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NEW ORLEANS TRAFFIC COURT

ANNUAL FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31.2011

Under provisions of state law, this report is a public document Acopy of the report has been submitted to the entity and other appropnate public officials. The report is available for puDiic inspection at the Baton Rouge office of the Legislative Auditor and, where appropriate, at the office of the parish clerk of court.

Release Date NOV 1 4 2012

New Orleans Traffic Court

TABLE OF CONTENTS

Page Management's Discussion and Analysis 3-8

Independent Auditor's Report 9

Financial Statements:

Government-Wide Financial Statements: Statement of Net Assets 10 Statement of Activities 11

Fund Financial Statements: Balance Sheet - Governmental Fund 12 Reconciliation of the Balance Sheet - Governmental Fund to the Statement of Net Assets 13 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Fund 14 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance -

Governmental Fund to the Statement of Activities 15 Agency Funds:

Balance Sheet 16 Combined Balance Sheet 17 Statement of Changes in Assets and Liabilities 18

Notes to Financial Statements 19-26

Required Supplementary Information:

Budgetary Comparison Schedule - General Fund 27

Reports Required by GAG: 28-29

Independent Auditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards 30-32

Schedule of Findings and Response 33-40


Management's Discussion and Analysis Year Ended December 31,2011

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis (MD&A) of die New Orleans Traffic Court (Traffic Court's) fmancial performance is designed to provide an overview of the financial activities as of and for the fiscal year ended December 31, 2011. This information should be read in conjimction with the basic financial statements and the accompanying notes to the financial statements.

OVERVIEW OF THE FINANCIAL STATEMENTS

The MD&A is required infonnation diat provides an overview of the Traffic Court's basic financial statements and financial activities. A user of this report should read the independent auditor's report carefully to ascertain the level of assurance being provided on these reports.

This annual report consists of a series of financial statements. The Traffic Court's basic financial statements consist of the following components: Government-Wide Financial Statements, Fund Financial Statements and Agency Financial Statements.

Government-Wide Financial Statements

The Statement of Net Assets reflects the financial position of the Traffic Court. The unrestricted fimd balance for the Traffic Court as reflected in this statement consists of funds available for fixture spending to meet the needs of the Traffic Court's Office.

The Statement of Activities reflects the changes in net assets. Net assets, the difference between assets and liabilities, are one way to measure the financial health of an entity. Over time, increases or decreases in net assets are indicators of whether an entity's fmancial health is improving or deteriorating.

The Statement of Net Assets and the Statement of Activities report information on the Traffic Court as a whole and about its activities in a way that shows the overall financial health of the office. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.

Fund Financial Statements

Fund fmancial statements report detailed information on the Traffic Court maintained by the Court's office. This fiind is established as mandated by La R.S 13:2507.1.

The Traffic Court uses governmental fimds for basic services. Governmental funds focus on how money flows into and out of tiie operating accounts and reflect the balances left at year-end that are available for spending. These funds are reported under the modified accrual accounting method, which measures cash and all other financial assets that can readily be converted to cash.


Management's Discussion and Analysis Year Ended December 31, 2011

Fund Financial Statements - (continued)

The governmental fund statements provide a detailed short-tenn view of the general government operations and the basic services it provides. Govermnental fund information helps assists in determining whether tliere are more or fewer financial resources that can be spent in the near future to finance the Traffic Court's programs.

FINANCIAL HIGHLIGHTS

The financial statements provide details of the current year's operations:

As of December 31, 2011, the New Orleans Traffic Court maintained an Unrestricted Fund balance of $1,799,172 representing the portion available to maintain the continuing obligations to citizens. Unrestricted Net Assets represents the net balance of all types of assets accumulated by the Court in excess of the amount invested in "capital assets" and any "restricted assets". Restricted assets are those that are constrained by creditors, grantors, contributors, or by laws and regulations. As of December 31, 2011. the Traffic Court did not have "restricted assets".

Total assets as of December 31, 2011 were $3,336,623 and total liabilities were $1,351,121. In accordance with stamtory requirements, the Traffic Court has no bonded indebtedness or long-term notes.

The most significant continuing revenue sources for governmental activities were ticket revenues.


Management's Discussion and Analysis Year Ended December 31, 2011

FINANCIAL ANALYSIS OF THE TRAFFIC COURT AS A WHOLE (GWFS)

The Statement of Net Assets and the Statement of Activities report only one type of activity - governmental activities. Most of the basic court services are reported as this type. Ticket fees charged to the public finance most of these activities.

Our analysis below focuses on the net assets of the governmental-type activities:

Condensed Statement of Net Assets

Current and Other Assets 3 Capital Assets (net of accumulated depreciation) Total Assets

Current Liabilities Non-Current Liabilities Total Liabilities

Invested in Capital Assets Unrestricted

Total Net Assets 3

2011

B 3,150,293 $

186,330 3,336,623

1,351,121

1,351,121

186,330 1.799,172

5 1,985,502 $

2010

4,316,665 $

373,037 4,689,702

922,542

922,542

373,037 3,394,123

3,767,160 $

Dollar Change

(1,166,372)

(186,707) (1,353,079)

(428,579)

(428,579)

(186,707) (1,594,951)

(1,781,658)

Total Percent Change

(27.02) %

(50.05) % (28.85) %

(46.46) % - %

(46.46) %

(50.05) % (46.99) %

(47.29)%

The Traffic Court's total assets decreased by $1,353,079 as a result of this year's operations. The decrease of 1,166,372 in current and other assets was due to the excess expenditures over revenues for this year's operations and the additional $405,404 cash distribution to the City during 2011. The decrease in capital assets of 186,707 was due to the correction of erroneously capitalized expenses. The increase of $428,579 in current liabilities was mainly due to the recognition of liability for compensated absences.

Unrestricted net assets, the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements, decreased as a result of this year's operations.


Management's Discussion and Analysis Year Ended December 31. 2011

Condensed Statement of Activities

Total Program Expense Total Program Revenues Net Program Income

Transfer to City of New Orleans

Change in Net Assets

Net Assets: Beginning of the year End of Year

2011

$ (6,166.179)$ 4,789,925

(1,376,254)

(405,404)

(1,781,658)

3,767,160 $ 1,985,502

2010

(5,068,435) $ 5.879.242

810,807

(110,467)

700,340

3,066,820 3,767,160 $

Dollar Change

1,097,744 (1,089,317) (2.187,061)

294,937

(2,481,998)

700,340 (1,781.658)

Total Percent Change

21.66 % (18.53)%

(269.74) %

266.99 %

(354.40)%

22.84 % (47.29)%

The Traffic Court's total revenues for the year in governmental activities were $4,789,925. Tlie total cost of all programs and services was $6,166,179.

FINANCIAL ANALYSIS OF THE TRAFFIC COURT

As noted earlier, the Traffic Court uses funds to control and manage money for particular purposes. Analyzing this fund helps to determine whether the Traffic Court is using resources in a responsible maimer and maintaining the financial integrity of the office.

