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

Public Administrators (PAs) are responsible for administering the estates of individuals in the county who die intestate (without a will) or when no other appropriate individual is willing or qualified to administer the estate. The general functions of the PA’s Offices are governed by the New York State Surrogate’s Court Procedures Act (SCPA). In addition, PAs are required to comply with New York City Comptroller’s Directive #28 which establishes reporting requirements for PAs. The New York County Public Administrator (NYCPA) handles estates of such decedents in New York County.

Some of the functions of the PA’s Offices are funded by the City through budget appropriations. The June 30, 2011, City Comptroller’s Comprehensive Annual Financial Report,reported for NYCPA $845,388 in revenues collected on behalf of the City and $1,126,469 in appropriations received from the City consisting of $518,887 for Personal Service expenditures and $607,582 for Other Than Personal Service expenditures.

The objectives of this audit were to determine whether the NYCPA properly executed its fiduciary responsibilities including safeguarding of estate assets, accurately reporting all revenue and expenses, and managing all estate activities in accordance with Article 11 of the SCPA and other applicable State and City regulations.

Audit Findings and Conclusions

The NYCPA generally adhered to the administrative requirements of the SCPA and the Administrative Board for the Offices of the Public Administrator (Administrative Board Guidelines) for managing the estates. However, we found instances of non-compliance relating to certain practices. Specifically, the NYCPA:

• Did not issue all required 1099-MISC forms to its vendors, resulting in underreporting $1,133,196 to the Internal Revenue Service (IRS).

• Charged the PA administrative and legal fees to closed informal estates in excess of the amount allowed.

• Did not ensure that an annual independent Certified Public Accountant (CPA) audit was performed as required.

• Did not update written standard operating procedures for the proper management of estate accounts.

• Did not independently review its bank reconciliation statements.

Audit Recommendations

To address these issues, we make eight recommendations, including that NYCPA:

• Issue IRS 1099-MISC forms to vendors paid with estate funds.

• Ensure that IRS 1099-MISC forms are issued to all individuals with 1099-reportable income (payments made to individuals who provide a service relating to the NYCPA operations, including services provided on behalf of the estates).

• Properly calculate the PA administrative and legal fees in accordance with the Report and Guidelines of the Administrative Board for the Offices of the Public Administrators pursuant to Article 11 §1128.

• Have an independent CPA conduct annual audits that comply with SCPA requirements.

• Select the independent CPA firm in accordance with Comptroller’s Directive #5, “Audits of Agency Programs and Operations,” which provides guidance on this topic.

• Revise and update all written policies and procedures to adequately and specifically address the current duties and procedures to be followed by key employees responsible for the handling of the decedents’ estates from receiving the report of death to closing out the estates.

• Require the preparer to sign and date the bank reconciliation.

• Ensure that all monthly reconciliations are reviewed and signed off by a supervisor.

NYCPA Response

In their response, NYCPA officials partially disagreed with the auditors’ interpretation of some of the issues, but stated that they would take steps to address the report recommendations. Specifically, NYCPA officials continued to maintain that “[t]he NYCPA, when acting as administrator of an estate, is not a person ‘engaged in a trade or business’ under IRC § 6041 and the IRS’ instructions for Form 1099-MISC.” However, they stated, “[t]he NYCPA will consider the auditor’s recommendation(s) regarding 1099-MISC reporting requirements.”

NYCPA also stated, “[t]he auditors’ interpretation of the Guidelines adopted by the Administrative Board effective October 3, 2002 is incorrect.” Contrary to the NYCPA’s interpretation, the 2002 Guidelines very clearly state that a 6 percent limitation is applied to any estate. Therefore, the NYCPA should have used this standard as a basis for its fees. Instead, the NYCPA chose to institute its own schedule which caused small estates to be overcharged. However, NYCPA officials agreed that the new Guidelines adopted by the Administrative Board, effective May 1, 2012, require that legal fees charged to small estates be calculated as a flat 6 percent of gross assets, and stated they have complied with the new Guidelines in all informatory accountings filed since May 1, 2012.

Despite the areas of disagreement, NYCPA agreed to take steps to address all eight recommendations.