Docstoc

ilsf_westchester

Document Sample
ilsf_westchester Powered By Docstoc
					                                                                                             MARK PATTISON
ALAN G. HEVESI                          STATE OF NEW YORK                                DEPUTY COMPTROLLER
                                                                             DIVISION OF LOCAL GOVERNMENT SERVICES
COMPTROLLER                      OFFICE OF THE STATE COMPTROLLER                       AND ECONOMIC DEVELOPMENT
                                             110 STATE STREET                     Tel: (518) 474-4037 Fax: (518) 486-6479
                                          ALBANY, NEW YORK 12236


                                             February 28, 2006




    Mr. Andrew J. Spano, County Executive
    Members of the Board of Legislators
    County of Westchester
    148 Martine Ave.
    White Plains, NY 10601

    Report Number: S8-5-54

    Dear County Executive Spano and Members of the Board of Legislators:

    One of the Office of the State Comptroller’s primary objectives is to identify areas where local
    governments can improve their operations and provide guidance and services that will assist
    local officials in making those improvements. Our goals are to develop and promote short-term
    and long-term strategies to enable and encourage local government officials to reduce costs,
    improve service delivery and to account for and protect their entity’s assets.

    In accordance with these goals, we conducted an audit of the Indigent Legal Services Fund
    (ILSF) in four counties across the State and New York City to determine whether they have
    established appropriate internal controls to ensure that ILSF program revenues and expenditures
    are accurately recorded and reported in accordance with statute and established guidelines. To
    that end, we sought to determine whether there are adequate records to support payments for
    indigent legal defense services including fees paid to assigned counsel, expenditures for public
    defenders offices, contracts with Legal Aid Societies and related costs (e.g. investigators). The
    County of Westchester was included in this audit. Within the scope of this audit, we tested
    revenues and expenditures recorded and reported for the calendar year 2004.

    This report of examination letter contains our findings and recommendations specific to the
    County of Westchester. We discussed our audit results with County officials and considered
    their comments in preparing this report. Westchester County’s response is attached to this report
    in Appendix A. At the completion of our audit of the four counties and New York City, we will
    prepare a global report that summarizes the significant issues at all the units that were included in
    our review.
Summary of Findings

Our examination of the County’s internal controls over the recording and reporting of revenues
and expenditures related to legal defense services of indigent persons disclosed weaknesses in
how officials determined reported expenditures related to the BAR Association/18-B panel of
attorneys. It is the County’s practice to record expenditures for 18-B Panel vouchers in the
calendar year in which the case was assigned regardless of when the service is provided and
regardless of what year the related voucher is submitted for payment. For 2004, the County
recorded a liability of $4.8 million to accrue estimated expenditures related to about 9,000
vouchers outstanding at year-end that were expected to be paid at some point in the future.
County officials provided us with a worksheet summarizing the projection, but they did not
provide us with any other documentation to support the projected amounts. Furthermore, the
County had no basis for reporting these projected expenditures because the dollar amount of the
outstanding claims was not measurable; and the County had no basis for determining that the
liability had been incurred or that the liability would be liquidated with 2004 available financial
resources. Also, the County relied on the actual expenditures reported by the Legal Aid Society
rather than their own accounting records when calculating the 18-B panel expenditures reported
in the 2004 ILSF annual report. The expenditures reported by the Society did not include
$25,000 in expenditures incurred by the County for work performed by staff in the County
Attorney’s Office related to indigent legal services. We also found weaknesses in how the
County processed ILSF expenditures associated with prior years.

We found that the County had adequate internal controls over the recording or reporting of the
costs associated with a $6,045,000 contract with the Legal Aid Society to provide felony defense
services for indigent persons in 2004. We did note that the County overstated reported revenues
and expenditures related to a separate contract with the Society, however this error had no impact
on the County’s reported net local expenditures.

