions they collect from probationers to the proper recipients. As of May 31, 2002, the bank account used for this purpose included outstanding checks totaling more than $37,000. These checks were more than 12 months old. The probation unit should follow up on the disposition of uncashed checks. Unidentified funds should be escheated to the State Treasurer in accordance with N.J.S.A. 46:30B-1 et seq. The system that was used prior to the implementation of CAPS to record probation case information as well as financial transactions is still in use by the vicinage as to the open liabilities. This information was not transferred to CAPS. The vicinage is not reconciling these open liabilities to ensure that bank assets are sufficient to meet these liabilities. We recommend the vicinage review their procedures to ensure that all pre-numbered receipts are being recorded on CAPS and discontinue the practice of permitting probationers to make payments of fines, fees and restitutions directly to their probation officers. Payments should be made at the cashier s window of the vicinage during normal operating hours. Outstanding checks should be reviewed periodically and checks more than 12 months old should be esheated to the State Treasurer in accordance with N.J.S.A. 46:30B-1 et seq. The vicinage should reconcile the open liabilities of the Page 7

11 previous system to bank assets and incorporate the open balances into CAPS. The Money Handling Procedures for Probation Branch Offices in place in Hudson since 1998 have been reviewed and updated to strengthen internal controls. In addition, the Finance Manager has assigned a newly hired Financial Specialist to conduct regular audit and reconciliation of probation branch collections. The audits will review and reconcile the daily receipts received in the finance office to the probation officer s branch receipt logs and the original receipt books. Implementation of these reviews and improved interaction between the Finance and Probation Divisions will provide adequate safeguards. Therefore, the current practice of collecting payments at the Probation branch offices will be continued. Related to the outstanding checks issued through the Comprehensive Automated Probation System (CAPS), the checks that were still not cashed more than one year after issuance were identified per the June 2002 Bank Statement. For those cases, which are still active, additional attempts are being made to locate the victims who have not cashed restitution checks sent to them. Checks over one year old for inactive cases will be scheduled for escheat. The last issue relates to the need to reconcile the open liabilities of the previous case management system (Townplace) to bank assets and incorporate the open balances into CAPS. The Vicinage immediately responded to this finding and began remediation by creating a verified outstanding check listing for all checks issued through Townplace. The necessary transactions were initiated to properly align funds in accounts and assets and liabilities are now fully reconciled. Page 8

12 Purchasing should segregated. duties be Purchasing During our audit period the vicinage nonpayroll expenditures totaled $ 5.2 million. One individual in the vicinage obtains the purchasing bids or quotes, selects the vendor, initiates the accounts payable process and in some cases receives the item when delivered. Segregation of these duties between two or more employees reduces the risk that an error or irregularity could go undetected. There were no instances of unauthorized purchases or irregularities noted during our testing. We recommend the vicinage segregate duties in the procurement process to provide for stronger internal control. Due to staffing shortage full segregation of duties has not been possible. However, the following safeguards have always been in place in Hudson: All Purchasing bids, quotes and vendors are reviewed and approved by the Trial Court Administrator. The Vicinage Finance Division Manager does the final review and approval of all payments. A change was initiated to further improve controls such that any merchandise that must be received in the finance office will be signed for and received by a staff member other than the employee who initiated the purchase order. Hold Checks The use of hold checks should be limited. The Department of the Treasury, Office of Management and Budget Circular Letter established general guidelines for the processing of hold checks to minimize the possibility of the misuse of this service. Our review of the vicinage noted that there are no restrictions on the reasons for holding Page 9

13 checks. During the period July 1, 2000 to June 21, 2002, 450 checks totaling $1.2 million for 30 different vendors were processed as hold checks. Most of these checks were held without reasonable justification. This practice results in additional risks of loss or misuse associated with the handling of checks. The development of more stringent policies and procedures in regards to hold checks could reduce the number of checks held for convenience rather than necessity. There were no instances of unauthorized purchases or irregularities noted during our testing. We recommend management strengthen internal controls by implementing policies and procedures that prevent checks from being held without reasonable justification. Hudson requests Hold checks to assist vendors to identify payments with the appropriate invoice when the space in the check stub reference field is insufficient to identify all the invoices paid. However, hold requests are now being more closely reviewed, requiring approval by the Finance Manager after the need for hold has been documented. Vacation Leave Balances Controls over awarding and recording of vacation, in lieu of holiday recess days need to be strengthened. As a result of a signed agreement between the New Jersey State Judiciary and the New Jersey AFL-CIO Judiciary Council of Affiliated Unions, Support Staff Unit, covering the period July 1, 2000 to June 30, 2004, certain employees of the Hudson Vicinage are awarded two extra vacation days to be credited to their annual leave allotment, in lieu of the holiday recess days. These extra days must be used by the end of the calendar year or they are forfeited. Our review of employees time records as posted to the Time and Leave Reporting System (TALRS) revealed that neither the allotment nor usage of these vacation days is posted on the system. The only Page 10

14 records of the use of these vacation days are on the employees biweekly time sheets. In addition, we were unable to obtain a list of those employees eligible to receive these vacation days. These deficiencies could lead to inaccurate employee time records and use of unearned vacation time. We recommend that the vicinage identify those employees eligible to receive these additional vacation days and include these extra days on TALRS. The Vicinage immediately responded to this finding and created a database to identify the eligible employees. This report will then be used to track these days to ensure they are properly used. Terminated Employees Leave balances should be reviewed for terminated employees. Our test of employees leave records revealed that, because of inadequate review, the vicinage did not recoup the cost of negative leave balances valued at $3,100 from four employees that separated from state service. N.J.A.C. 4A:6-1.5(a) states that employees in state service are liable for vacation and sick leave days taken in excess of their entitlements. We recommend the vicinage should strengthen its internal controls regarding adequate review of employees leave records prior to their separation and seek to recover cost of negative balances by withholding final checks from employees or through the use of the Division of Taxation s Set Off of Individual Liability program (SOIL). Hudson has strengthened internal controls regarding adequate review of employees leave records prior to separation and has implemented AOC policies to seek recovery of the cost of negative balances. Page 11

15 Compressed Work Week Program Apolicy is needed to ensure proper implementation of the program. The vicinage had no formal policy regarding a compressed work week program. Since January 1, 1997, one employee is allowed to work the required 80 hours over eight days in each pay period. The absence of a policy that determines eligibility, required work schedules, and any other related issues could lead to inaccurate time reporting. We recommend that the vicinage establish a policy with regard to its compressed work week program. The Vicinage will collaborate with AOC to develop procedures to ensure proper timekeeping and payroll processing. Page 12