DC Courts: Improvements Needed in Accounting for Escrow and Other Funds
(Letter Report, 10/29/1999, GAO/AIMD/OGC-00-6).

The District of Columbia Courts did not properly account for the funds
in half of its 18 bank accounts during fiscal year 1998, as shown by its
problems in determining its cash balances and reconciling its accounting
records to supporting documentation. In addition, DC Courts lacked
adequate controls and procedures during fiscal year 1998 to help ensure
that the fines and the fees that were collected were accurately
recorded. Although DC Courts was authorized to deposit fines, fees, and
penalties specified in District Law into the Crime Victims Fund to
provide financial assistance to crime victims, in fiscal years 1998 and
1999 DC Courts also deposited other fines, fees, and penalties into the
Fund that should have been deposited in the U.S. Treasury.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD/OGC-00-6
     TITLE:  DC Courts: Improvements Needed in Accounting for Escrow
	     and Other Funds
      DATE:  10/29/1999
   SUBJECT:  Courts (law)
	     Financial management systems
	     Funds management
	     Accounting procedures
	     Financial records
	     Internal controls
	     Escrow accounts
	     Imprest funds
IDENTIFIER:  Crime Victims Fund
	     District of Columbia Crime Victims Compensation Program
	     District of Columbia Courts Finance and Remittance System

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************
GAO/AIMD/OGC-00-6

Report to Congressional Requesters

October 1999

DC COURTS

Improvements Needed in Accounting for Escrow and Other
Funds
*****************

*****************

GAO/AIMD/OGC-00-6

                                                 Accounting and Information
                                                        Management Division

B-282924

October 29, 1999

The Honorable Thomas M. Davis, III
Chairman
Subcommittee on the District of Columbia
Committee on Government Reform
House of Representatives

The Honorable Ernest J. Istook
Chairman
The Honorable James P. Moran
Ranking Member
Subcommittee on the District of Columbia
Committee on Appropriations
House of Representatives

Your offices asked that we look at the District of Columbia Courts' 
(DC Courts)/Footnote1/ (1) obligations, (2) spending plan and obligations
of funds, 
(3) payments to court-appointed attorneys, (4) voucher processing
procedures, and (5) accounting for the other funds under its control. We
recently issued our report on the first four items that related to DC
Courts' use of appropriated funds during fiscal year 1998./Footnote2/ This
report covers the fifth item-accounting for other funds under DC Courts'
control-and addresses whether DC Courts (1) properly reconciled its bank
accounts, (2) had adequate controls over fines and fees collected, and (3)
had authority to retain amounts deposited into the Crime Victims Fund
account.

Results in Brief

DC Courts did not properly account for the funds in half of its 18 bank
accounts during fiscal year 1998, as evidenced by its problems in
determining its cash balances and reconciling its accounting records to
supporting documentation. Although DC Courts improved its reconciliation
procedures during fiscal year 1999 and was able to reconcile fiscal year-
end balances for 15 accounts, it continued to have difficulty in properly
accounting for the funds in 3 of its accounts-Child Support, Civil Escrow,
and Juror Fees. As a result, DC Courts did not have assurance that funds
collected in the Child Support account were properly accounted for and
appropriately disbursed, that all payments made for Juror Fees were
properly reimbursed with appropriated funds, and that funds held in the
Civil Escrow account for payment of claims and settlements were
appropriately safeguarded.

In addition, DC Courts did not have adequate controls and procedures in
place during fiscal year 1998 to ensure that fines and fees collected were
accurately recorded. For example, fines and fees collected were recorded
in two different systems without procedures to ensure that both sets of
records were in agreement. In addition, accounting and auditing functions
were not properly segregated within DC Courts' Financial Operations
Division. This situation increased the risk of errors occurring and not
being detected and corrected.

