OAG audit report
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STATE OF CONNECTICUT AUDITORS’ REPORT OFFICE OF THE ATTORNEY GENERAL FOR THE FISCAL YEARS ENDED JUNE 30, 2002 AND 2003 AUDITORS OF PUBLIC ACCOUNTS KEVIN P. JOHNSTON ♦ ROBERT G. JAEKLE Table of Contents _______________________________________________________________________________ INTRODUCTION....................................................................................................................... 1 COMMENTS .............................................................................................................................. 1 FOREWORD ....................................................................................................................... 1 RÉSUMÉ OF OPERATIONS .......................................................................................... 2 Revenues and Other Receipts ..................................................................................... 2 Expenditures .................................................................................................................. 3 Client Agency Costs ....................................................................................................... 4 Low Level Radioactive Waste Management Facility Account ............................... 5 Second Injury Account ................................................................................................. 5 Legal Assistance - Omnibus Budget ...
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STATE OF CONNECTICUT
AUDITORS’ REPORT OFFICE OF THE ATTORNEY GENERAL FOR THE FISCAL YEARS ENDED JUNE 30, 2002 AND 2003
AUDITORS OF PUBLIC ACCOUNTS KEVIN P. JOHNSTON ♦ ROBERT G. JAEKLE
Table of Contents _______________________________________________________________________________ INTRODUCTION....................................................................................................................... 1 COMMENTS .............................................................................................................................. 1 FOREWORD ....................................................................................................................... 1 RÉSUMÉ OF OPERATIONS .......................................................................................... 2 Revenues and Other Receipts ..................................................................................... 2 Expenditures .................................................................................................................. 3 Client Agency Costs ....................................................................................................... 4 Low Level Radioactive Waste Management Facility Account ............................... 5 Second Injury Account ................................................................................................. 5 Legal Assistance - Omnibus Budget Reconciliation Act (OBRA) of 1987 Account ....................................................................................................... 5 Adjudicated Settlements ............................................................................................... 6 CONDITION OF RECORDS ................................................................................................... 7 Prompt Deposit of Receipts ............................................................................................... 7 Property Control .................................................................................................................. 8 Expenditures ......................................................................................................................... 10 Petty Cash Fund.................................................................................................................... 11 Travel
...................................................................................................................... ........... 12 RECOMMENDATIONS .......................................................................................................... 14 CERTIFICATION ..................................................................................................................... 16 CONCLUSION ........................................................................................................................... 18
September 9, 2005 AUDITORS’ REPORT OFFICE OF THE ATTORNEY GENERAL FOR THE FISCAL YEARS ENDED JUNE 30, 2002 AND 2003
We have made an examination of the financial records of the Office of the Attorney General for the fiscal years ended June 30, 2002 and 2003. Financial statements pertaining to the operations and activities of the Office of the Attorney General for the fiscal years ended June 30, 2002 and 2003, are presented and audited on a Statewide Single Audit basis to include all State agencies and funds. This audit examination has been limited to assessing the Office of the Attorney General's compliance with certain provisions of financial related laws, regulations, and contracts, and evaluating the internal control structure policies and procedures established to ensure such compliance. This report on that examination consists of the Comments, Condition of Records, Recommendations and Certification that follow. COMMENTS FOREWORD: The Attorney General is an elected State officer whose duties are set forth in Title 3, Chapter 35, of the General Statutes. The Attorney General has general supervision over all non-criminal legal matters in which the State has an interest. Richard Blumenthal has served as Attorney General since January 9, 1991. Carolyn Querijero has served as Deputy Attorney General since May 19, 2000.
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Auditors of Public Accounts
RÉSUMÉ OF OPERATIONS: Revenues and Other Receipts: The Office collects significant revenues, including collections transferred and credited to the accounts of other State agencies. Receipts deposited to the Office of the Attorney General totaled $3,935,185 and $8,285,829 during the fiscal years ended June 30, 2002 and 2003, respectively, and are summarized below by fund with the 2000-2001 fiscal year for comparison purposes: 2000-2001 2001-2002 2002-2003 General Fund: Revenue: Fines, court costs and misc. fees $ 45,763 $ 258,704 $ 47,041 Civil penalties - court settlements 35,000 1,121,750 136,962 Recoveries - attorney fees 114,978 92,272 475,578 Recoveries - negotiated court settlements 2,925,260 1,156,271 758,657 All other revenues 17,147 6,884 5,949 Total Revenues 3,138,148 2,635,881 1,424,187 Restricted contributions 675,048 949,300 6,585,328 Expenditure refunds 666,520 350,004 276,314 Total General Fund Receipts $ 4,479,716 $ 3,935,185 $ 8,285,829 Pending Receipts Fund: Settlements and recoveries $ 974,294 $ 956,952 $ 1,259,395 Total Receipts $ 5,454,010 $ 4,892,137 $ 9,545,224 Total General Fund receipts generally fluctuate to a large degree, as individually large settlements or recoveries are received intermittently. For example, in the 2001-2002 fiscal year, the Office of the Attorney General received $800,000 in civil penalties and court settlements from Qwest Communication and $900,000 in negotiated court settlements from Bridgestone/Firestone. During the 2002-2003 fiscal year the Office received $6,052,060 in restricted contributions from Household International Inc. as part of a multi-state court settlement and Consent Decree. In addition, receipts received by the Office and forwarded to and deposited by other State agencies amounted to $14,796,845 and $14,719,916, for the fiscal years ended June 30, 2002 and 2003, respectively.
