Audit Report on the New York County District Attorney’s Administration of Deferred Prosecution and Non-Prosecution Agreements
AUDIT REPORT IN BRIEF
In November 2009, the Mayor and the District Attorney of New York (DANY) publicly discussed the issue of the distribution of funds received from deferred prosecution and non-prosecution agreements and DANY’s maintenance of private (non-City) bank accounts outside the City’s fiscal control. On December 9, 2009, the Comptroller’s Office initiated an audit of DANY focusing on DANY’s administration of the receipt and distribution of funds received through the aforementioned agreements.
From January 1, 2007, to December 31, 2009, DANY received $448 million in settlement payments through three of these agreements. These funds were received, held, and transferred, from DANY’s private bank accounts.
According to DANY, as of October 31, 2009, more than $86 million in ancillary funds was held in 58 different accounts—33 checking accounts, 11 money market accounts, and 14 certificates of deposit. The City treasury funds DANY, and ancillary funds supplement operations. Generally, ancillary funds comprise money received through State and federal asset forfeiture, proceeds from deferred prosecution and non-prosecution agreements, and other large cases. Also included among the ancillary funds is more than $30 million in funds that are held in escrow for use by other parties for such purposes as victim restitution or distribution to other government agencies.
The objective of this audit was to determine whether DANY properly administers the receipt and distribution of proceeds received through deferred prosecution and non-prosecution agreements.
Audit Findings and Conclusions
DANY received and properly accounted for all of the $448 million in payments derived from deferred prosecution and non-prosecution agreements since 2007. However, there is lack of transparency in the distribution of these funds between the City and the State because DANY has no formal distribution policy. Unless DANY formalizes a policy, the distribution of these funds will continue to be questioned and scrutinized.
Also, DANY does not adequately segregate duties that mutually pose a potential risk of error within the Fiscal Department, a situation further exacerbated by the use of off-the-shelf personal financial management software (Quicken) to track ancillary funds. Furthermore, disbursements totaling $815,324 out of $2,574,353 (31.6 percent) were made from one of DANY’s escrow accounts that were supported only by e-mail correspondence from DANY’s staff, not by court decree. Although proper documentation was later provided, the lack of support at the time of processing constitutes a control weakness that can result in errors. These control risks could have been mitigated had DANY placed these funds with the City’s Department of Finance (DOF).
In addition, as of October 31, 2009, DANY held approximately $86 million in 58 private bank accounts that were not registered with the Comptroller’s Office and that were outside the City’s fiscal controls. The use of private bank accounts is contrary to the County and the Civil Practice Laws and Rules of New York State. Cash held in private accounts is inherently at greater risk and subject to less oversight than that held in the City’s general fund. Finally, DANY may have improperly transferred approximately $47,200 from one of the escrow accounts to a less restrictive account. Funds that cannot be returned to the appropriate parties should not be retained by DANY but rather transferred to the New York State Comptroller as unclaimed funds.
Audit Recommendations
The audit recommended that DANY should:
- Upon the expiration of existing legislation, establish a formal policy for the distribution of settlement payments derived from deferred prosecution and non-prosecution agreements;
- Coordinate with DOF and the Comptroller’s Bureau of Accountancy to transfer the funds currently held in private accounts to the City’s custody, establish Fiduciary Accounts (Trust and Agency) where appropriate, and register any remaining accounts deemed confidential with the Comptroller’s Office;
- Separate duties among personnel of the Fiscal Department to ensure no one person can both perpetrate and conceal errors or fraud;
- Ensure that proper documentation is submitted and reviewed by the Fiscal Department prior to the distribution of funds.