The Traffic Court reported a fund balance decrease of $750,252.

Condensed Statement of Revenues, Expenditures and Changes in Fund Balances Dollar Total Percent

2011 2010 Change Change

Total Revenues

Expenditures: Current Capital Outlay Total Expenditures

Transfer to City of New Orieans

Net Change in Fund Balance

Fund Balance: Beginning of the year End of Year

$ 4,789,925 $

5,054,144 80,629

5.134,773

405,404

(750,252)

3,394,123 $ 2,643,871

5,879,242 $

4,977,521 153,628

5,131,149

110,467

637,626

2,756,497 3,394,123 $

(1,089,317)

76,623 (72,999)

3,624

294,937

(1,387,878)

637,626 (750.252)

(18.53)%

1.54 % (47.52) %

.07 %

266.99 %

(217.66)%

23.13 % (22.10)%



JUDICIAL EXPENSE FUND BUDGETARY HIGHLIGHTS

The New Orieans Traffic Court budget for January 1,2011 - December 31,2011 was proposed and made available for public inspection by the New Orleans Traffic Court. There were no budget amendments during the current fiscal year.

A comparison of the budget to actual amounts follows:

Original Budget Actual

Variance Favorable

(Unfavorable)

Revenues

Ticket - Court Costs Tickets-Inet - Court Costs Tickets-Ivr - Court Costs Appropriations from City of New Orieans Bond Forfeitures Reinstate Fees Miscellaneous Use of money and property - interest earnings

Total Revenues

Expenditures

General govenmient: Personnel services and related

Benefits Operating services Capital Outlay

Total Expenditures

Excess revenues (expenditures) Distribution to City of New Orieans

Fund balance at beginning of year

Fund balance at end of year

$ 3,900,000 $ 380,000 350,000

50,000 75,000

3,000

4.758,000

3,542,200 1,215,800

4,758,000

3,394,123

$ 3,394,123 $

3,089,503 $ 162,062 392,198 519,288 506,676 91,075

1,963 27,160

4,789,925

3,905,313 1,148,831

80,629

5,134,773

(344,848) (405,404)

3,394.123

2,643,871 $

(810,497) (217,938)

42,198 519,288 456,676

16,075 1,963

24,160

31,925

(363,113) 66,969

(80,629)

(376,773)

(344,848) (405.404)

(750,252)



TRAFFIC COURT BUDGETARY HIGHLIGHTS - (Continued)

The unfavorable variances of $810,497 and $217,938 in ticket court costs are mostly due to various police departments writing fewer citations and City Attorneys prosecuting approximately 1/3 of the adjudicated cases. The favorable variance of $519,288 in appropriations is due to the appropriations from the City not being included in the budget. The appropriations historically have not been included in the JEF Budget. The favorable variance of $456,676 in bond forfeitures is due to bonds being forfeited by the Court but never physically transferred to the JEF until 2011.

The unfavorable variance of $80,629 in capital outlay is due to phase II of the IVR implementation and the unanticipated replacement of a vehicle.

CAPITAL ASSETS

The Traffic Court's investment in capital assets, net of accumulated depreciation, for governmental activities as of December 31,2011 was $186,330.

Computer Software Vehicles

Total Cost

Accumulated Depreciation Net Capital Assets

Depreciation Expense

$

$

145,714 198,500

344,214

157,884 186,330

73,239

LONG TERM OBLIGATIONS

Traffic Court is not allowed to incur long-term indebtedness for bonds or notes payable; therefore, the Court had no long-term debt outstanding.

ECONOMIC FACTORS AFFECTING OPERATIONS

The Traffic Court's Office is primarily financed by court costs assessed on traffic citations. The setting of these fees and costs is regulated by the Louisiana Revised Statutes and the Code of Criminal Procedures.

CONTACTING FINANCIAL MANAGEMENT

This financial report is designed to provide a general overview of the New Orleans Traffic Court finances and to show the Traffic Court's accountability for the money it receives. If you have questions about this report or need additional information please contact:

DebraA.Hall Judicial Administrator 727 South Broad Street New Orieans, Louisiana 70119

di.„^ MM SAGONA, BOURG, LEE, MATTHEW & Co., L.L.C. C E R T I F I E D P U B L I C A C C O U N T A N T S & C O N S U L T A N T S

& CO

INDEPENDENT AUDITOR'S REPORT

Honorable Judges en banc New Orleans Traffic Court 727 South Broad Street New Orleans, LA 70119

We were engaged to audit financial statements of the New Orleans Traffic Court's Judicial Expense Fund and agency fimds as of and for the Year ending December 31, 2011. These financial statements are the responsibility of the Traffic Court.

Detailed accounting records have not been maintained and certain current year and prior-year records and supporting data were not available for our audit. Therefore, we were not able to satisfy ourselves about the amounts recorded in tiie accompanying balance sheets of the Judicial Expense Fund and the Agency Funds at December 31, 2011. Additionally, we were not able to satisfy ourselves about the amounts recorded in the accompanying Statements of Activities for the year ended December 31,2011.

Because of the significance of the matters discussed in the preceding paragraph, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the financial statements referred to in the first paragraph.

In accordance with Government Auditing Standards, we have also issued a report dated October 15, 2012, on our consideration of the New Orleans Traffic Court's intemai control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of intemai control over financial reporting and compliance and the results of that testing, and not to provide an opinion on intemai control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

jLy^^^^y A^^A^. J i ^ ^ / L M ^ irG-., LLC Sagona, Bourg, Lee, Matthew New Orleans, Louisiana October 15,2012

650 PoYORAS S T R E E T • S U I T E 1200 - N E W O R L E A N S , LA 70130 " 504.274.0200 • FAX: 504.274.0201 • www.sblmcpa.coi

MEMBER: AMERICAN INSTITUTE OF CPAS & SOCIIiTY OF LOUISIANA CPAS

http://www.sblmcpa.coi

Assets


Statement of Net Assets December 31,2011

Cash and cash equivalents Due from others Capital assets, net of accumulated depreciation

S 2.085,916 1,064,377

186,330

Total Assets 3,336,623

Liabilities

Accounts payable Accrued payroll liabilities Compensated absences

90,973 415,449 844,699

Total Liabilities 1,351.121

Net Assets Nonspendable:

Invested in capital assets 86,330

Unrestricted

Total Net Assets

Total Liabilities and Net Assets $ •

1,799,172

1,985,502

3,336,623

See notes to financial statements


Statement of Activities December 31,2011

Expenses

General government: Personnel services and related benefits Operating services

4,750,012 1,416,167

Total Expenses 6,166,179

Program Revenues

Ticket Charges Appropriations from City of New Orleans Bond Forfeitures Reinstate Fees Miscellaneous fees

3,643,763 519,288 506,676 91,075

1,963

Total Program Revenues

General Revenues

Interest earnings

Total General Revenues

4,762,765

27.160

27,160

Net Assets

Change in net assets Distribution to City of New Orleans

Beginning of year

(1,376,254) (405,404)