Although DC Courts was authorized to deposit fines, fees, and penalties
specified in District law into the Crime Victims Fund to provide financial
assistance to crime victims, in fiscal years 1998 and 1999 DC Courts also
deposited other fines, fees, and penalties into the Fund that should have
been deposited in the U.S. Treasury. According to DC Courts' records as of
June 30, 1999, the amounts retained in the Crime Victims Fund account
without the requisite authority totaled over $11 million. However, as of
October 15, 1999, the Congress was considering legislation that, if
enacted, would address this problem.

This report includes recommendations to DC Courts aimed at improving
controls over and ensuring accountability of funds in its accounts. In its
comments on a draft of this report, DC Courts agreed with and stated it
had implemented our recommendations. DC Courts did, however, disagree with
our conclusion regarding its retention of certain types of fines and fees,
but acknowledged that provisions in the District of Columbia
Appropriations Act, 2000, if enacted, would address this issue.

Background

Since 1970, the financial operations of DC Courts have been managed by the
Financial Operations Division within the Court System. This division is
comprised of (1) the Accounting Branch, which is responsible for
maintaining accounting records and processing payments (2) the Financial
Revenue Branch, which processes child support payments; collects all fees,
fines, and forfeitures; and accounts for moneys held (escrow funds) in the
Registry of the Court, and (3) the Internal Audit Branch, which audits all
accounts of the Courts (including moneys collected and deposited in the
Registry of the Court, grants, and appropriations).

The Financial Operations Division is responsible for managing DC Courts'
18 different bank accounts, which consist of

o two accounts supporting DC Courts' operations (one checking and one
  interest-bearing account) that are funded primarily through the annual
  federal payment to the Joint Committee on Judicial Administration for
  court operations;

o two imprest accounts/Footnote3/ (checking accounts) to process juror
  and witness fees that are funded with amounts transferred from DC
  Courts' appropriation accounts;

o twelve escrow accounts, which include the child support account and
  accounts for civil settlements, criminal restitution, probate, and
  individuals, and

o two accounts supporting the Crime Victims Fund (one checking account
  and one interest-bearing account).

For fiscal year 1998, DC Courts contracted with the General Services
Administration (GSA) to provide the payroll and finance-related
administrative support services formerly provided by the District
government/Footnote4/ for the two accounts supporting DC Courts'
operations. Under this contract, GSA processes financial and budgetary
information prepared by DC Courts, records and reports obligations and
expenditures, and makes payroll and voucher payments with funds
transferred from the two accounts. DC Courts' Financial Operations
Division is responsible for all the finance-related administrative support
services for the remaining 
16 accounts, using a combination of automated financial systems and manual
records.

Objectives, Scope, and Methodology

Our objective was to determine whether DC Courts properly accounted for
the funds in its 18 accounts. Specifically, we determined whether DC
Courts properly reconciled its bank accounts, adequately controlled fines
and fees collected, and properly retained amounts deposited into the Crime
Victims Fund account. To accomplish these objectives, we

o interviewed the chief judges, DC Courts' Executive Officer, Fiscal
  Officer, Internal Auditor, financial operations and systems employees,
  and an official from the District's Office of Corporation Counsel (OCC);

o obtained and reviewed unaudited financial information/Footnote5/ and
  correspondence prepared by DC Courts and statements from the banks in
  which those accounts were maintained; 

o obtained copies of DC Courts' reconciliations for 17 of its 18 bank
  accounts/Footnote6/ for the month ended September 30, 1998, and for the
  unreconciled accounts for the month ended April 30, 1999,/Footnote7/
  and traced the book balances and transaction activity to bank
  statements and subledgers,/Footnote8/ and traced reconciling items to
  detailed supporting records; and

o reviewed relevant legislation, including the Crime Victims Act and the
  Revitalization Act.

