CLERK OF QUARTER SESSIONS

AUDITOR’S REPORT

FISCAL 2006 AND 2005

www.philadelphiacontroller.org

March 31, 2008 Honorable Vivian T. Miller Clerk of Quarter Sessions Criminal Justice Center 1301 Filbert Street, Room 310 Philadelphia, PA 19107 We have examined the financial affairs and operations of the Clerk of Quarter Sessions for fiscal 2006 and 2005 pursuant to the requirements of Section 6-400 (c) and (d) of the Philadelphia Home Rule Charter. A synopsis of the results of our work is provided in the executive summary to the report. We discussed our findings and recommendations with you and your staff at an exit conference and included your written response to our comments as part of the report. Our recommendations have been numbered to facilitate tracking and follow-up in subsequent years. We believe that, if implemented by management, these recommendations will improve internal controls and the effectiveness and efficiency of your department’s operations. We would like to express our thanks to you and your staff for the courtesy and cooperation displayed toward us during the conduct of our work. Very truly yours, ALAN BUTKOVITZ City Controller cc: Honorable Michael Nutter, Mayor Honorable Anna C. Verna, President and Honorable Members of City Council Members of the Mayor’s Cabinet

CLERK OF QUARTER SESSIONS EXECUTIVE SUMMARY

Why The Controller’s Office Conducted the Examination Pursuant to the requirements of Section 6-400 (c) and (d) of the Philadelphia Home Rule Charter, we examined the financial affairs of the Clerk of Quarter Sessions (CQS) as part of our audit of the City of Philadelphia’s basic financial statements. The focus of our examination was limited to determining if department management had suitably designed and placed in operation internal controls and complied with any laws and regulations related to its revenue and expenditure activity. What The Controller’s Office Found Efforts by the CQS to collect court-imposed fines and costs have been poor; plans to procure a collection agent had been set in motion soon after we recommended they do so in our fiscal year 2003 and 2004 audit report, but that the process had stopped in its final stages. Consequently, no collection action has been taken. Total costs and fines receivable for fiscal years 2006 and 2005 approximated $90 million and $84 million, respectively. Fund reconciliations are not prepared for the Cash Bail Refund Account, which had a balance of $28.6 million at June 30, 2006. The purpose of this fund is to hold bail monies until cases are finalized. Therefore, without such reconciliations there is no assurance that the amount of funds collected and on hand is available for final disposition. Our audit also noted a violation of the City Charter’s dual employment provisions and other areas where controls can be improved, including:

• Difficulty in locating bail records • Monitoring of daily attendance records • Completing and reviewing petty cash reconciliations

What The Controller’s Office Recommends The Controller’s Office has developed a number of recommendations to address these and other uncorrected prior year findings regarding cash bail and petty cash reconciliation deficiencies. The recommendations can be found in the body of the report.

CONTENTS

Page INTRODUCTION Background.............................................................................................................................1 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS ...............................................................3 FINDINGS AND RECOMMENDATIONS Missing Bail Documents.........................................................................................................5 Fund Reconciliations ..............................................................................................................5 Payroll Irregularities ...............................................................................................................5 Status of Prior Year Findings Collection of Court-Imposed Fines and Costs Is Not Being Pursued............................6 Accounts Receivable Fines and Costs Not Accumulated ..............................................6 Deficiencies in Accounting for Cash Bail Funds...........................................................6 Petty Cash Reconciliations Require Timely Completion and Review ..........................7 Property Not Adequately Identified...............................................................................8 Lateness Policy Not Enforced........................................................................................8 AGENCY RESPONSE Honorable Vivian T. Miller, Clerk of Quarter Sessions .........................................................9

INTRODUCTION

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BACKGROUND Powers and Duties The statutes of the Commonwealth of Pennsylvania and the ordinances of the City of Philadelphia prescribe the powers, functions, and duties of the Clerk of Quarter Sessions. Under current law, the Clerk of Quarter Sessions serves the criminal courts of Common Pleas and Municipal Courts, as well as the juvenile branch of Family Court.