3,767,160

End of year 1,985,502

See notes to fmancial statements

11


Balance Sheet - Governmental Fund December 31,2011

Assets

Cash and cash equivalents Due from others

2,085,916 1,064,377

Total Assets 3,150,293

Liabilities

Accrued payroll liabilities Accounts payable

415,449 90,973

Total Liabilities 506,422

Fund Equity

Unrestricted 2,643,871

Total Fund Equity 2,643,871

Total Liabilities and Fund Equit Equity $ 3,150,293


12


Reconciliation of the Balance Sheet - Governmental Fund To the Statement of Net Assets

December 31,2011

Total fund balance - governmental fund (fund financial statements) $ 2,643,871

Amounts reported for governmental activities in the statement of net assets (government-wide financial statements) are different because:

Capital assets used in govemmental activities are not financial resources and dierefore are not reported in the funds 186,330

Accrued compensated absences are not recorded on fimd financials because they are not due and payable at December 31,2011. (844,699)

Total net assets (government-wide financial statements) $ 1,985,502


13


Statement of Revenues, Expenditures and Changes in Fund Balance - Govemmental Fund

Year Ended December 31, 2011

Revenues

Ticket Fees Appropriation from City of New Orieans: Bond forfeitures Reinstate Fees Interest earnings Other miscellaneous

3,643,763 519,288 506,676 91,075 27,160

1,963

Total Revenues 4,789,925

Expenditures

General government: Personnel services and related benefits Operating services

Total Current Expenditures

Capital Outiay

Total Expenditures

3.905,313 1,148,831

5,054,144

80,629

5,134,773

Excess (deficiency) ofrevenues over expenditures Distribution to City of New Orleans

(344,848) (405,404)

Fund balance at beginning of year 3,394,123

Fund balance at end of year $ 2,643,871


14


ReconciUation of the Statement of Revenues, Expenditures and Changes in Fimd Balance - Governmental Fund

Year Ended December 31,2011

Change in fund balance (fund financial statements) $ (750,252)

Amounts reported for govemmental activities in the statement of activities (government-wide financial statements) are different because:

Current year increase in compensated absences are not recorded on fund financials because they are not due and payable in the current year. (844,699)

Govemmental funds report capital outlays as expenditures in the indi\idual fund, Govemmental activities report depreciation expense to allocate the cost of those capital assets over the estimated useful lives of the asset.

Capital asset purchases capitalized 80,629 Net capital assets written off (194,097) Depreciation expense (73,239)

Changes in net assets (government-wide financial statements) $ (1,781.658) See notes to financial statements

15


Balance Sheet Agency Funds

For the Year Ended December 31,2011

Fines & Fees Fund

Cash Bonds Funds

Total Agency Funds

Assets


Total Assets

$ 801,951 $

801,951

681,019 $ 309

681,328

1,482,970 309

1,483,279

Liabilities

Fines and fees Bonds held

Total Liabilities $

801,951

801,951 $

681,328

681,328 $

801,951 681,328

1,483,279


16


Combined Balance Sheet Agency Funds


December 31, 2010 Additions Deductions

December 31. 2011

Assets


Total Assets

$ 1.819,353

1.819,353

S 16,355,669

309

16,355,978

$ 16,692,052

- $

16,692,052

1,482.970 309

1.483,279

Liabilities

Fines and Fees Bonds Held

Total Liabilities $

962,435 856,918

1,819,353 $

15,456,769 899,209

16,355,978 $

15.617,253 1,074,799

16,692,052 $

801.951 681,328

1.483,279


17


Statement of Changes in Assets and Liabilities Agency Funds


December 31, 2010 Additions Deductions

December 31, 2011

Fines and Fees Assets

Cash and cash equivalents

Total Assets

$ 962,435

962,435

S 15,456,769 $

15,456,769

15,617,253

15,617,253

$ 801.951

801,951

Liabilities

Fines and fees 962,435 15,456,769 15,617,253 801,951

Total Liabilities 962,435 5,456.769 15,617,253 801,951

Bonds Held Assets


Total Assets

856,918

856,918

898,900 309

899,209

1,074,799

1,074,799

681,019 309

681,328

Liabilities

Bonds held

Total Liabilities $

856,918

856,918 $

899,209

899,209 $

1,074,799

1,074,799 $

681,328

681,328


18


Notes to the Financial Statements For the Year Ended December 31,20M

INTRODUCTION

As provided by Louisiana Revised Statute RS 13:2501.1 and Article III, Section 154-101 of the New Orleans Municipal Code, the New Orieans Traffic Court (Traffic Court) will consist of four judges appointed, selected and qualified under article VII, section 94 of the Louisiana Constitution, the enabling ordinances enacted by the city council, and the duly elected successors of such judges, and such other judges who may be created and authorized under the state constitution. The jurisdiction and the rules of the court are provided as followed:

(a) The jurisdiction of the traffic court shall extend to the trial of offenses against the ordinances of the city regulating traffic upon the public streets of the city and such other jurisdiction as may be hereafter conferred upon it by the state constitution.

(b) The court shall further have the power to adopt such rules and regulations governing the operation thereof as may be necessary for the proper functioning of the court.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The accompanying financial statements of the New Orieans Traffic Court have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to govemmental units. The Govemmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing govemmental accounting and financial reporting principles. The accompanying basic financial statements have been prepared in conformity with GASB, Statement 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments.

Reporting entity - Govemmental Accounting Standards Board Statement No. 14. The Financial Reporting Entity, (GASB 14) as amended by GASB 39 establishes standards for defining and reporting on the financial entity. The focal point for identifying the financial reporting entity is the primary government, which is considered to be any state government or general purpose local government or a special purpose government that has a separately elected governing body, is legally separate, and is fiscally independent of other state and local governments.

The Traffic Court is fiscally dependent on the City of New Orieans (die City) and payments from traffic offenses. The City maintains and operates the courthouse in which the Traffic Court's office is located and provides funds for equipment and lumiture to Traffic Court. However, the Traffic Court judges are independently elected officials, and the Traffic Court has separate corporate powers that establish it as being a legally separate unit, These separate powers and authority are established by State and City Oniinances. Additionally, the Traffic Court financial statements are not material to the financial statements of the City. Based on these factors, it was determined that the Traffic Court is not a component unit of the City, the financial reporting entity.

The accompanying financial statements present infomiation of the Traffic Court's Judicial Expense Fund as established by Louisiana Revised Statute RS 13:2507.1 and on behalf payments as described in the accompanying notes. The financial statements do not present information on the City, the general government services provided by that govemmental unit, or the other govemmental units.

Fund accounting - The Traffic Court uses funds and account groups to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions relating to certain government fiinctions or activities.

19


Notes to the Financial Statements For the Year Ended December 31,2011

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued!