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Auditors of Public Accounts
Expenditures: Expenditures by fund and within the General Fund by categories of appropriation accounts follow, with the 2000-2001 fiscal year for comparison purposes: 2000-2001 2001-2002 2002-2003 General Fund: Budgeted accounts $ 25,408,647 $ 26,539,415 $ 26,264,572 Restricted contributions: Federal contributions 62,040 35,737 1,339,306 Other restricted contributions 1,028,862 67,096 31,518 Total General Fund 26,499,549 26,642,248 27,635,396 Capital Equipment Purchase Fund 84,993 86,284 597,647 Pending Receipt Fund withdrawals 816,840 422,844 1,175,356 Totals $ 27,401,382 $ 27,151,376 $ 29,408,399 General Fund expenditures by type were: 2000-2001 2001-2002 2002-2003 Personal services $ 23,699,543 $ 25,028,213 $ 24,802,515 Telecommunications 141,733 142,626 136,268 Fees for outside professional services (3,178) 228,312 191,544 Data processing hardware maintenance 42,329 35,584 49,481 Travel and mileage expenses 182,720 172,177 153,819 Dues and Subscriptions 409,193 323,281 341,374 All other contractual services 1,775,372 463,048 1,739,706 Commodities 172,466 150,657 137,027 Revenue refunds 462 27,068 20,768 Sundry charges 77,909 68,675 38,912 Equipment 1,000 2,608 23,982 Total General Fund Expenditures $ 26,499,549 $ 26,642,248 $ 27,635,396 Personal services expenditures accounted for approximately 94 and 89.7 percent of General Fund expenditures during the fiscal years ended June 30, 2002 and 2003, respectively. Comparatively, the 2000-2001 fiscal year personal services expenditures accounted for approximately 89.4 percent of General Fund expenditures. The percentage increase, in the 2001-2002 fiscal year of approximately 5.6 percent, is reflective of increases in salaries and an increase in filled positions of 375 at June 30, 2001 to 379 at June 30, 2002. Coupled with those increases is the virtually unchanged total of General Fund expenditures from the 2000-2001 to the 2001-2002 fiscal year. This is due, in part, to a refund of attorneys’ fees, which had the effect of significantly reducing the net of “all other contractual services expenditures. The decrease in personal services costs during the 2002-2003 fiscal year, from the 2001-2002 fiscal year, is due primarily to decreases in total filled positions at June 30, 2003. Total filled positions decreased to 333 as a result of an
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Auditors of Public Accounts
early retirement incentive program offered during the 2002-2003 fiscal year. This reduction in personnel, coupled with an increase in total General Fund expenditures during the 2002-2003 fiscal year resulted in personal services costs representing 89.7 percent of the total General Fund expenditures for the 2002-2003 fiscal year. Again, the category of attorney fees had a significant impact on total expenditures for the fiscal year with $912,722 included in the “all other contractual services total. Salaries for some employees were charged directly to the expenditure accounts of other State agencies served by this Office. As of June 30, 2003, 25 full time positions were charged in this manner. Fees for outside professional services, and attorney fees included in “all other contractual services, are presented net of amounts received for reimbursement from other State agencies. The Office bills other State agencies for legal services based upon invoices from outside contractors. The State agencies transfer their funds for payment to an account maintained by the Office. The Office pays the contractors with those transferred funds. Due to timing differences in the transfer and payment of funds, expenditures for fees for outside professional services and attorney fees vary significantly between periods. As such, when transfers from State agencies to the Office exceed payments by the Office, the amounts reported at year-end are presented as being negative. This occurred during the 2001-2002 fiscal year. At June 30, 2002 and 2003, the Agency had received reimbursements of approximately $1,186,577 and $188,679, respectively, which were not expended until the following fiscal year. Additional Agency expenditures, including personal services, were recovered by billing other State agencies for services. These expenditures were recovered through expenditure transfers to the Office of the Attorney General and are therefore not included in the expenditure totals presented. Such expenditure transfers amounted to $9,735,194 and $7,812,684, during the fiscal years ended June 30, 2002 and 2003, respectively. As noted above, certain General Fund restricted appropriation accounts are used to account for various Federal and other restricted funds received, and the expenditures charged thereto. A summary of these accounts follows: Client Agency Costs: This account serves as a clearing account for charges processed for other State agencies. These expenditures are usually for outside legal services. Upon receipt of an invoice from a service provider by the Office, the user agencies are requested to transfer funds to the Client Agency account to pay the service provider. Funds transferred and expended amounted to approximately $8,146,256 and $6,650,279 for the fiscal years ended June 30, 2002 and 2003, respectively. Client agency costs are dependant upon the number and types of services performed by the Office and on the timing of payments made on behalf of the agencies by the Office to outside contractors.