We did our work in accordance with generally accepted government auditing
standards from December 1998 through July 1999. We requested comments on a
draft of this report from the Executive Officer of DC Courts. The
Executive Office, on behalf of the Joint Committee on Judicial
Administration in the District of Columbia, provided us with written
comments that are discussed in the "DC Courts' Comments and Our
Evaluation" section and are reprinted in appendix 1.

Weaknesses in Reconciliation Procedures

During our review of DC Courts' reconciliations of its 18 bank accounts
for the month ended September 30, 1998, we noted that DC Courts did not
reconcile or had improperly reconciled 9 of the accounts. As a result, DC
Courts officials lacked accurate information on account balances and could
not provide assurance that it was properly accounting for financial
activity in the 9 accounts. Standard accounting practices include
performing a monthly reconciliation of the recorded cash balance and the
bank balance to assure the accuracy of the cash balances and to correct
any bookkeeping errors. Accounting practices also include reconciling the
adjusted book balances to the detailed subledgers and supporting
documentation to ensure that the cash balance and the related accounting
records agree. DC Courts' reconciliation procedures require that all bank
accounts be reconciled each month.

Once we notified DC Courts officials of these problems, they properly
reconciled the book balances to the bank balances and detailed subledger
or supporting documentation for 15 of 18 bank accounts. However, as of
July 1999, the Child Support Escrow (Child Support) account had not been
reconciled since May 1998, when a new child support system was
implemented. Also, the Civil Escrow and Juror Fees accounts were not
properly reconciled and included unsupported or inadequately supported
differences between the book and bank balances. The results of our review
of these three accounts and their status during fiscal year 1999 are
discussed below.

Child Support Account
---------------------

Since implementation of a new automated child support system in May 1998,
the Child Support account balances and monthly activity had not been
reconciled to the related bank account activity. In addition, DC Courts'
accounting staff had not received specific training in using the financial
component of the new system. Throughout our review, DC Courts officials
cited problems with the financial component of the new system and its
Checkbook Ledger, which has an automatic reconciliation feature, as the
primary reason the account could not be reconciled. However, in the
interim, DC Courts did not make use of alternative means of obtaining and
reviewing all relevant information to verify collection and disbursement
activity against bank transactions and determine the cash balance in the
account. Without accurate information on the account balance and all child
support activity, DC Courts could not provide assurance that all child
support payments collected were being appropriately disbursed and that
there were no duplicate payments or misappropriated funds.

DC Courts has responsibility for child support collections and
disbursements. It serves as an intermediary between noncustodial and
custodial parents to ensure that court-ordered child support payments are
made. According to DC Courts' Fiscal Officer, approximately 28,000 child
support checks are mailed out by DC Courts each month, representing total
monthly payments of over $4 million.

Prior to the implementation of a new child support system in May 1998,
information about DC Courts' child support cases was maintained in
separate records in different automated systems. DC Courts maintained
collection and payment records and operated a financial system that
processed the collections and disbursements and accounted for all related
financial activity. OCC maintained child support records and the
District's Department of Human Services (DHS)/Footnote9/ maintained
paternity records on the same mainframe system. The new child support
system was developed to meet new federal guidelines that called for a
unified child support system that would consolidate all financial and
programmatic records.

With the implementation of the new system, DC Courts would no longer
directly receive all child support collection data or process the child
support payments. OCC's contractor, which designed and maintained the new
child support system, inputted electronically transferred child support
payments into the new system that automatically allocated child support
check payments, which are printed and mailed by DC Courts. Meanwhile, DC
Courts continued to receive and deposit all child support payments made in
person and from checks mailed directly to DC Courts and was responsible
for inputting this collection data into the new system. In addition, the
contractor maintained all collection and disbursement information in the
system.