A fund is a separate accounting entity with a self-balancing set of accounts. On the other hand, an account group is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the fimds because they do not directly affect net expendable available financial resources.

Govemmental Fund

The govemmental fund accoimts for all the Traffic Court's general activhies. This fund focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various govemmental funds according to the purposes for which they may be used. Current liabilities are assigned to the fimd fix)m which they will be paid. The difference between a govemmental fund's assets and liabilities is reported as fund balance. In general, the fimd balance represents the accumulated expendable resources which may be used to finance future period programs and/or operations of the Traffic Court. The following are the Traffic Court's govemmental funds:

Judicial Expense Fund - The Judicial Expense Fund is the primary operating fimd of the Traffic Court. It accoimts for all financial resources, except those required to be accounted for in other fimds. The Judicial Expense Fund is available for any purpose provided it is expended or transferred in accordance with state and federal laws and according to the Traffic Court policy. Traffic Court's Judicial Expense Fund serves as the General Fund for the court.

Fiduciary Fund - The fiduciary fimd reporting focused on net assets and changes in net assets. The only funds accounted for in tiiis category are the agency funds. The agency funds account for assets held by Traffic Court as an agent for litigants held in pending court action. The agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of the results of operations. Consequentiy, the agency fiinds have no measurement focus, but use the modified accmal basis of accounting. Traffic Court maintains two agency funds: Fines and Fees Agency Fund and Cash Bond Agency Fund. The Fines and Fees fund distributes monies collected on each ticket for state approved agencies. The cash bond fund holds monies deposited by defendants until the defendant appears in court and a final disposition is determined on their case. The court also holds surety bonds provided by bail bondsmen but does not maintain an account for the bond. Also, the court has bond forfeiture proceeds but those amounts are not included in agency funds due to the nature of ownership in forfeiting a bond.

^ Any forfeiture amounts which can be determined to belong to the court are listed on the statement of activities as bond forfeitures.

Basis of accounting - Fund Financial Statements (FFS) - The amounts reflected in the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance - Govemmental Fund (FFS), are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balance reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expendimres and other financing uses) of cunrent financial resources. This approach is then reconciled, through adjustment, to a government-wide view of operations.

The amounts reflected in these statements (FFS), use tiie modified accrual basis of accounting. Under the modified accmal basis of accounting, revenues are recognized when susceptible to accrual (i.e., when diey become both measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The govemmental funds use the following practices in recording revenues and expenditures:

20


Notes to the Financial Statements For the Year Ended December 31, 2011

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Revenues

Ticket fees and bond forfeitures are recorded in the year in which they are eamed. Interest income on investments is recorded when the investments have matured and the income is available. Substantially all other revenues are recorded when received.

Expenditures

Expenditures are generally recorded under the modified accmal basis of accounting when the related fund liability is incurred.

Basis of accounting - Government-Wide Financial Statements (GWFS) - The Statement of Net Assets and the Statement of Activities (GWFS) display information about the New Orleans Traffic Court as a whole. These statements include all the financial activities of the New Orieans Traffic Court. Information contained in these statements reflects the economic resources measurement focus and the accmal basis of accounting.

Revenues, expenses, gains, losses, assets and liabilities resulting from exchange or exchange-like transactions are recognized when the exchange occurs (regardless of when cash is received or disbursed). Revenues, expenses, gains, losses, assets and liabilities resulting from non-exchange transactions are recognized in accordance with the requirements of GASB Statement No. 33, Accounting and Financial Reporting for Non exchange Transactions,

Program Revenues - Program revenues included in the Statement of Activities are derived directly from users as a fee for services; program revenues reduce the cost of the function to be financed from general revenues.

Budget practices - The proposed budget, which is prepared on the modified accmal basis of accounting, must be approved by the Traffic Court Judges. The budget is legally adopted by the Traffic Court and all appropriations lapse at year end. For the Judicial Expense Fund, the Traffic Court has established a budget for service fees, court allocation of costs and salaries. Budget amounts included in the accompanying financial statements include die original adopted budget and all subsequent amendments. There were no amendments to the budget in this fiscal year.

Cash and cash equivalents - Cash includes amounts in demand deposits, interest bearing demand deposits, and money market accounts. Cash equivalents include amounts in time deposits and those investments with original mamrities of 90 days or less. Under state law, the Traffic Court may deposit fiinds in demand deposits, interest bearing demand deposits, money market accounts, or time deposits with state banks organized under Louisiana law and national banks having their principal offices in Louisiana.

Capital assets - Capital assets are capitalized at historical cost or estimated cost if historical cost is not available. Donated assets are recorded as capital assets at their estimated fair market value at the date of donation. The Traffic Court maintains a threshold level of $5,000 or more for capitalizing capital assets.

21



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Capital assets are recorded in the Statement of Net Assets and Statement of Activities. Since surplus assets are turned over to the City of New Orleans when declared as no longer needed for public purposes, no salvage value is taken into consideration for depreciation purposes. All capital assets, other than land, are depreciated using the straight-line method over the following useful hves:

Estimated Description Lives Computers 3 years Office Equipment 3 years Furniture & Fixtures 3 years Automobiles 5 years Leasehold Improvements 20 years

Compensated absences - Employees of the Traffic Court's office earn 2.5 weeks vacation leave per year based on years of service. The vacation time accmes on an employment anniversary date basis. Employees with a start date of December 31, 1978 or prior may accrue up to 90 days of leave. Accrued leave in excess of the 90 days is converted to sick leave. Employees with a start date of January 1, 1978 and later may accme up to 45 days of annual leave. Accmed leave in excess of the 45 days is converted to sick leave. The accmed accumulated leave which had been unused by employees at December 31, 2011 has been included in the government - wide financial statements.

Fimd equity - Assigned fund equity represents those portions of fund equity that are budgeted by the Court through the Court's formal budgeting process for specific puiposes.

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requh-es management to make estimates and assumptions that affect the reported amounts of assets and habilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.

2. CASH AND CASH EOUIVALENTS

At December 31,2011, the Traffic Court had cash, in checking accounts and certificate of deposit accounts (book balances) totaling $3,568,241 and bank balances for these accounts were $5,142,126.

The deposits are stated at cost, which approximates market. Under state law, the deposits (or the resulting bank balances) must be secured by federal deposit insurance or tlie pledge of securities owned by the fiscal agent bank. The market value of the pledged securities plus the federal deposit insurance must at all times equal the amount on deposit with the fiscal agent bank. These securities are held in the name of the pledging fiscal agent bank in a holding or custodial bank that is mutually acceptable to bodi parties. As of December 31, 2011; $5,293,350 of securities were pledged by the fiscal agent bank to collateralize the Traffic Court's deposits.

22


Notes to the Financial Statements For tiie Year Ended December 31,2011

2. CASH AND CASH EOUIVALENTS - (Continued)

CXjstodial credit risk is the risk tiiat in the event of a bank failure, deposits may not be returned to the account holder. As of year-end $4,392,126 of the Traffic Court's bank balance was exposed to custodial credit risk. These deposits were uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the Traffic Court's name.