Background and Methodology

According to federal law, all states must provide legal assistance to indigent defendants under
certain circumstances. While New York State supports some of these costs directly, much of the
fiscal and program responsibility for meeting this requirement is with counties. According to
Article 18-B of County Law, counties (including New York City) are required to develop a plan
to provide legal defense services to persons of indigent status. The counties have four methods
of providing these services: (1) Public Defenders, (2) Conflict Defenders, (3) Legal Aid
Societies, and (4) BAR Associations/Assigned Counsel. To aid municipalities in providing these
services, the State Legislature passed legislation in 2003 to establish the Indigent Legal Services
Fund (ILSF). The Office of the State Comptroller (OSC) administers the ILSF and is responsible
for making annual distributions from the ILSF fund to counties and New York City based on
their proportional share of the total local funds expended statewide on indigent legal defense
services. Counties and New York City must file annual reports with OSC that show all revenues
and expenditures related to Article 18-B (legal defense services for indigent persons). These


                                                2
annual reports are used by OSC as the basis for determining the annual distribution of available
funding to each county and New York City.

Westchester County, in conjunction with the Legal Aid Society of Westchester (Society) and the
Westchester County BAR Association, has created a county plan to provide adequate
representation to persons charged with a crime that are financially unable to obtain counsel, and
for the furnishing of investigative, expert and other services. The plan indicates the Society will
furnish legal representation to indigent defendants who are charged with felonies. Also, the
Society will administer the BAR Association rotational plan (18-B panel of attorneys) that will
provide services for misdemeanor cases and cases that cannot be handled by the Society (i.e.
conflicts). As the administrator of the 18-B panel the Society monitors and reviews total
caseload; reviews payment vouchers submitted from individual attorneys and reports to the
County expenditures associated with the program. In 2004, the Legal Aid Society opened 4,181
new felony cases and the BAR Association/18-B panel opened 19,790 cases.

For 2004, Westchester County reported total expenditures of $17,129,910 and revenues of
$625,785. Table I summarizes the information submitted on the 2004 ILSF annual report:

                                          TABLE I

      Westchester County 2004 Indigent Legal Services Fund Annual Report to OSC
      EXPENDITURES
      Legal Aid Society                               $6,632,213
      BAR Association (18-B Panel)                   $10,497,697
       Total Expenditures                                           $17,129,910

      LESS: REVENUES
      Aid-To-Defense Program (State Aid)                       $587,213
      Indigent Parolee Program (State Aid)                      $38,572
       Total Revenues                                                             $625,785

      2004 Net Local Funds                                                     $16,504,125


Based on its 2004 ILSF annual report, Westchester County received $3,032,254 (5.8 percent) of
the $51,551,719 total amount distributed statewide from the ILSF in March 2005.

To accomplish our objective, we interviewed Westchester County officials and reviewed
applicable legislation, policies, and annual reporting requirements. We also reviewed the
method in which the County recorded and reported ILSF program revenues and expenditures;
and performed tests of the 2004 annual report, and the related accounting records and supporting
documents.



                                                3
We conducted our audit in accordance with Generally Accepted Government Auditing
Standards. Such standards require that we plan and conduct our audit to assess adequately those
county operations within our audit scope. Further, those standards require that we understand the
county’s management controls and compliance with those laws, rules and regulations that are
relevant to the county’s operations included in our scope. An audit includes examining, on a test
basis, evidence that supports the transactions recorded in the accounting and operating records
and applying such other auditing procedures, as we consider necessary in the circumstances. We
believe that our audit provides a reasonable basis for our findings, conclusions and
recommendations contained in this report.

Audit Results

Pursuant to Article 18-B of the County Law, the State Comptroller has developed an annual
report form to collect information necessary for the administration of the Indigent Legal Services
Fund. Counties and New York City are required to report revenues and expenditures in the ILSF
annual report using the same basis of accounting applied to the preparation of their financial
statements. The ILSF report is due to OSC by March 1st each year.

Westchester County records and reports revenues and expenditures associated with the ILSF in
its general fund – a governmental fund type that follows the modified accrual basis of
accounting 1 for its financial transactions. Each year the County has expenditures for indigent
legal defense that are derived from 18-B panel expenditures, which are made up of payment
vouchers submitted by 18-B panel attorneys 2 for compensation for service in accordance with
statute. Also, expenditures are incurred pursuant to written contracts with the Legal Aid Society.
These two expenditure categories make up the total expenditures report by Westchester County.