The duties of the Clerk of Quarter Sessions include the following:

• Recording, indexing, and filing of all bills of information and transcripts of Municipal

Court. • Posting to dockets; collecting bail imposed by judges; entering judgments upon bail

forfeitures; issuing bench warrants; collecting costs and fines imposed by the courts; recording the decisions of the courts on bills of information or criminal transcripts; issuing commitments of discharge for defendants; and, when necessary, answering numerous inquiries from prisoners, attorneys, and judges.

• Serving the juvenile branch of Family Court by handling all matters relative to court

case files, including sending subpoenas to witnesses and notifying attorneys of case dates and activities.

• Expediting matters, such as petitions for writs of habeas corpus, appeals from

convictions, issuances of private detective licenses, and other miscellaneous matters. Management and Staffing The chief executive of the Clerk of Quarter Sessions is an elected official who serves a four-year term. At the close of fiscal 2006, the Clerk of Quarter Sessions employed a staff of 113, 109 of whom were appointed through civil service procedures. Financial Resources Management has responsibility for establishing and maintaining controls to safeguard the financial resources for which it is accountable. Safeguarding controls are designed (1) to prevent or timely detect unauthorized acquisition, use, or disposition of assets; (2) to ensure the reliability of financial reporting; and (3) to comply with applicable laws and regulations. During fiscal years 2006 and 2005, management of the Clerk of Quarter Sessions was accountable for the following appropriations, revenues and assets:

INTRODUCTION

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6/30/06 6/30/05Appropriations:

General Fund 4,347,650$ 4,486,116$ Grants Fund 4,377 0

Budgeted Revenues:Non-tax revenue 8,429,000$ 8,425,000$

6/30/06 6/30/05Assets (Year End Balances):

Imprest and change funds 1,100$ 1,100$

Agency fund cash:Cash Bail Refund Accounts 28,557,371$ 24,338,833$ Clearing Account 1,030,637 1,793,046 Costs and Fines Account 2,278,841 1,202,186

Costs and fines receivable 90,313,686$ 84,475,612$

Personal property 179,031$ 214,867$

Balances at

www.philadelphiacontroller.org

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REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE

AND OTHER MATTERS We annually audit the basic financial statements of the City of Philadelphia, Pennsylvania as of and for its June 30 fiscal year end and issue a report thereon. Those statements include financial transactions of various city departments and agencies. We conduct our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we consider the City of Philadelphia’s centralized and departmental internal controls over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the basic financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the Clerk of Quarter Sessions’ internal control over financial reporting was limited to determining if its internal control components for revenue, payroll, and other expenditure activity, were suitably designed and placed in operation during fiscal 2006 and 2005, and would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the Clerk of Quarter Sessions’ internal control components does not reduce to a relatively low level the risk that misstatements caused by errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

C I T Y O F P H I L A D E L P H I A O F F I C E O F T H E C O N T R O L L E R

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We noted no matters involving the Clerk of Quarter Sessions’ internal control over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Philadelphia’s basic financial statements are free of material misstatement, we performed centralized and departmental tests of compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. Our consideration of the Clerk of Quarter Sessions’ compliance with certain provisions of laws, regulations and contracts was limited to tests of revenue, payroll, and other expenditure activity, during fiscal 2006 and 2005. Our departmental tests disclosed no instances of noncompliance or other matters by the Clerk of Quarter Sessions’ that are required to be reported under Government Auditing Standards. However, we noted certain other conditions that are not required to be reported under Government Auditing Standards, but nonetheless represent deficiencies in internal control over financial reporting, that should be addressed by management. These conditions are listed in the table of contents and included in the findings and recommendations section of the report. This report is intended solely for the information and use of the management of the City of Philadelphia, the Clerk of Quarter Sessions’, and City Council and is not intended to be and should not be used by anyone other than these specified parties. November 20, 2007 ALBERT F. SCAPEROTTO, CPA Deputy City Controller