These deposits are secured from risk by $250,000 of federal deposit insurance on the checking accounts and $500,000 of federal deposit insurance on the certificate of deposit at December 31,2011.

The Govemmental Accounting Standards Board (GASB), which promulgates the standards for accounting and financial reporting for state and local governments, considers tiiese securities subject to custodial credit risk. Even though the pledged securities are considered uncollateralized (Category 3) under the provisions of GASB Statement 3, R.S. 39:1229 imposes a stamtory requirement on the custodial bank to advertise and sell the pledged securities within 10 days of being notified by the Traffic Court that the fiscal agent has failed to pay deposited fimds upon demand.

3. DUE FROM OTHERS

The due from others of $1,064,070 at December 31, 2011, consist of funds due to the Court fitim the Fines and Fees Agency Fund and from the City of New Orleans for payroll and other operating expenses. Of this amount, $787,110 is due from the City of New Orleans and is past due ninety days or more at December 31,2011.

4. DUE TO OTHERS

The accmed payroll liabilities at December 31,201 invoice reimbursements as of December 31,2011.

consist of funds due to the City of New Orleans for payroll

5, PENSION PLANS

City of New Orleans Employees' Retirement System

Annual Pension Cost. For 2011, the Traffic Court annual pension cost was $469,722.

Required supplemental information - Schedule of Funding Program of PERS

Actuarial Valuation

Date 12/31/2009 12/31/2010 12/31/2011

Acmarial Value of Assets

(a) 387,146,017 384,105,611 379,526,159

Actuarial Accmed Liability (AAL)-Entry

Ase(b) 437,475,919 511,504,142 530,262,467

Unfunded AAL

(UAAL) (b-a)

50,329.902 127,398,531 150,736,308

Funded Ratio (a^) 88.50% 69.36% 71.57%

Covered Payroll

(c) 89,366,260 85,926,577 93,636,301

UAAL as a Percentage

Of Covered Payroll (b-a)/(c)

56.32% 148.26% 160.98%

23


Notes to the Financial Statements For the Year Ended December 31, 2011

5. PENSION PLANS - (Continued)

The Traffic Court is unable to provide certain other additional disclosures for the Traffic Court and the City of New Orieans Employees' Retirement System. The City of New Orleans processes the payroll for employees of the Traffic Court and remits billings to the Traffic Court for reimbursement. The Traffic Court was unable to obtain information from die City of New Orieans for the additional disclosures specific to the Traffic Court.

Actuarial information about the System for its most recent year available, the year ended December 31,2011, is presented below.

City of New Orleans Employees' Retirement System

Estimated payroll for current year $ 93,636,301 Actuarially required contributions:

Acmarially required contribution for dedicated taxes: Dollar amount 18,828,419 Percent of estimated payroll 20.108%

Actuarially required contribution for employers and employees: Dollar amount 4,681,815 Percent of estimated payroll 5.00%

Total actuarially required contribution: Dollar amount 23,510,234 Percent of estimated payroll 25.108%

Net assets, fair value 379,526,159

Pension benefit obligation 530,173,226

Unfimded benefit obligation $ 150,647,067

The pension benefit obligation is a standardized measure of the present value of pension benefits, adjusted for the effects of projected salary increases and step-rated benefits, estimated to be payable in the future as a result of employee service to date. The measure, which is the actuarial present value of credited projected benefits, is intended to help users assess the System's funding status on a going-concem basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among PERS and employers. The System does not make separate measurements of assets and pension benefit obligations for individual employers.

Historical trend information showing the System's progress in accumulating sufficient assets to pay benefits when due is presented in die System's comprehensive annual financial report. The reports may be obtained via contact as follows:

City of New Orieans Employees' Retirement System 1300 Pettiido Street, Room 1E12 NewOleans,LA70112 Telephone: (504)658-1850 Fax: (504)658-1602

The New Orieans Traffic Court does not guarantee the benefits granted by the retirement systems.

24



6. OTHER POST-EMPLOYMENT BENEFITS

Odier post-employment benefits are paid and reported by the City of New Orieans; tiierefore the Court does not accme a liability related to those benefits.

7. CAPITAL ASSETS

A schedule of changes in capital assets follows:

Computers & software Vehicles Machinery & equipment Fumimre & fixtures

Balance 12/31/10

398.603 $ 192,121 24,916 8,231

Additions 51,729 28,900

--

Disposals Balance 12/31/11

$ 304,618 $ 145,714 22,521 24,916 8,231

198,500 --

Accumulated Depreciation

Capital Assets, Net $

250,835

373,036 $

FACILITIES, FURNITURE, FIXTURES AND EOUffMENT

73,239

7,390 $

166.190

194,096 $

OWNED BY OTHER ENTITIES

157,884

186,330

The City of New Orleans is required by Louisiana Revised Statute RS 13:2509 to provide suitable facilities, rooms, fimiiture, equipment and supplies required for the proper fimctioning of the court. Assets purchased or provided by the City are listed on the City's physical asset listing instead of the Traffic Court.

9. LEASE COMMITMENTS

Traffic Court leases office equipment on a month to month basis.

10. APPROPRIATIONS FROM CITY OF NEW ORLEANS

All Salaries and Benefits of the employees of Traffic Court are paid by the City of New Orleans, as required by RS 13:2507. However, the Traffic Court reimbursed the City by invoice each month for these costs, less $239,671. This $239,671 for die year represents part of an appropriation by the City of New Orleans for the support of the Traffic Court's operations. For the year ended December 31, 2011, the appropriation was $519,288 of which $279,617 is included in Due from others at December 31,2011.

U. OTHER REGULATORY

The City of New Orleans Office of Inspector General performed a performance review of the New Orleans Traffic court practices in 2010 for which they issued a report dated November 17,2011 that identified several material deficiencies in the Traffic Court's accounting and intemai control systems. We have included the findings from the report issued by the Inspector General that have a direct impact on financial reporting and the Traffic Court's responses to those findings in the Schedule of Findings and Responses.

The Legislative Auditor is currently conducting an investigation regarding the New Orleans Traffic Court, The effect on the financial statements as of the date of this audit report is not known.

25


Notes to the Financial Statements For tiie Year Ended December 31, 2011

12. SUBSEQUENT EVENTS

The Traffic Court has evaluated subsequent events through October 15,2012, the date which the financial statements were available to be issued. The following events occurred subsequent to December 31,2011 and before the financial statements were available to be issued.

In 2012, Traffic Court issued payments to LASERS on behalf of two employees totaling $60,011. The payments represent retirement catch-up contributions due to a clerical error.