BAR Association (18-B Panel)

In Westchester County, the 18-B panel of attorneys (18-B Panel) provides legal defense services
for indigent persons charged with misdemeanors and/or cases that have been conflicted out by
the Society. Pursuant to the County’s annual plan, the 18-B Panel is administered by the

1
  Under the modified accrual method of accounting; the entity recognizes revenues and other financial resources
when they become susceptible to accrual (i.e., when they become both measurable and available to finance
expenditures of the current period). Expenditures are recognized when the fund liability is incurred, with certain
exceptions. According to GASB Codification of Governmental Accounting and Financial Reporting Standards,
1600.106 and 1600.118, for governmental funds, cash flow must occur within a short enough period to affect current
spendable resources. Revenues must be both measurable and available (usually within 60 days of the end of the
fiscal period) and expenditures are generally recognized when they are expected to draw upon current spendable
resources.
2
  18-B Panel attorneys are persons or law firms that have been approved by the panel administrator to provide
services to indigent defendants. Once approved these person(s) are placed on the 18B panel list that is provided to
each court within the County. The court then appoints an attorney based on this list or other arrangement with the
County.


                                                        4
Society. When an indigent defendant appears in court the presiding judge assigns an attorney
from the 18-B Panel to represent that person. The Society then issues a press numbered County
voucher to the attorney that includes the case number and original assignment date. Once the
case reaches a disposition, the attorney completes and signs the payment voucher to show the
time rendered, service provided and expenses incurred. The presiding judge then reviews the
voucher and signs it to show his or her approval; and the voucher is forwarded to the Society for
review. After the Society reviews the voucher, it is then forwarded to the County for payment.

Total 18-B Panel expenditures reported for 2004 were $10,497,697. It is the County’s practice to
record expenditures for 18-B Panel vouchers in the calendar year in which the case was assigned
(and the voucher was issued). To capture and report the expenditures associated with total
vouchers issued during the year, the County establishes an estimated liability at the end of each
year to fully expense all unpaid vouchers that were issued during the year and expected to be
paid at some point in the future.

During our audit, County officials presented us with a worksheet to show how the County
determined the total 18-B Panel expenditures reported in the 2004 ILSF annual report. Table II
shows a summary comparison of the worksheet the County used to prepare the 2004 ILSF annual
report and the County’s accounting records:

                                                      TABLE II

                 Westchester County Support for the 2004 Annual Report
                                        Worksheet         Expenditures                                Difference
                                        Provided by       Recorded in
                                        the County       County Records
Actual Expenditures at 12/31/04           $4,496,126         $5,100,633 3
Plus Administration Contract                 $399,236
Subtotal:                                 $4,895,362          $5,100,633                                  $205,271
                                      4
Accrued Expenditures paid 1/1-2/16/05                           $597,736
Subtotal:                                 $4,895,362          $5,698,369                                  $803,007
Projected Expenditures for Outstanding    $5,602,335          $4,800,079                                ($812,677)
Vouchers
Total Projected Expenditures             $10,497,697         $10,498,448                                        $751
18-B Panel Expenditures Reported in      $10,497,697         $10,497,697
2004 Annual Report



3
    Includes $399,236 paid to the Society to administer the 18B Panel pursuant to an Administration Contract.
4
 Because Counties are required to report governmental funds on a modified accrual basis, they may keep the books
open in January and February (usually a 60 day period after year end) and accrue the costs associated with the
previous year.

                                                           5
Based on our review of the County’s worksheet and accounting records, we had the following
observations:

Difference Between Worksheet and Recorded Expenditures - In discussions with County
officials, we were informed that the actual expenditures reflected in the worksheet of $4,496,126
are the total expenditures reported by the Society to the County as of calendar year-end. When
combined with contractual payments made to the Society to administer the 18-B Panel
($399,236), the total expenditures through December 31, 2004 according to the worksheet were
$4,895,362. The County’s general ledger for the two accounts used to track 18-B Panel
expenditures had a balance at year-end of $5,100,633. The difference between the worksheet
and the accounting records was $205,271.