When the new system was implemented as of May 1, 1998, DC Courts' Internal
Audit Branch continued the reconciliation procedure it had used for the
former system. Daily, an auditor reconciled child support amounts
collected by DC Courts cashiers to amounts deposited into the Child
Support account. However, this reconciliation was no longer providing a
complete picture of collections, since it did not include electronic
transfers. To get a sense of how much financial activity this
reconciliation was capturing, we reviewed DC Courts' collection report for
the month of June 1999. We discussed this report with the Chief of the
Child Enforcement Branch who identified the types of payments that DC
Courts included in its daily collection reconciliations. These payments
represented about $3.9 million (71 percent) of child support receipts
collected by DC Courts in June 1999.

DC Courts and OCC officials told us that the new child support system was
intended to allow DC Courts to easily access historical data on amounts
collected and paid for each case. They also stated that a Checkbook Ledger
feature available in the new system would provide daily child support
transactions and bank activity, which would improve accountability of
collections and disbursements and automatically reconcile the bank
account. As of July 1999, DC Courts officials stated that the Checkbook
Ledger feature did not work and accounting staff had not received training
in its use.

However, the financial component of the new system provides data that
would enable DC Courts to perform manual reconciliation procedures. It
contains (1) detailed lists of all checks disbursed with detail on whether
they cleared the bank/Footnote10/ and checks that were outstanding, (2) a
monthly summary of collections, and (3) the ability to perform a data
search to corroborate certain information on a child support case. Using
this information, its daily reconciliations, and the detail provided to DC
Courts for all electronic fund transfers, DC Courts should have complete
information to verify all collection and disbursement activity against
bank statement activity and to determine the cash balance in the account.
However, DC Courts' Child Support Branch Chief stated that the accounting
staff does not periodically review the information provided by the system
for completeness and accuracy, nor do they use this information to report
or reconcile amounts. The Child Support Branch Chief also stated that the
check register and outstanding check lists do not include checks issued on
May 19 and May 28, 1998, because the check numbers used for those 2 days
did not appear in the system. Since the disbursement data are not reviewed
and the checks with missing numbers have not been tracked to determine
whether the amounts cleared the bank, DC Courts does not have complete
information on disbursements.

As of July 1999, DC Courts had not attempted to reconcile the child
support information in the new system with bank activity. DC Courts' Child
Support Branch Chief stated that they are waiting for the Checkbook Ledger
to automatically perform the required reconciliation. In August 1999, a
contractor manager stated that along with OCC and DC Courts, they were
trying to resolve DC Courts' outstanding concerns regarding the financial
component of the new system. The manager also stated that a contractor
employee was trained in the use of the Checkbook Ledger and was preparing
to train DC Courts' staff by the end of fiscal year 1999.

Civil Escrow Account Funds Loaned to Juror Fees Account
-------------------------------------------------------

During our review of the Civil Escrow and Juror Fees accounts
reconciliations for the month of September 30, 1998, we noted that DC
Courts could not determine the correct cash balances or provide adequate
documentation to support identified amounts. As a result, DC Courts could
not ensure that funds in these accounts were properly collected and
disbursed.

The Civil Escrow account holds individual small claims, landlord and
tenant settlements, and other civil claims awarded by DC Courts for which
the claimant has not yet received payment. As of September 30, 1998, the
recorded cash balance was more than $2.7 million for a total of about 
5,000 active escrow subledger accounts, each representing an outstanding
settlement or a claim. In reviewing this account, we found that for almost 
2 years, portions of the accumulated balance in the Civil Escrow account
had been temporarily loaned to the Juror Fees account to pay daily Juror
Fees until amounts could be reimbursed with appropriated funds. This use
of escrow funds increased the risk that sufficient funds would not be
available to pay all claims and settlements.