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Auditors of Public Accounts
Low Level Radioactive Waste Management Facility Account: Transfers from the State Department of Environmental Protection (DEP) provide funding for this account. Expenditures were primarily for salaries and fringe benefits of employees devoted to legal matters that relate to the siting of a low-level radioactive waste management facility. An unexpended balance of $567 was carried forward on July 1, 2001. In addition, transfers of $125,000 and $65,800 were received from the DEP during the 2001-2002 and 2002-2003 fiscal years, respectively. Expenditures totaled $125,567 and $62,167 for those same two respective fiscal years. Second Injury Account: Pursuant to Subsection (d) of Section 31-355 of the General Statutes, all expenses incurred by the Office of the Attorney General in carrying out its role in second injury cases shall be paid from the Second Injury and Compensation Assurance Fund. The State Treasurer administers this fund. The Attorney General's Second Injury account is used to record Agency non-personnel costs related to the second injury program and is funded by transfers from the State Treasurer. Personal services costs of certain employees were charged directly to the Treasurer's Second Injury Fund, and totaled approximately $1,751,182 for the 2001-2002 fiscal year and $1,738,422 for the 2002-2003 fiscal year. As of June 30, 2003, 15 such employees were charged to the fund. Receipts to this account totaled $70,000 for each fiscal year. Expenditures other than personal services totaled $65,775 and $84,541, for those same two respective fiscal years. Legal Assistance - Omnibus Budget Reconciliation Act (OBRA) of 1987 Account: This account is used to fund activity related to a State Department of Public Health (DPH) contract with the State Department of Social Services (DSS.) The purpose of the contract is to provide Federally required surveys of Medicare/Medicaid providers. The State was reimbursed, in part, through recoveries made by the Department of Social Services. The Office of the Attorney General and DPH have an agreement, whereby, the Office provides legal assistance to DPH in fulfilling its obligation as the survey agency for Medicare/Medicaid health care providers. Receipts, which also represent the related expenditures for each fiscal year, totaled $67,096 and $31,518 for the fiscal years ended June 30, 2002 and 2003, respectively. Expenditures consisted primarily of employee salaries and fringe benefits. However, of the $67,096 in expenditures for the 2001-2002 fiscal year, $16,047 was a return of grant funds.
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Auditors of Public Accounts
Adjudicated Settlements: An Agency trust fund (Attorney General Settlement Fund) and the State Pending Receipts Fund were also used to process transactions. Both were used to account for the collection and distribution of settlements due to the Agency and consumers. Distributions are made in accordance with the corresponding court orders. The Trust Fund was used to hold settlements required to be deposited into an interest-bearing account until final distribution. The Fund is in essence an investment fund. Subsequent to the fiscal year ended June 30, 1998, the State Treasurer established an interest credit account that the Office uses to invest its settlement funds. When disposition is finalized by the court, the money is transferred to the Pending Receipts Fund or General Fund, as applicable. Settlements not required to be held in an interest-bearing account are recorded in the Agency's Pending Receipts Fund. Transfers from the Trust Fund are also received in the Pending Receipts Fund to process payments to consumers or other State agencies through the State's accounting system. A summary of Agency transactions in its Trust Fund and its Pending Receipts Fund follows: Balance July 1, 2001 Receipts (2001-2002) Interest income (2001-2002) Disbursements (2001-2002) Balance June 30, 2002 Receipts (2002-2003) Interest income (2002-2003) Disbursements (2002-2003) Balance June 30, 2003
Attorney General Pending Settlement Receipts Fund Fund $ - $ 748,625 956,952 (422,843) - 1,282,734 6,061,649 1,259,395 9,589 (1,175,356) $6,071,238 $ 1,366,773
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Auditors of Public Accounts
CONDITION OF RECORDS Areas warranting comments are presented below: Prompt Deposit of Receipts: Criteria: Section 4-32 of the General Statutes generally requires that any State agency receiving more than $500 shall deposit such receipts in depositories designated by the State Treasurer within 24 hours of receipt. Condition: Tests of the Office’s receipts for timeliness of deposits initially disclosed that four receipts were one day late in being deposited. Subsequent to concluding our tests, the Office produced a memorandum from the Office of the State Treasurer granting an extension of two business days for receipts received under specific conditions. One out of the four receipts determined to have been one day late met the conditions for the extension while the other three pre-dated the extension authorization. Additionally, the Office had six checks in its possession made payable to the State, totaling $153,987, with receipt dates for four of the checks reflecting monies held and not deposited to the State’s accounts for more than two days to over one year. The other two checks did not have receipt dates recorded by the Office, but had check dates of February 25, 2003 and December 23, 2003. Agency procedures do not fulfill statutory requirements for prompt deposits. Untimely deposits may cause a loss of income earned on the deposits, and a breakdown in the safekeeping of the State’s assets. A significant portion of the revenues and receipts of the Office are from various legal actions that result in settlements and judgements. These receipts need to be processed through the applicable legal division within the Office. This often results in a one to two day delay in completing the receipting process. The Office takes the position that other checks are held because the legal proceedings related to the payments have not been finalized and the Office could jeopardize its position by cashing the checks, which could unintentionally bind the Office or its client agency.