County officials informed us they used actual expenditures reported by the Society (as
summarized in the worksheet) instead of County accounting records when determining reported
year-end expenditures because the County could not rely on the 18-B panel expenditures in their
accounting records. Officials told us that they believed the Society’s expenditures were more
accurate than their own accounting records because the Society only processed vouchers for
cases assigned in 2004 and the County’s accounting system processed vouchers from 2004 and
prior years. Officials said they were not confident that the prior year vouchers paid in 2004 were
always recorded correctly when the payments were processed. For example, they were concerned
that some vouchers issued in 2003 but paid in 2004 were recorded as expenditures in 2004 even
though they had already been expensed in 2003 when the County estimated the year end
liabilities. The County’s practice of accruing expenditures for all outstanding vouchers each year
makes the payment process more complex, because accounts payable department staff must
monitor voucher payments and apply them to reduce the respective liability established for the
year the voucher was issued. If that liability has been fully extinguished, then the payment is
applied to reduce the liability that was established for the next year.

Our audit testing disclosed that County officials’ concern about the reliability of 18-B panel
expenditure accounts was appropriate. The County did not have a good process in place to
ensure that vouchers issued and expensed prior to 2004 were applied to reduce existing liabilities
rather than expensed again in 2004. Our testing of 107 vouchers paid in and accrued to 2004
disclosed that 25 vouchers were assigned in 2003 or prior years. Thirteen of these vouchers,
totaling about $12,900, were recorded as current expenditures in 2004 rather than applied to
reduce the 2002 or 2003 liabilities, which at that time had available balances.

Also, from January 1, 2004 through March 9, 2004, the County recorded all vouchers paid
during this time as 2004 expenditures. Staff in the accounts payable department then recorded
batch transfers totaling $886,779 to reduce 2004 expenditures for the vouchers issued and
expensed in prior years, and to reduce the liabilities established for the 2002 and 2003
outstanding vouchers. They did not document which vouchers were included in these batch
transfers, thus there is no audit trail to show that the prior year vouchers paid during this period
were properly backed out of 2004 expenditures in the accounting records.


                                                 6
We also found that about $25,000 was recorded in the County’s 18-B Panel expenditure accounts
for time spent on work related to indigent legal services by staff from the County Attorney’s
Office. This time was not included in the expenditure amount provided by the Society and used
in the worksheet. The Society was not aware of these costs, and by using the Society’s
expenditure total to generate the 2004 Annual Report, the County neglected to include the
County Attorney’s personal service expenditures in the annual report.

A local government’s financial records should be sufficiently maintained to support the
information presented in its annual report and the financial records and reports should provide
reliable information to management, taxpayers and other interested parties.

2004 Expenditure Projections - The second piece of the support for 18-B Panel expenditures in
the worksheet was a projected expenditure amount of $5.6 million. Each year, the County
attempts to capture total expenditures of vouchers issued regardless of the payment status. The
County does this by establishing an estimated liability for the cases outstanding at year end. For
the calendar year 2004, the Society issued approximately 19,790 payment vouchers on behalf of
the County for cases assigned to 18-B panel attorneys. At year-end 2004, the Society reported
that it had processed payments for about 10,800 of these vouchers. Thus about 9,000, or 45
percent, of the vouchers issued in 2004 were outstanding at year end. As of December 31, 2004,
the Society estimated that the 9,000 outstanding vouchers (cases) had associated costs of about
$4.6 million. The County’s worksheet shows projected expenditures for outstanding vouchers of
about $5.6 million. The County established an estimated liability and accrued expenditures of
about $4.8 million in the 2004 accounting records. It appears that the County backed into the
amount of the liability (and accrued expenditures) recorded in the records by taking the
difference between the total projected expenditures in the worksheet and the amount recorded in
the County accounting records (after accruing expenditures paid during January and February
2005). Although the worksheet does show a breakdown of the number of cases completed during
the year, the number of outstanding cases and the average cost per case; County officials did not
provide us with any other supporting documentation showing how the projections were
determined.

According to generally accepted accounting principles (GAAP), the primary criteria for
expenditure recognition in governmental funds is when the liability is incurred (i.e. when goods
are received or services are provided). 5 When the blank voucher is issued, in anticipation of a
service to be provided, this does not establish that a liability has been incurred, or even will

5
  Under the modified accrual method of accounting; the entity recognizes revenues and other financial resources
when they become susceptible to accrual (i.e., when they become both measurable and available to finance
expenditures of the current period). Expenditures are recognized when the fund liability is incurred, with certain
exceptions. According to GASB Codification of Governmental Accounting and Financial Reporting Standards,
1600.106 and 1600.118, for governmental funds, cash flow must occur within a short enough period to affect current
spendable resources. Revenues must be both measurable and available (usually within 60 days of the end of the
fiscal period) and expenditures are generally recognized when they are expected to draw upon current spendable
resources.