The Juror Fees account was established as a $100,000 imprest fund to
enable DC Courts to pay jurors daily and periodically receive
reimbursement with appropriated funds. During fiscal year 1998, the Juror
Fees account averaged more than 9,800 transactions totaling about $136,000
each month. Based upon the imprest level established and monthly activity,
DC Courts would have to request reimbursement from GSA every 2 weeks to
ensure that sufficient funds were available to pay juror fees. However, we
found that rather than promptly reimbursing the Juror Fees account with
appropriated funds, DC Courts decided in February 1997 to allow the
account to be reduced to a zero balance and arranged for the automatic
transfer of funds from the Civil Escrow account to cover cleared Juror Fee
checks and prevent checks from being returned for insufficient funds. DC
Courts linked the two accounts so that the Civil Escrow account would
provide overdraft protection to the Juror Fees account. Then,
periodically, DC Courts would submit documentation of paid amounts to GSA
for reimbursement of the Civil Escrow account, through the Juror Fees
account, from appropriated funds.

Some of the specific problems we found in reviewing the Civil Escrow and
Juror Fees accounts' September 30, 1998, bank reconciliations were as
follows:

o DC Courts' records indicated that the Civil Escrow account had an
  unreconciled difference between the adjusted book balance and its
  subledger account of $2,000, an unsupported difference in the amount of
  adjustments made to the subledger of almost $15,000, as well as
  inadequate detail to support $286,000 in amounts loaned by the Civil
  Escrow account to the Juror Fees account that were not reimbursed for a
  2 1/2 month period.

o The Juror Fees account's reconciliation had unsupported outstanding
  checks of $78,000 and anticipated deposits of over $465,000 for which
  reimbursement had not yet been requested and which DC Courts labeled as
  deposits-in-transit. Of the $465,000 that DC Courts stated were
  deposits-in-transits, it had not requested reimbursement for $146,000
  of this amount for over a year. This represented unreimbursed Juror Fee
  payments from April 1998 that were not deposited into the Juror Fees
  account until June 24, 1999. DC Courts officials could not explain why
  they did not request reimbursement of these amounts from GSA until
  after the fiscal year ended.

These problems continued into the summer of 1999. As of July 1999, 
DC Courts' most recent bank reconciliations, which were for the month
ended April 30, 1999, still reflected unreconciled amounts and unsupported
reconciling items. For example, the Civil Escrow account's reconciliation
still reflected a $2,000 difference and a lack of documentation to support
almost $15,000 of adjustments and the unreimbursed funds loaned to the
Juror Fees account. DC Courts could not provide an explanation for these
problems. These situations resulted in DC Courts still not being able to
support its cash balances in its Civil Escrow and Juror Fees accounts as
of July 1999.

Other Internal Control Weaknesses

During our review of DC Courts' September 30, 1998, reconciliation
process, we identified two additional internal control weaknesses related
to (1) inadequate procedures to ensure the accuracy of fines and
fees/Footnote11/ recorded in two different systems and (2) accounting and
auditing functions that were not segregated.

Inadequate Procedures to Ensure Accurate Accounting of Fines and Fees
---------------------------------------------------------------------

DC Courts did not have adequate procedures for accounting for the
collection of fines and fees or for maintaining records for the amounts
transferred to the Crime Victims Fund account each month from the Register
of Wills, Criminal, and Family escrow accounts. DC Courts separately input
the fines and fees data into two unconnected (nonintegrated) systems-the
DC Courts' Finance and Remittance (CFAR) system, which reported fines and
fees collected and an accounting system/Footnote12/ that maintained the
general ledger and was the source of information used to reconcile the
cash balance to the bank balance. Because these transactions were entered
twice manually, DC Courts should have verified the accuracy of the data in
both systems to reduce the risk of data entry errors occurring and not
being detected promptly. After we discussed the need for this
reconciliation with DC Courts, the Fiscal Officer attempted to reconcile
the collection data between the CFAR and accounting records for fiscal
year 1998. At the conclusion of our fieldwork, there was an unresolved
difference of about $2,400. Further, with fundamental problems in DC
Courts' reconciliations to bank activity and detailed subledgers, there
was a greater risk that errors would not be detected.

