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

The Kings County Public Administrator (KCPA) is responsible for administering the estates of individuals in Brooklyn who die without a will or when no other appropriate individual is willing or qualified to administer the estate. As an estate administrator, KCPA has a fiduciary duty to: “protect the decedent’s property from waste, loss, or theft;…to conduct thorough investigations to discover all assets; to liquidate assets at public sale or distribute assets to heirs; to pay the decedent’s bills and taxes; and to locate persons entitled to inherit from the estate and ensure that the legal distributees receive their inheritance.” KCPA utilizes the CompuTrust database system to account for estate activities, including all income and expense transactions. According to CompuTrust, as of June 30, 2011, KCPA was responsible for 3,323 estates valued at $74.6 million.

KCPA’s activities are primarily governed by Article 11 of the New York State Surrogate’s Court Procedures Act (SCPA). KCPA is required to submit to the Surrogates Court, the New York State and New York City Comptrollers, the New York State Attorney General, and the New York City Mayor audits and reports on open and closed estates to allow them to assess, monitor, and hold KCPA accountable for its fiscal and operational performance.

Audit Findings and Conclusion

KCPA failed to properly carry out its fiduciary responsibilities because it did not act in the best interests of estates, carry out its duties prudently, and comply with statutory rules and regulations. Specifically, KCPA did not implement internal controls for critical estate administration functions including asset identification, collection, safeguarding, and distribution; estate accounting including the recording, documenting, and reporting of income and expenses transactions; bank account administration; and estate management, monitoring, and tracking.

Additionally, KCPA failed to submit to the Surrogate’s Court, State Attorney General, State and City Comptroller’s Offices, and the Mayor the required financial and operational reports that would allow them to effectively assess, monitor, and hold KCPA accountable for its performance.

On other matters, KCPA’s failure to establish proper internal controls to monitor and safeguard estate assets may have provided the opportunity for certain mishandling of estate activities and the recently reported misappropriation of funds. During the course of our audit, we became aware of an issue involving the indictment of a KCPA bookkeeper for stealing more than $2.6 million from decedents’ estates between August 2008 and November 2011.

Audit Recommendations

To address these issues, we make 18 recommendations, including that KCPA should:

• Implement asset identification checklists detailing basic databases for staff to search, including but not limited to the Department of Finance’s Automated City Register Information System (ACRIS) public database of real property records, the Office of the New York State Comptroller (OSC) public database of unclaimed funds, and the New York State Department of Motor Vehicles (NYS-DMV) database of automobiles, boats, and other motorized vehicles records.
• Ensure that staff properly completes Desk Review Form Disbursement Cover Sheets detailing the amount, reason, and review and approval for expenses, attach supporting documentation to them, and maintain them in estate files.
• Ensure that staff maintain in estate files documentation of estate income transactions, including but not limited to appraisal reports, bills of sale, receipts, and checks.
• Periodically compare source documents, including but not limited to income and expense documentation and Letters of Administration to data recorded in CompuTrust to ensure accuracy and reliability.
• Maintain a master inventory record in each estate file or in CompuTrust that details every item of estate property held by the Public Administrator (PA) in its safe, warehouse, banks, and other locations.
• Utilize CompuTrust “tickler” functions or implement an alternative system that is capable of notifying KCPA when critical actions need to be performed and tracking estates’ progress.
• Properly reconcile CompuTrust and bank balances on a monthly basis.
• Periodically review its Outstanding Check Register, void checks outstanding more than 180 days, determine why they were not cashed, and reissue checks accordingly.
• Immediately submit to the Surrogate’s Court, State Attorney General, State and City Comptroller’s Offices, and the Mayor outstanding audits and reports. Thereafter, submit audits and reports within prescribed timeframes.
• Institute written policies and procedures that adequately and specifically address the duties and procedures to be followed by key employees responsible for asset identification, collection, safeguarding, and distribution; bank account administration; estate accounting including the recording, documenting, and reporting of income and expenses transactions; and estate management, monitoring, and tracking, and distribution; bank account administration; estate accounting including the recording, documenting, and reporting of income and expenses transactions; and estate management, monitoring, and tracking.

KCPA Response

KCPA did not address the report’s findings and recommendations or disagreed with the report’s findings, stating that the audit did not take into account information and documentation presented to the auditors. However, as acknowledged by KCPA in its response, we conducted a lengthy review of KCPA processes, estate files, and other relevant KCPA and independently obtained documentation. Throughout the audit fieldwork and reporting process, we repeatedly requested, reviewed, and considered all relevant documentation provided to us. However, the KCPA Public Administrator was generally non-responsive to our requests for documentation.

In its response, KCPA focused on refuting the report’s finding that KCPA did not identify, collect, or credit decedents’ estates for assets worth $2.2 million, and more particularly, those findings pertaining to real property, stating, “we have now presented you with documentation that each of the six real estate matters that you cite in the chart was acted upon properly by the PA and any funds that were to be received were properly credited to the correct estate account.” However, KCPA did not establish asset identification policies and procedures or checklists detailing basic databases for its staff to search or conduct supervisory reviews of estate files. Consequently, for 27 of 50 sampled open estates, KCPA did not, in fact, identify, collect, credit decedents’ accounts for, and ultimately distribute assets, including real property, worth at least $2.2 million. (The Draft Report cited KCPA for not identifying, collecting, or crediting decedents’ estates for assets worth $2.8 million. This number was reduced based on additional documentation provided to us after the issuance of the Draft Report and prior to the issuance of this report. Specifically, KCPA provided us documentation that two properties were properly administered through other estates.) For example, based on our review of Department of Finance (Finance) real property records, in December 2009, KCPA sold a decedent’s six-family home for $140,000. However, KCPA did not maintain evidence of this transaction in the decedent’s estate file.