March 20, 2007

WEITZMAN AUDIT FINDS ABSENCE OF FINANCIAL CONTROLS IN NASSAU COUNTY CLERK’S OFFICE

Control of Over $300 Million Annually in Hands of a Single Employee;
Weitzman Asks DiNapoli for Comprehensive Audits of County Clerks;
Weitzman Directs Clerk to Start Using County’s Accounting System

An audit of the Nassau County Clerk’s Office has found serious weaknesses in the control, oversight, and accounting for hundreds of millions of dollars in taxes and fees that flow through the office annually, Comptroller Howard Weitzman announced today at a Mineola press conference. As a result, Comptroller Weitzman today directed the Clerk’s Office to begin recording all its financial transactions in the county’s financial system and asked the State Comptroller to launch a comprehensive audit of County Clerks’ offices in Nassau and the rest of New York State.

“I have written to State Comptroller Thomas DiNapoli,” Comptroller Weitzman said, “asking that he conduct a comprehensive review of the Nassau Clerk’s Office, to determine whether taxpayer funds paid to the Clerk are recorded and distributed appropriately to the state and local governments. I have also asked that he consider reviewing other county clerk operations in light of our findings.

“The Nassau County Clerk’s office has fewer financial controls in place than did the Roslyn School District when it failed to detect a multi-million-dollar embezzlement and fraud,” Comptroller Weitzman said. “We found essentially no accounting system, an utter lack of financial controls - in short, a series of red flags that make the Clerk’s Office exceptionally vulnerable to embezzlement and fraud.

“I want to be clear that our audit did not uncover actual fraud or illegality in the Clerk’s Office. But given the lack of a real accounting system in the Office, such misconduct would not be detected using normal auditing techniques.”

The County Clerk collects more revenue, apart from sales and property taxes, than any other county department, Comptroller Weitzman said, yet has fewer financial controls in place. “We discovered the Office uses a totally inappropriate “Mom and Pop” approach to accounting for annual revenues of more than $300 million a year - and that might be an insult to small businesses everywhere, which generally use more sophisticated accounting procedures and software than what we found in the Clerk’s Office.”

Among the audit’s major findings:

• The Clerk’s Office assigns a single deputy county clerk responsibility for almost all financial transactions - receiving funds, investing them, reconciling bank statements, transferring funds by wire, disbursing funds, and recording transactions - with no oversight, no written procedures, and no back-up staff. “Concentrating all financial duties in the hands of one person means that errors and improprieties can go undetected,” Comptroller Weitzman said.



• The Clerk’s Office does not record most of its financial transactions in the Nassau Integrated Financial System (NIFS). Instead, the Office uses dozens of primitive spreadsheets, subject to frequent manual alteration without proper review, to record most revenues, expenditures, banking transactions and investments.

“These spreadsheets are completely unacceptable as a substitute for a system of accounts,” Weitzman said. “Essentially, the Clerk’s Office has no accounting system.  The absence of a double-entry general ledger system in an entity handling hundreds of millions of dollars a years is unprecedented in my experience.   Without proper financial controls and supervision, there can be no confidence that these taxpayer dollars are recorded and disbursed properly to state and local municipalities.”

Citing his authority under the Nassau County Charter, Comptroller Weitzman today sent a letter to Nassau County Clerk Maureen O’Connell directing that the Clerk’s Office begin recording all its financial transactions in NIFS immediately.

“In order to address the concentration of financial control in the hands of a single individual and provide for the segregation of duties that is the hallmark of a system of financial checks and balances,” Weitzman said, “the Clerk must reassign some of the duties performed by the deputy county clerk.  Some of these responsibilities can be delegated to the County Treasurer.

“We must ensure that no one individual can process, record and approve transactions without review by other senior staff,” he added.  “It will be necessary to review the qualifications and deployment of the Clerk’s existing staff to determine whether they are capable of carrying out such reviews.”

In another finding, auditors determined that the Clerk relies almost exclusively on a single bank, State Bank of Long Island, to handle tens of millions of dollars in deposits for the Clerk’s Office, without soliciting competitive quotes for interest rates from other banks.  The Deputy County Clerk for Accounting makes investment decisions for all the funds that pass through the Clerk’s Office.

