Audit Report on the Financial and Operating Practices of New York County Public Administrator’s Office

AUDIT REPORT IN BRIEF

We performed an audit of the compliance of the New York County Public Administrator’s Office (NYCPA) with Article 11 of the New York State Surrogate’s Court Procedure Act (the Act), the Guidelines of the Administrative Board for the Offices of the Public Administrators, and other applicable federal, State, and City laws, rules, and regulations. For the fiscal year ended June 30, 2000, the NYCPA expense budget totaled $773,637, consisting of $486,644 for Personal Services (PS) and $286,993 for Other Than Personal Services (OTPS). As of February 28, 2001, the NYCPA had 10 City employees, including the Public Administrator and Deputy Public Administrator. The NYCPA also employed six non-City employees whose salaries and benefits were paid from a suspense account. During calendar year 2000, the suspense account funded $162,100 in payroll expenses.

The NYCPA generally complied with many of the provisions of Article 11 of the New York State Surrogate’s Court Procedures Act (the Act), the Report and Guidelines of the Administrative Board for the Offices of the Public Administrators (Administrative Board Guidelines), and other applicable federal, State, and City laws, rules, and regulations. Specifically, we noted that:

• The Public Administrator and the Deputy Public Administrator are bonded;
• The salaries of the Public Administrator and Deputy Public Administrator are in accordance with provisions of the Act;
• Commissions and costs are accurately calculated and deducted from estates;
• Commissions are deposited in the City treasury on a monthly basis;
• Estate personal property is sold at public auction;
• The Public Administrator maintains a central record-keeping system for each estate;
• Estate assets are usually maintained in interest-bearing accounts;
• Interest is posted to estate ledgers on a monthly or quarterly basis;
• Funds payable to unknown beneficiaries are forwarded to the Department of Finance;
• The suspense account is used to finance estate expenditures prior to the conversion of estate assets to cash; and
• Suspense account funds used for payroll expenses are documented with timekeeping records.

We found, however, that the NYCPA did not properly manage estate assets, disregarded certain provisions of the Act and Administrative Board Guidelines (concerning the use of outside vendors and the performance of independent audits), and used the suspense account for inappropriate purposes. In addition, we found timekeeping weaknesses that should be corrected. Specifically, the audit disclosed that:

• The NYCPA does not ensure that estate earnings are maximized;
• The NYCPA is not adhering to the Administrative Board Guidelines and is not adequately protecting estate assets by allowing estate checking account balances to exceed the Federal Deposit Insurance Corporation’s (FDIC) limit;
• The NYCPA does not comply with Administrative Board Guidelines in its selection and use of outside vendors. The NYCPA neither advertises for vendors nor maintains lists of vendors as required by Administrative Board Guidelines;
• The NYCPA has not ensured that fees charged by the CPA firm it uses to prepare estate tax returns are fair and reasonable. Nor is there a contract or other document that defines the services to be performed and the fees to be paid;
• Tax returns prepared by the CPA on behalf of 15 of the larger estates contained errors and omissions. These may have resulted in overpayment or underpayment of federal, State, and City taxes;
• NYCPA neither reports to the Internal Revenue Service (IRS) nor issues the required IRS form to its vendors when making payments from estate accounts;
• The NYCPA has never had an independent audit performed of its records by an independent certified public accountant (CPA), as required by §1109 of the Act;
• The NYCPA made inappropriate disbursements totaling $2,440.75 from the suspense account; and
• The NYCPA maintains no time records for the Public Administrator and the Deputy Public Administrator.

The audit made 15 recommendations, including that the NYCPA should:

• Comply with all provisions of the New York State Surrogate’s Court Procedures Act and the Guidelines of the Administrative Board for the Offices of the Public Administrators, as well as all other applicable federal, State, and City laws, rules, and regulations.
• Ensure that estate earnings are maximized by surveying banks and depositing estate funds in those institutions paying the highest rates of interest.
• Analyze bank records and confirm that estate bank accounts receive the highest interest rates offered by those institutions.
• Create and implement a formal written policy for purchasing Treasury Bills and consider purchasing them directly from the U.S. Treasury.
• Ensure that estate funds are safeguarded. Specifically, ensure that bank accounts do not exceed the FDIC insurance limit.
• Comply with Administrative Board Guidelines with regard to selecting, using, and monitoring outside vendors.
• Discontinue using the current CPA and use the tax services of multiple CPAs. To ensure the quality of services received, the NYCPA should consider a "peer review" system whereby other CPAs periodically review the tax preparation services received by the NYCPA.
• Require that the current or newly selected CPA prepare amended tax returns to correct the errors identified in the report. If the current CPA amends the returns, no additional fee should be incurred.
• Issue IRS Form 1099 to vendors paid with estate funds.