Also in 2012, court costs on bond forfeitures were remitted to the respective agencies retro-actively. All bonds forfeited to die Judicial Expense Fund from 2008 to 2011 were assessed court costs totaling $86,755,

26


Budgetary Comparison Schedule - General Fund For the Year Ended December 31,2011

Revenue

Bond forfeitures Reinstate fees Tickets Tickets - laet Tickets - Ivr Miscellaneous Use of money and property-interest earnings Appropriation from City of New Orleans

Total Revenue

Expenditures Current: G^eral governmental -judicial

Bank service charges Building & maintenance Car/truck expense Cleaning janitorial Computer software Dues & subscriptions Meeting & conferences Miscellaneous Office supplies Postage & delivery Printing & reproduction Telephone & fax Travel & entertainment Travel & entertainment - meals Reconciliation discrepancies Computer Computer equipmmt Office equipment Employee parking Employee testing Insurance - disability Payroll expense Uniform Contract labor Professional fees

Total Current tixpendilures

Total Expenditures

Excess (Deficiency) ofrevenues over expenditures Distribution to City of New Orleans

Net changes in Fund balance

Fund balance Beginning Ending

Budgeted Original Amounts

$ 50,000 $ 75,000

3,900,000 380,000 350.000

-3,000

-

4.758,000

3,500 5,000 5.000 7,200

30.000 18,000 50,000

-60,000 3,000

40,000 9,100

---

25.000 25,000 30,000 25,200

8,000 4,000

3.500,000 5,000

300.000 605.000

4.758.OOO

4.758,000

_

-

3,394,123 $ 3.394.123 S

Actual Amounts

506,676 $ 91,075

3,089,503 162,062 392,198

1,963 27,160

519.288

4,789,925

98 2,350 2,810 1,000

-16.012

-589

87,073 1353

21.874 7,896

54.020 590

(3.455)

-44.694 35,308 30.398

228 2,539

3,865.373 6,776

218,533 738,714

5,134.773

5,134,772

(344,848) (405.404) (750,252)

3,394,123 2.643,871 $

S Variance Favorable

(Unfavorable)

456,676 16,075

(810,497) (217.938)

42,198 1,963

24.160 519,288

31.925

3,402 2,650 2,190 6.200

30,000 1,988

50.000 (589)

(27.073) 1,647

18,126 1,204

(54,020) (590)

3,455 25,000

(19,694) (5,308) (5,198) 7,772 1,461

(365372) (1J76) 81,467

(133.715)

(376,773)

(376,773)

(344,847) (405,404) (750,252)

-(750,252)

% Variance Favorable

(Unfavorable)

913.35 % 21.43 %

(20.78) % (57.35) % 12.06 %

100.00 % 805.33 % 100.00 %

.67%

97.20 % 53.00 % 43.80 % 86.11 %

100.00 % 11.04 %

100.00 % (100.00) %

(45.12) % 54.90 % 45.32 % 13.23 %

(100.00) % (100.00) % 100.00 % 100.00 % (78.78) % (17.69) % (20.63) % 97.15 % 36.53 %

(10.44) % (35.52) % 27.16 %

(22.10) %

(7.92) %

(7.92) %

(100.00) % (100.00) % (100.00) %

- % (22.10) %

27


REPORTS REQUIRED BY GAP

YEAR ENDED DECEMBER 31,2011


Schedule of Findings and Responses Year Ended December 31,2011

We were engaged to audit the basic financial statements of the New Orleans Traffic Court as of and for the year ended December 31, 2011 and have issued our report thereon dated October 15, 2012. We were engaged to conduct our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our audit of the financial statements as of December 31, 2011 resulted in a disclaimer of opinion due to inadequate accounting records and material weaknesses in intemai control over financial recording and reporting.

Section I Summary of Auditor's Reports

a. Report on Intemai Control and Compliance Material to the Financial Statements

Intemai Control: Material Weaknesses X Yes No, Significant Deficiencies X Yes No

Compliance:

Compliance Issues Material to Financial Statements X Yes No

b. Federal Awards - Reports not required; no federal funds expended during the year.

c. Identification of Major Programs - None

Section II Schedule of Findings and Responses

Section III Federal Avvard Findings and Questioned Costs - None

29


INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCLVL REPORTING BASED ON

AN AUDIT OF BASIC FINANCLVL STATEMEN1S PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

YEAR ENDED DECEMBER 31,2011

SAGONA, BOURG, LEE, MATTHEW & Co., L.L.C. C E R T I F I E D P U B L I C A C C O U N T A N T S & C O N S U L T A N T S

& CC)

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLLMVCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED

IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

We were engaged to audit financial statements of the New Orieans Traffic Court's judicial expense fund and agency funds as of and for the Year ending December 31, 2011. We did not express an opinion as detailed accounting records have not been maintained and certain current year and prior-year records and supporting data were not available for our audit.

Except as discussed in the preceding sentence, we conducted our audit in accordance witli 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

Management of the City of New Orleans Traffic Court is responsible for establishing and maintaining effective intemai control over financial reporting. In planning and performing our audit, we considered the City of New Orleans Traffic Court's intemai control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of New Orleans Traffic Court's internal control over financi^ reporting. Accordingly, we do not express an opinion on the effectiveness of the City of New Orleans Traffic Court's internal control over financial reporting.

Our consideration of intemai control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in intemai control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying Schedule of Findings and Responses, we identified certain deficiencies in intemai control over financial reporting that we consider to be material weaknesses.

A deficiency in intemai control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in intemai control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying Schedule of Findings and Responses to be material weaknesses.

A significant deficiency is a deficiency, or a combination of deficiencies, in intemai control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying Schedule of Findings and Responses to be significant deficiencies.

650 PoYDRAS STRF.ET ' SuiTE 1200 • N E W ORLHANS, LA 70130 • 504.274.0200 • FAX: 504.274.0201 • www.sblmcpa.com

MEMBER: AMERICAN INSTITUTE OF CPAS & SOCIETY OF LOUISIANA CPAS

http://www.sblmcpa.com

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City of New Orieans Traffic Court's financial statements are free of material misstatement, we performed tests of its 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. The results of our tests disclosed instances of noncompliance or other matters that arc required to be reported under Government Auditing Standards and which are described in the accompanying Schedule of Findings and Responses.

The City of New Orieans Traffic Court's response's to the findings identified in our audit are included in the accompanying Schedule of Findings and Responses. We did not audit the City of New Orieans Traffic Court's responses and, accordingly, we express no opinion on them.

This report is intended solely for the information and use of management. City Council, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

New Orieans, Louisiana ^ October 15,2012

32

SCHEDULE OF FINDINGS AND RESPONSES

2011 FINDINGS AND RESPONSES

2011-1 Cash

The following observations indicate that there was no control in place that would prevent or detect an intentional or unintentional material misstatement of cash in the Judicial Expense Fund or the Agency Fimds. There was no control in place that would prevent or detect a misappropriation of funds made through cash from the Judicial Expense Fund or the Agency Funds.

Observations

• Cash reconciliations were not properiy performed and large reconciling items were not researched and verified as far back as 2008 resulting in a prior year adjustment to cash of $167,000.