“As an example,” Comptroller Weitzman said, “in a single month, December 2005, the deputy county clerk purchased $31.1 million in certificates of deposit.  Although he asserts that he purchases CDs from three banks, which he canvasses, at his sole discretion, for the highest available rate, he also told our auditors that 99 percent of purchases were from State Bank, which has custody of the Office’s seven bank accounts.  When our auditors compared interest rates received by the Clerk’s Office from State Bank with those received by the county Treasurer for the same days in December 2005, the rates earned by the Treasurer were higher,” Comptroller Weitzman said.

Among the other major findings:

• Cashiers in the Clerk’s Office have the ability to waive or change fees and taxes without supervisor approval, and are not prevented from doing so by the office’s computerized transaction recording system, known as “BROWNtech.”  During a test of three days in December 2005, a total of $398,243 was reported as waived or reduced charges.  “Although there are legitimate reasons for fees to be waived in some cases, cashiers could literally waive or discount them at will, without a supervisor’s approval and without noting the reason in the computerized transaction system,” Comptroller Weitzman said.



• The BROWNtech transaction recording system was obtained from a small firm run out of the owner’s home in Massachusetts, and the Clerk has not given the county’s Information Technology department password access to support the system.  Technical support is provided personally by the president of the firm via remote access, raising security concerns for sensitive data, and the firm’s small size presents a risk should the company cease to operate or support the program.



• The figures reported in the Clerk’s annual report to the Legislature are internally inconsistent and cannot be reconciled to the spreadsheets prepared by the Clerk’s Office.  Auditors noted unexplained inconsistencies totaling at least $366,000 in the 2005 report.



• The Clerk’s Office had no written policy and procedures manuals to document or regulate the way it manages cash, processes mail, receives revenues, disburses payments, invests its funds, or keeps its books.

“The absence of accounting controls that we found in the Clerk’s Office has existed for years, and clearly predates the current Clerk’s administration,” Comptroller Weitzman noted.  “However, since the current Clerk took office in January 2006, she has not put in place procedures or a new management team to correct these deficiencies.”

The audit of the Clerk’s Office was delayed for approximately two years, initially due to lack of cooperation from the previous County Clerk, Karen Murphy, who refused to release documents or allow Comptroller’s staff on the premises.  After months of delay, the Comptroller ultimately subpoenaed the Clerk’s records, and subsequent litigation resulted in a court order compelling the Clerk’s Office to recognize the Comptroller’s authority to audit.  The current Clerk, Maureen O’Connell, did not permit the Comptroller’s Office to begin field work until March 23, 2006.

“Once we began the audit, the Clerk’s Office imposed strict and, in our view, unjustified limitations on the scope of our audit,” Comptroller Weitzman added.  “As a result we terminated our field work in September 2006 after having documented the findings contained in this report.  Since I became Comptroller in 2002, no other county agency has forbidden our auditors from observing normal operations directly or speaking freely with employees, but that’s what occurred here.  In fact during the audit my staff was mostly confined to a conference room in the Clerk’s Office.”

The vast majority of the revenues collected by the Clerk are paid out to New York State and local governments.  In 2005, the Clerk reported $315.8 million in revenues, approximately 95 percent of which were disbursed to the state, state authorities, and local governments other than Nassau County, as required by law.  The Clerk reported paying Nassau County $15.9 million for the year.  Mortgage tax revenues, representing approximately 73 percent of monies collected in 2005, were the main focus of the audit.

The audit covers the period from November 2004 through the termination of fieldwork in September 2006.  Auditors selected one month for review, December 2005, to analyze receipts, disbursements, and how data is accounted for in the Clerk’s Annual Report.

The Nassau County Clerk’s Office is the official repository for public records relating to business, property ownership and civil and criminal cases, as well as the County Registrar and Clerk of the Supreme and County Courts. The Clerk’s Office records deeds and mortgages, incorporation and “doing business as” filings, issues notary public licenses and renewals and files New York State warrants.

Click here for the complete audit report (~ 427 kb .pdf file - 64 pages)

Letter to State Comptroller DiNapoli, 3/20/07 (~ 69 kb .pdf file - 1 page)

Letter to County Clerk Directing Clerk to Use County's Accounting System (~ 72 kb .pdf file - 2 pages)