FINDINGS AND RECOMMENDATIONS

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MISSING BAIL DOCUMENTS In order to test the accuracy of the CQS bail refund system, we selected 10 bail postings to trace through the system. However, because of the haphazard manner in which documents were stored, bail logs, certifications, and receipts were initially found for only six items. Although the missing documents were eventually located, we believe that the manner in which these items are stored should be addressed by CQS management. Otherwise, the CQS may not be able to locate support for and answer questions regarding bail actions [16405.01]. FUND RECONCILIATIONS Fund reconciliations are not being performed for the Cash Bail Refund Account, which had a balance of $28.6 million at June 30, 2006. The purpose of this fund is to hold bail monies until cases are finalized. Funds that are held until disbursements are processed should be balanced with the cases for which they are being held. Without such a reconciliation, there is no assurance that there is a proper accounting for amounts that have been collected and that funds are available for final disposition. We therefore recommend that reconciliations be performed on a monthly basis [16405.02]. PAYROLL IRREGULARITIES As part of our payroll testing, we observed a daily attendance record where an employee pre-recorded his sign-out time. Upon further investigation, we uncovered that this employee was holding two full time jobs: one at the Clerk of Quarter Sessions and a second at the Southeastern Pennsylvania Transportation Authority (SEPTA). Full time employment with the city and with SEPTA is prohibited by the city’s Home Rule Charter Section 8 – 301, Other Offices or Positions. We recommend that the CQS:

• improve its monitoring of daily attendance records to identify payroll irregularities [16405.03].

• resolve the dual employment Charter violation [16405.04].

• follow Civil Service Regulation 33.026, Departmental Policies Concerning Outside

Employment. This section requires employees to obtain written approval from the appointing authority to engage in outside employment [16405.05].

FINDINGS AND RECOMMENDATIONS

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STATUS OF PRIOR YEAR FINDINGS Prior year findings are followed up and reported upon until corrective action or changes are made by management. Collection of Court-Imposed Fines and Costs Is Not Being Pursued During our entrance conference, CQS management explained that efforts to collect court-imposed fines and costs need improvement. Plans to procure a collection agent had been set in motion soon after we recommended they do so in our fiscal year 2003 and 2004 audit report; however, the process has not proceeded as expected. Consequently, no collection action has been taken. Total costs and fines receivable for fiscal years 2006 and 2005 approximated $90 million and $84 million, respectively. We continue to recommend that the CQS retain a collection agency to begin pursuing this receivable [16403.01]. Accounts Receivable Fines and Costs Not Accumulated In our prior year report we recommended that all additions made to the prior month’s accounts receivable report be accumulated and forwarded to the CQS’ Accounting Unit as support for differences between closing balances and subsequent opening balances [16400.07]. Our recent discussion with the CQS accountant has shown that the practice was started soon after our recommendation. However, with implementation of the automated case-management system in September 2006, procedures have changed and we have been informed that receivable balances are automatically carried forward. We will therefore update the status of this finding when reviewing the new systems’ controls as part of our subsequent audit. Deficiencies in Accounting for Cash Bail Funds Accounts are still manual [16404.02]. As noted in our prior year report, the Pennsylvania Supreme Court was developing an automated case-management, financial accounting, and electronic-filing system for the criminal division of the Courts of Common Pleas. This system would automate the CQS cash-bail activities. Implementation of the new system took place in September 2006. During our audit period, the CQS was still using its manual system to track case files and bail payments. We will therefore update the status of this finding when reviewing the new systems’ controls as part of our subsequent audit. Bank reconciliations are not dated [16401.01]. We communicated in our prior report that reconciliations did not indicate preparation dates for its Clearing Account and the Cash Bail Refund Account. This practice masks the true preparation date. Our current year review indicates that this practice has not changed and we continue to recommend proper dating of the reconciliations. As an alternative, consideration should be given to purchasing a check-writing program which would automate the reconciliation process.