• There was no segregation of duties with regard to access to and recording cash transactions.

• Transactions were recorded to cash accoimts of the Judicial Expense Fund as well as the Agency Funds via journal entries for which no supporting documentation could be located.

Management Response

Traffic Court now properly reconciles all cash accounts on a monthly basis. Discrepancies are researched and rectified. Incompatible duties are now segregated to deter the misappropriation of cash. Supporting documentation now accompanies all journal entries.

2011-2 Capital Expenditures

The following observations indicate that there was no control in place that would prevent or detect an intentional or unintentional material misstatement of Capital Expenditures in the Judicial Expense Fund. There was no control in place that would prevent or detect a misappropriation of assets from the Judicial Expense Fund.

The following observation indicates there was no control in place to ensure compliance with City Ordinance or Public Bid Laws.

Observations

• Capital Asset additions were recorded in the accounting records as capital assets; however, the existence could not be verified, resulting in a net write off of prior year capital assets of approximately $194,000.

• Section 3 of City ordinance no. 1482 states that "Procurement of equipment and supplies and materials shall be obtained by the Traffic Court through requests submitted to the Department of Finance, Bureau of Purchasing, for procurements through public bid.

Management Response

Traffic Court is monitoring its fixed asset acquisitions to ensure that they are properly recorded. Traffic Court has developed and implemented a purchasing policy to procure purchases through a competitive process.

33

2011 FINDINGS AND RESPONSES - (Continued)

2011-3 Due From Others

The following observations indicate tfiat there was no control in place that would prevent or detect an intentional or unintentional material misstatement of due from other funds in the Judicial Expense Fund. There was no control in place tiiat would prevent or detect a misappropriation of funds made tiirough cash disbursements from the Judicial Expense fund and recorded to the due from other funds.

Observations

• Supporting documentation for prior year's balances in due from others accounts could not be located. Additionally, properly approved supporting documentation for joumal entries to due from others accounts could not be located.

• Numerous joumal entries were noted moving expenses from accounting fees and other expense accounts to the due from others account. Additionally numerous joumal entries both debit and credit amounts for which no supporting documentation could be located were noted.

Management Response

Traffic Court is working to ensure that supporting documentation is provided for all financial transactions.

2011-4 Payroll Related

The following observations indicate that there was no control in place that would prevent or detect an intentional or unintentional material misstatement of payroll expense and accmed payroll liabilities in the Judicial Expense Fund. There was no control in place that would prevent or detect a misappropriation of funds made tiirough cash disbursements from the Judicial Expense fund and recorded to the payroll expense account.

Observations

• There was no reconciliation performed between the invoices billed by the City and the payroll expense recorded by the Judicial Expense Fund. This resulted in approximately $122,000 of payroll expense not being recorded in 2011, Additionally, tiiere was no documentation made available to determine the amounts billed by the City to the Traffic Court were accurate.

• We noted a payment for accounting fees recorded as payroll expense.

Management Response

Financial transactions are monitored on a regular basis for accuracy* Traffic Court will work with the City of New Orleans to find a solution to the lack of payroll supporting documentation.

2011-5 Bond Agency Fund

The following observations indicate that there was no control in place that would prevent or detect an intentional or unintentional material misstatement of the accounts in the Bond Agency Fund. There was no control in place that would prevent or detect a misappropriation of funds made through cash disbiu"sements from the Bond Agency Fund.

34


2011-5 Bond Agency Fund - (Continued)

Observations

• Supporting documentation for amounts recorded in the Bond Liability account could not be located. The system used to track bond deposits, forfeitures and refunds was tested and it was determined that it could not be relied upon due to a lack of supporting documentation and discrepancies in various reports generated from the system.

Management Response

Traffic Court is collaborating with the City to identify a new case and financial management system; two vendors are being considered and have presented product demonstrations. We are currentiy in the process of identifying funds to support the project

2011-6 Fines & Fees Agency Fund

The following observations indicate that there was no control in place that would prevent or detect an intentional or unintentional material misstatement of the accounts in the Fines and Fees Agency Fund. There was no control in place that would prevent or detect a misappropriation of funds made through cash disbursements or cash transfers from the Fines and Fees Agency accoimt.

Observations

• Amounts recorded in the Fines and Fees Agency Fund as collections did not agree to die cash register reports generated for those time periods.

• The Court was unable to provide adequate supporting documentation to determine that the allocations of monies collected were in accordance with City and State Ordinances.

• The Court was unable to provide adequate supporting documentation for allocations and disbursements from the Fines and Fees Agency Fund.

Management Response

Changes in procedures have been implemented and daily reconciliations are now performed to ensure the cash register reports coincide with amounts recorded. Traffic Court is currently in the process of procuring a new case and financial management system that should correct any deficiencies that exist

2011-7 Expenditures

There was no control in place that would prevent or detect a misappropriation of funds made through cash disbursements from the Judicial Expense Fund.

Observations

• The Court was not able to produce policies and procedures for expenditures prior to June 15, 2011. Therefore, for the period of January 1, 2011 thm June 15, 2011, we were unable to determine whetiier or not the expendimres were properiy authorized and we determined that there was no intemai control in place that would prevent or detect a misappropriation of public funds made through expenditures from the Judicial Expense Fund.

35


2011-7 Expenditures-(Continued)

• Policies and procedures for expenditures adopted in tiie En Banc meeting of the Traffic Court Judges on June 15, 2011 relative to the Judicial Expense Fund were not followed. Therefore, for tiie period of June 15, 2011 dim December 31,2011, there was no control in place to ensure tiiat expenditures were properly authorized, and tiiere was no control in place that would prevent or detect a misappropriation of funds made tiirough expenditures from the Judicial Expense Fund.

• Section 4 of City Ordinance 1482 states that "the Judges of the Traffic Court shall establish mles and regulations for the control and management of this fund". The Court could provide written mles, policies or procedures relating to the Judicial Expense Fund prior to the "Rules for Administration of the Traffic Court Judicial Expense Fund" adopted and signed by the Judges on June 15,2011.

Management Response

Several key policies and procedures have been approved and implemented; project is ongoing.

2011-8 Budget Process

The Traffic Court did not comply with applicable state laws witii regard to budget practices.

Observation

• The Traffic Court could not provide documentation that the budget for the year ending 12/31/2011 was made available to tiie public as required by RS 39:1307 B

• No amendment to the budget was prepared and adopted when total revenues failed to meet total budgeted revenue by 5% or more and when total actual expenditures exceed total budgeted expenditures by 5% or more.

Management Response

Traffic Court will work to ensure that there is compliance with applicable state and local law with regard to budget practices.

2011-9 Financial Reporting

The Traffic Court did not comply with applicable state laws that require it to submit its annual financial statements to the Louisiana Legislative Auditor within six months of its year end.