                                                        7
occur; thus, there should be no expenditure recognition. Moreover, when a blank voucher is
issued there is no real expectation as to when the voucher will be returned for payment and there
seems to be no basis for knowing if and/or when the service has been provided (liability
incurred) or the amount of the liability. To recognize the expenditure and establish a liability,
the County should have an idea of when that expenditure will occur. Based on the limitations of
this program, the County does not know when an expenditure is incurred until the voucher is
submitted for payment. So, to record expenditures for all vouchers issued in the calendar year, is
incorrect. The more practicable and acceptable approach is to recognize expenditures when
completed vouchers are returned to the County for payment. This is not to say that the County
would be prevented from accruing a liability and recognizing an expenditure at year-end for
vouchers to be paid in the ensuing year that pertain to the just completed year as long as there is
some basis and support to demonstrate that the liability has been incurred, the amount is
measurable, and those liabilities will be liquidated with available financial resources of the just
completed fiscal year.

Overall, our audit disclosed weaknesses in how officials determined reported 18-B Panel
expenditures. The County could not support the projected expenditures which made up about 45
percent of the total reported 18-B panel expenditures. Although the claims related to these
projected expenditures will likely be paid at some point in the future, we found no basis for the
County to estimate and report the expenditures in 2004 just because the case was opened and the
voucher was issued in that year. Based on our review of the County’s recorded expenditures and
postings to prior year liability accounts in 2004, we estimate that the County would have
reported about $2 million less for 18-B Panel expenditures in 2004 if it had recorded
expenditures based on the vouchers paid during 2004 and the accrual period (January 1 through
February 16, 2005), rather than estimating a portion of the reported expenditures based on the
outstanding vouchers at year end.

Legal Aid Society

The other major expenditure component of the County’s 2004 ILSF annual report is the cost paid
by the County to the Legal Aid Society of Westchester County for indigent legal services
provided by the Society. The County reported $6,632,213 of expenditures related to the Society
for 2004. These expenditures are supported by two contracts between Westchester County and
the Society; (1) a base contract to provide felony defense services for $6,045,000 and (2) a
contract to expend the Aid-to Defense state aid totaling $587,213. We found that the total
payments made to the Society for the base contract agreed with the written contract amount and
the sample of expenditures we tested were supported by adequate documentation. However, the
Aid-to-Defense state aid grant had a financial period of April 1, 2004 through March 31, 2005
and the County was required to report revenues and expenditures for the 2004 calendar year.
The County only received $473,023 in State aid and only distributed $473,023 to the Society in
calendar year 2004, but they reported the total State aid revenues and expenditures of $587,213
in the 2004 annual report. The remaining amounts were received and expended in 2005.
Although the County overstated both revenues and expenditures by $114,190 in the 2004 ILSF
annual report, this error had no effect on total net local expenditures reported by the County.

                                                8
Recommendations

       1. County officials should recognize 18-B Panel expenditures when the expenditures are
          incurred (i.e., when the voucher is paid). Officials should ensure their process for
          estimating liabilities and recognizing expenditures is consistent with generally
          accepted accounting principles.

       2. The County should ensure that accurate accounting records are maintained to account
          for Article 18-B Panel expenditures and to support the ILSF annual report.

       3. County officials should monitor state aid revenue and the timeframes of receipt of
          funds and the subsequent disbursements, to ensure proper reporting.


The Board of Legislators has the responsibility to initiate corrective action. Pursuant to Section
35 of the General Municipal Law, the County Legislature should prepare a plan of action and
forward the plan to our office within 90 days. We encourage the County Legislature to make this
plan available for public review in the County Clerk’s office. See the attached document for
additional information on filing a corrective action plan. Our Office is available to assist you
upon request. If you have any further questions, please contact the Statewide and Regional
Projects Unit at 315-428-4192.


                                                    Sincerely,




                                                    Office of the State Comptroller
                                                    Division of Local Government Services and
                                                    Economic Development




                                                9
                                         Appendix A

                         RESPONSE FROM LOCAL OFFICIALS

The County officials’ response to our audit can be found on the following pages.




                                               10