Effect: Cause:
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Recommendation: Agency Response:
Property Control: Criteria:
Auditors of Public Accounts
The Office of the Attorney General should revise its procedures so that cash receipts can be deposited within the period required by Section 4-32 of the General Statutes as amended by any waiver obtained. (See Recommendation 1.) “Many of the receipts deposited by this office are the result of legal actions and must be reviewed by the legal department handling each case to ensure compliance with the settlement or judgment before being forwarded to the Business Office for deposit and because of this, some receipts were not deposited within the 24 hour period required by Section 4-32. We have requested, and have been granted, a two-day extension of the deposit requirements for certain receipts that must be reviewed by our legal departments prior to deposit. As a result of this extension, we have been in compliance with the deposit requirements in virtually all instances. We have emphasized to all of our department heads the importance of compliance with this requirement. The six checks noted in the report that had not been deposited were being held in our escrow safe. The escrow safe was established more than fifteen years ago on the recommendation of a previous audit as a repository for receipts that needed to be held pending finalization of settlements or judgments. As the result of this recommendation, we, with the assistance of the State Treasurer, have established an escrow account that allows for the prompt deposit of similar receipts. We anticipate that this will satisfy the concerns raised.
Standards and procedures for recording and maintaining inventory records are set forth in the State of Connecticut’s Property Control Manual, issued by the State Comptroller. The Manual states that a complete physical inventory of all property must be taken at the end of the fiscal year to ensure that the property control records accurately reflect the actual inventory on hand. Section 4-36 of the General Statutes requires that an inventory report be submitted by August first of each year. The Office is required to report its equipment and other fixed assets annually to the State Comptroller on a Fixed Assets/Property Inventory
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Condition:
Effect: Cause: Recommendation:
Agency Response:
Auditors of Public Accounts
Report/GAAP Reporting Form. Subsidiary records must be maintained to support the amounts reported. Amounts added to, and deleted from, such records should agree with purchasing and disposal records. Our current review of equipment inventory records disclosed the following: • A required physical inventory was not performed at fiscal year end June 30, 2003. • The Office did not submit a Fixed Assets/Property Inventory Report/GAAP Reporting Form for the fiscal year ending June 30, 2003, to the Office of the Comptroller. There has not been a proper accounting of the Office’s inventory in order to support inventory reporting requirements in accordance with the State Property Control Manual. The Office is not in compliance with Section 4-36 of the General Statutes, which requires the submission of property reports annually. A cause for the condition was not determined. The Office of the Attorney General should take appropriate steps to perform a complete physical inventory, update equipment inventory records and maintain them in an accurate manner. The annual Fixed Assets/Property Inventory Report/GAAP Reporting Form should be prepared and submitted, as required by the State Comptroller. (See Recommendation 2.) “The concerns expressed by the Auditors with respect to our Agency inventory have been addressed. Severe staffing shortages caused by layoff and early retirements at the end of fiscal year 2003, including the retirement of the person previously responsible for conducting the inventory, hampered the ability of the agency business office to conduct an annual inventory and the associated reporting in a timely manner in 2003. A complete inventory has since been conducted and equipment inventory records have been brought up to date. Improvements have been made to computerize our inventory system to reflect accurate values and to simplify ongoing maintenance of inventory records. We are currently up to date in our required filings with the Office of the State Comptroller.
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