Observation

• The Traffic Court properiy contracted an auditor to perform an audit of its 2011 fmancial statements, however, the audit firm's partner that was responsible for the audit was involved in a traffic accident that resulted in serious injury to him. Additionally, the poor state of the Traffic Court's financial records caused tiie auditors to incur more time to complete the audit than was originally anticipated.

• Although tiie Traffic Court obtained from tiie Legislative Auditor an extension until September 30,2012 to file its audited financial statements, the extension does not alleviate the Traffic Court's requirement to comply with the filing deadline required by state law.

36


2011-9 Financial Reporting - (Continued)

Management Response Traffic Court anticipates that the improved policies and procedures that are currentiy being implemented will resolve the deficiencies that caused additional time to complete the audit

2010 HNDINGS AND RESPONSES

The 2010 financial statements were audited by otiier auditors. Those auditors indicated a finding in their report regarding possible illegal acts by an employee of the Traffic Court. The report indicated the employee resigned before any administrative action could be taken and that all the information concerning the matter was provided to the proper authorities.

OTHER AUDITS AND REVIEW FINDINGS AND RESPONSES

As noted in footnote 11, The City of New Orleans Office of Inspector General (OIG) performed a performance review ofthe New Orleans Traffic court practices in 2010 for which they issued a report dated November 17,2011. The report included the following findings that have a direct impact on financial reporting controls ofthe Traffic Court. The finding numbers correspond to the fmding numbers contained in the OIG report.

Finding # 9 Traffic Court Judges directed an estimated $1.3 million fix)m Traffic Fines and Statutoiy Fees to the Traffic Court JEF.

Management Response Traffic Court had discussions with both the Louisiana Defender Board and the Orleans Parish Public Defenders Office regarding the Traffic Court's collections and disbursements, but was not sued by either of these agencies. Traffic Court additionally responded tliat the need to direct fines and statutory fees to the JEF has been substantially lessened with the enactment of LA R.S. 13:250I,1(N), authorizing Traffic Court to increase court costs to $30 per case.

Finding # 10 Traffic Court created a surplus for its JEF by retaining approx. $500k in "excess" revenue.

Management Response The accumulated surplus balance was transferred to the City's General Fund on 12/31/2010 to reduce the City*s 2010 budgetary deficit In return, the City's Administration has agreed to include the renovation ofthe Traffic Court in a future capital project outiay.

Finding #11 The 2010 Audit of tiie Traffic Court JEF presented an inaccurate picture of the court's activity.

Management Response The misstatement of revenue contained in the initial audit report was corrected in a subsequently issued report

37

OTHER AUDITS AND REVIEW FINDINGS AND RESPONSES - (Continued)

Finding # 12 Traffic Court used City fine revenue to pay a court contractor for services die City did not autiiorize.

Management Response Except for one of the judges, die judges ofTraffw Court were unaware that the contractor was performing extra work for the City and tite Court and unaware ofSlSOk (or any other sums) paid in additional compensation. The Traffic Court's lack of knowledge of these issues is not disputed.

Finding # 14 Traffic charges were dismissed by judges or by judges' staff members witiiout the required authority of a City Attorney.

Management Response Agreed with findings. Effective 10/26/11, no Traffw Court Judge or staff member shall have the autiiority to dismiss charges.

Finding #15 Traffic Court's financial management capacity in 2010 was not adequate to properly safeguard and administer $12.8 million in revenues.

Management Response Agreed with findings. Traffic Court has subsequently hired more experienced accounting personnel capable of managing the Court's accounting and financial reporting functions in-house.

Finding #16 Traffic Court lacked adequate control against misappropriation of cash.

Management Response Agreed with findings. Effective 10/26/11, employees ofthe Clerk's Office have been denied screen access to enter disposition codes. Courtroom personnel with access to enter disposition codes cannot cashier; conversely, cashiers have been denied access to process non-cash transactions. The access of other employees has been substantially restricted - they cannot process cash transactions or enter disposition codes.

Finding #17 Traffic Court had no written policies or procedures to govern court operations.

Management Response Agreed with findings. The Court began drafting an employee manual in late Spring 2011. Simultaneously, the LA Supreme Court initiated coordinated efforts to produce such a handbook for City Courts statewide. An Employee Manual should be available for publication and distribution in the early part of 2012.

Fmding #18 Traffic Court judges' employees received full-time salaries and benefits from the City while working part-time.

Management Response Responded that this has been a historical practice that the former City Attorney's office had been aware of. Cuirentfyf Assistant City Attorneys assigned to the Municipal and Traffw Courts work abbreviated shifts averaging less than 3 hours per day. According to Deputy Mayor Andrew D. Kopplin, these employees have been "exempted" from the 35 hour weekly requirement to receive full time salary & benefits.

38

OTHER AUDITS AND REVIEW FDVDINGS AND RESPONSES - (Continued)

Finding #19 Traffic Court hired Violations Bureau employees witiiout regard for civil service requirements.

Management Response Agreed with findings. Additionally responded titat Traffic Court will seek legislative clarification/change regarding the use of "unclassified" employees during the 2012 Legislative session.

Finding #20 Traffic Court inappropriately classified employees as Contractors.

Management Response Agreed with findings. Additionally responded that there were far fewer employees misclassifled as Contractors in 2011 compared to 2010. All Ad hoc judges were paid through the City's Finance Department's payroll account in 2011. The misclassification of employees should be completely eliminated in 2012.

Finding #21 Traffic Court spent over $500k on materials, supplies, and non-professional services witiiout obtaining competitive bids.

Management Response Agreed with findings. Effective 11/1/11 the Court will use existing City contracts when appropriate and follow the City's competitive procedures for the award of new contracts.

Finding #22 Traffic Court paid professional service contractors $887,404 in 2010 witiiout utilizing any competitive procurement process.

Management Response Major Services, Inc. was paid $80/hr in 2010 to provide technical support services. This rate is identical to the rate in the original 2005 service contract As ofthe date ofthe response letter, the contractual rate remains $80/hr.

Finding #23 Traffic Court did not exercise adequate oversight over its accounting services contractor or require dociunentation to support hourly billings.

Management Response Agreed with findings. Greater oversight from the Judicial Administrator's Office is mandated. Personnel changes in titat office will bring about the necessary change.

Finding # 24 Traffic Court accounting services contractor also acted as campaign fimd treasurer for the acting Chief Judge in 2010,

Management Response Agreed with findings. Additionally noted that the accounting serves contractor's contractual relationship with the Court will terminate prior to 12/31/11.

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OTHER AUDITS AND REVIEW FINDINGS AND RESPONSES - (Continued)

Finding # 25 Traffic Court did not make effective use of its Information Technology Systems.

Management Response See "Exhibit B " in OIG Report for response from Jack Horil, IT Director for Traffic Court.

Finding # 27 Traffic Court judges improperly used fiinds from the JEF to purchase disability insurance for themselves and to pay Ad Hoc Judges.

Management Response Agreed with findings. Effective l l / l / l l , the disability insurance policies for Judges were cancelled.

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