During fiscal year 1999, DC Courts had made changes to start addressing
these issues raised during our work. The changes included (1) establishing
one automated accounting system for all court operations and (2) hiring a
contractor to create an interface between the CFAR system and the new
accounting system, which would eliminate the need to separately input data
and perform monthly reconciliations of collection data each month. In July
1999, DC Courts installed the new accounting system and was developing the
interface. DC Courts continued to manually enter collection data into both
systems without verifying the accuracy of the data.

Lack of Segregation of Duties
-----------------------------

During fiscal year 1998, DC Courts' audit function was not
organizationally separated from its accounting function. Specifically,
Internal Audit Branch staff who performed independent audits of accounts
and other court operations also performed monthly bank and daily
collection reconciliations. This situation resulted in auditors performing
accounting tasks that they could also be responsible for auditing, which
is an inappropriate mix of operational and oversight roles.

In March 1999, DC Courts Executive Officer stated that he had transferred
the staff that performed bank reconciliations and other accounting
functions from the Internal Audit Branch to another branch of the
Financial Operations Division. More importantly, however, as of July 1999,
the Internal Auditor continued to have the primary operational
responsibility for reviewing monthly reconciliations. While the risk of
loss is somewhat less because we did not identify any internal audit staff
that handled cash, mixing operational and audit responsibilities has long
been viewed as inappropriate from an internal control perspective. Until
the Internal Audit Branch is completely segregated from accounting and
other operational tasks, the risk of errors or fraud is increased. To the
extent that internal audit staff perform operational and accounting
functions, they would not be available to perform their central role of
performing independent reviews.

Unauthorized Deposits to the Crime Victims Fund

During fiscal years 1998 and 1999, DC Courts deposited some court fines,
fees, and penalties in the Crime Victims Fund, rather than in the U.S.
Treasury as required. Specifically, DC Courts' records indicated that as
of June 1999, over $11 million in fines and fees were inappropriately
retained. As of October 15, 1999, legislation was being considered that
would provide DC Courts with the authority to deposit all court fines,
fees, and penalties in the Crime Victims Fund, use funds necessary to
operate the program, and return any unobligated amounts in excess of a
specified level to the U.S. Treasury.

In April 1997, a District law/Footnote13/ established the Crime Victims
Compensation Program under DC Courts' jurisdiction prior to the enactment
of the Revitalization Act./Footnote14/ The District law provides that
payments of up to $25,000 from the fund can be made to crime victims for
economic loss. Payments can also be made for shelter, burial costs, or
medical expenses. The District law also provides that the Crime Victims
Fund may be credited with (1) appropriations made to it, (2) fines
assessed on persons either convicted of serious traffic or misdemeanor
offenses or convicted or pleading guilty or no contest to felony offenses,
(3) amounts recovered by the District from offenders or third parties by
subrogation to the victim's rights as a result of payments of claims to
victims, (4) repayments of overpayments or false claims payments from
claimants, and (5) amounts received from any source, including grants from
the federal government./Footnote15/ The authority to deposit specified
collections to the Crime Victims Fund was an exception to the general
requirement in section 450 of the Home Rule Act that DC Courts deposit
collections to the District General Fund./Footnote16/ 

However, the Revitalization Act, under which the federal government
assumed responsibility as of fiscal year 1998 for funding DC Courts,
amended section 450 of the D.C. Home Rule Act to change its effect on 
DC Courts. Instead of being required to deposit moneys in the District's
General Fund or in the Crime Victims Fund, the Revitalization Act amended
section 450 to provide that all moneys received by DC Courts be deposited
in the U.S. Treasury or the Crime Victims Fund./Footnote17/ Following
passage of the Revitalization Act, DC Courts began to deposit in the Crime
Victims Fund all the money it received from fines, fees, and penalties.