FINDINGS AND RECOMMENDATIONS

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Prenumbered receipts are not used in sequence [16401.04]. In our fiscal 2001/2002 report, we noted that the CQS accounting unit did not account for pre-numbered receipts. Our fiscal 2003/2004 audit noted that the CQS’ automated processing system reports do not show receipts in numerical order. It is therefore not apparent whether there is an accounting for all documents. We continue to recommend that the CQS account for the issuance of all prenumbered receipts. Segregating the functions of approving disbursements, maintaining records, and preparing bank reconciliations has not been implemented [16401.05]. We noted in our prior year report that these functions were to be reassigned. Our current review shows that the accountant is now responsible for maintaining records and preparing bank reconciliations. Another employee approves bail refund disbursements. We consider this prior year comment resolved. Unclaimed monies were not processed [16401.07]. We noted in our prior year report that for the period ended June 30, 2004, the Cash Bail Refund Account had 131 uncashed checks totaling more than $83,000, which were dated older than one year; the Cash Bail Clearing Account had three uncashed checks approximately $3,000 older than one year. We had recommended that the CQS place stop-payments on all old checks identified; monies should then be submitted to the city’s Unclaimed Monies Fund. Our current year testing found that unclaimed monies have been processed and submitted to the city’s Unclaimed Monies Fund as required by the Finance Department’s Standard Accounting Procedure (SAP) E-4351. We consider our prior year recommendation resolved. Petty Cash Reconciliations Require Timely Completion and Review Our prior year report noted that bank reconciliations were prepared twice a year, with 6 to 10 completed at one time, and that reconciliations were approved, but no dates of approval were indicated. Current testing of 63 fund and bank reconciliations shows that this has not changed.

Missing preparation signature

-- --

Missing preparation date 86.67% 42.42%

**Bank reconciliations reviewed totaled 33, from January 2005 to September 2007.

Missing reviewer date

Fund* Bank**

-- 42.42%

26.67% 26.67%

Missing reviewer signature

FUND AND BANK RECONCILIATIONSREVIEW OF PREPARATION AND APPROVAL

*Fund reconciliations reviewed totaled 30, from January 2005 to June 2007.

FINDINGS AND RECOMMENDATIONS

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If reconciliations are not prepared timely nor show evidence of review or approval, errors or fraud could occur and go undetected for months before being discovered and corrected. Therefore, we continue to recommend that:

• fund reconciliations evidence signatures of preparers and approvers as required by Standard Accounting Procedure 7.1.3a. [16401.08]

• bank reconciliations be prepared monthly with evidence of the preparation dates and

signatures of preparers and approvers as required by Standard Accounting Procedure 7.1.3b. [16401.08]

Property Not Adequately Identified Our prior year report indicated that the CQS could not produce Property Detail Reports (PDRs) for seven of fifteen sample personal property items. The PDR contains all pertinent information for each personal property item purchased and departments are required to maintain a copy for their records. We were informed that these items were originally purchased by the First Judicial District of Pennsylvania (FJD) and subsequently transferred to the CQS. We recommended that the CQS request the FJD to submit the PDRs relating to these items and that procedures be developed to ensure that all such records are secured and retained for personal property acquisitions. The CQS has adequately recorded and identified all property transferred from the FJD. This finding is therefore considered resolved. [16401.09] Lateness Policy Not Enforced Our prior year review found lateness to be a problem. We noted that, of 10 employees tested, six were late often enough that they should have been suspended. However, discipline was limited to docking the employees for the time missed. We therefore recommended that procedures be developed to ensure compliance with the lateness policy [16401.11]. Our current testing found no instances of lateness and we consider the finding resolved.

RESPONSE TO AUDITOR’S REPORT

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RESPONSE TO AUDITOR’S REPORT

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