Audit Report on the Department of Consumer Affairs Internal Controls over the Processing of Violations and Collection of Fines

AUDIT REPORT IN BRIEF

This audit determined whether the New York City Department of Consumer Affairs (DCA) maintains adequate internal controls over the processing of violations and collection of fines. DCA administers and enforces the City’s Consumer Protection Law, City and State Weights and Measures Laws, City License Laws, and Tobacco Laws. DCA promulgates consumer protection regulations, investigates deceptive trade practices, conducts administrative hearings, mediates consumer complaints, pursues large-scale litigation, performs research, and educates the public about consumer issues. DCA also licenses more than 60,000 businesses in 55 different industries, ranging from home improvement contractors, electronic stores, and tow companies to sidewalk cafés, newsstands, and locksmiths.

Audit Findings and Conclusions

DCA did not maintain adequate internal controls over the processing of violations and collection of fines and lacks adequate controls over its accounts receivable. Also, DCA did not have formal written policies and procedures to comprehensively address and establish standards for all aspects involved in the adjudication and collection of fines. The lack of strong controls led to operational inefficiencies and procedural weaknesses in the performance of Adjudication and Collections functions.

As of July 29, 2006, these weaknesses contributed to fines totaling $28.3 million remaining unpaid of the total $68.5 million assessed and reflected in the DCA computer data for the period January 1, 2000, through July 29, 2006. Nearly two-thirds ($18.6 million) of these unpaid fines were assessed against unlicensed home improvement contractors and, to a lesser extent, unlicensed tow operators and other unlicensed entities.

Nevertheless, the audit determined that DCA maintained adequate controls to provide reasonable assurance that cash receipts collected for fines were appropriately accounted for, safeguarded, and recorded in the City’s financial records. Further, DCA internal controls were adequate to ensure that respondents whose licenses are expired, revoked, or suspended will not be reinstated or renewed while fines remain unpaid.

Audit Recommendations

To address these issues the audit made 17 recommendations. Among them, we recommend that the DCA should:

• Establish controls to ensure that Adjudication and Collections tasks are performed in a consistent, timely, and efficient manner. These controls should include milestones for the performance of Adjudication and Collections tasks and criteria to measure the efficiency and effectiveness of these tasks. They should also include procedures to ensure that required information is appropriately and consistently recorded in respondent case records (paper or electronic), and that the status and location of case files are adequately tracked as they move from Adjudication to Collections.

• Ensure that assessed fines imposed by hearing officers or administrative law judges are verified for accuracy prior to the amounts being recorded in CAMIS and the decision being mailed to the respondents.

• Require the periodic reporting, review, investigation, and resolution of violations and payments to ensure that payments are appropriately posted in CAMIS in a timely manner.

• Comply with Comptroller’s Directive #21 by developing procedures to report its accounts-receivable balance monthly, identify or estimate and write-off fines deemed uncollectible, and report its write-off procedures, along with any write-off amounts, to the Comptroller’s Office.

• Develop a comprehensive policies and procedures manual that addresses all internal processes and functions throughout the agency and distribute the manual to appropriate DCA departments and personnel. The manual should be updated periodically to address newly implemented or restated procedures.

DCA Response

Of the 17 recommendations made in this report, DCA generally agreed with 13, partially agreed with three, and generally disagreed with one. The full text of the DCA response is included as an addendum to this report.