In our opinion, the Revitalization Act's amendment to section 450 did not
alter the District law governing the Crime Victims Program and the Crime
Victims Fund or otherwise address the authorized sources for funding the
Crime Victims Fund identified in the District law. Accordingly, we
conclude that the Revitalization Act did not expand DC Courts' authority
to deposit collections in the Crime Victims Fund beyond amounts collected
from the sources identified in the District law governing the Fund. DC
Courts should have deposited collections from other sources in the U.S.
Treasury. DC Courts' records indicated that it retained about $11 million
in fines and fees as of June 1999 that should have been deposited in the
U.S. Treasury.

On June 29, 1999, we briefed your offices on this matter. As of October
15, 1999, the Congress was considering legislation that, if enacted, would
allow DC Courts to deposit all fines, fees, and penalties in the Crime
Victims Fund account to be used to pay crime victim claims./Footnote18/
This legislation would be retroactive to April 1997,/Footnote19/ and would
require that all unobligated amounts in the account in excess of $250,000
as of September 30, 2000, be returned to the U.S. Treasury annually
beginning with fiscal year 2000./Footnote20/

Conclusions

Without performing regular and proper reconciliations between the recorded
cash balances, bank balances, and the related supporting documentation, DC
Courts could not properly account for the funds in the Child Support,
Civil Escrow, and Juror Fees accounts and increased the risk of these
funds being inappropriately spent. Rather than waiting for the new child
support system to automatically reconcile the child support account, DC
Courts should have manually reconciled the account to thoroughly account
for amounts collected and disbursed. In regard to the Civil Escrow and
Juror Fees accounts, DC Courts' improper reconciliation procedures and
inadequate documentation to support reconciling amounts increased the risk
of errors in these accounts. Also, DC Courts' failure to request the
reimbursement of Juror Fee payments regularly and the lack of detailed
documentation to support the amounts loaned from the Civil Escrow account
to the Juror Fees account made it more difficult to properly account for
financial activity in the two accounts.

Meanwhile, a lack of segregation of duties between DC Courts' Internal
Audit Branch and other Financial Operations Division's staff increased the
risk of errors occurring and not being detected and corrected and reduced
resources available for independent reviews. Improving its accounting for
the funds in its accounts would enable DC Courts to provide better
assurance to the citizens of the District that moneys entrusted to DC
Courts are properly safeguarded and spent for the intended purposes.

Recommendations

To improve DC Courts' accounting for and controls over funds it maintains
in accounts, we recommend that the Joint Committee direct the Fiscal
Officer to do the following:

o Adhere to existing procedures that require that every account be
  reconciled to the bank statement and supporting detail and/or
  subledgers each month. These reconciliations should be completed
  promptly, such as within 30 days of the receipt of the bank statement.
  In regard to the Child Support account, DC Courts should review all
  collections and disbursements and perform a manual reconciliation each
  month, until the automated reconciliation function of the new child
  support system can be used.

o Request reimbursement of all unreimbursed Juror Fee payments. Once all
  amounts are reimbursed, DC Courts should immediately transfer to the
  Civil Escrow account all amounts that were temporarily borrowed and
  terminate the overdraft protection relationship between the Civil
  Escrow and Juror Fees accounts. 

o Determine the appropriate level to reestablish the Juror Fees account
  as an imprest fund and the appropriate time intervals to request
  reimbursement of Juror Fee payments to replenish the fund. The
  established fund level combined with the reimbursement interval should
  ensure that there are sufficient funds for the Juror Fees account to
  operate independently.

o Transfer all bank reconciliation responsibilities and related
  accounting functions from the Internal Audit Branch to other branches
  within the Financial Operations Division in order to appropriately
  segregate duties.

DC Courts' Comments and Our Evaluation 

DC Courts acknowledged its difficulties in properly accounting for
financial activity in three of its accounts. DC Courts stated that our
observations and recommendations made during this review have assisted it
in identifying areas of its financial operations that needed improvement
and in taking measures to address each of these areas. DC Courts stated
that it has implemented all recommendations. It did, however, disagree
with our conclusions regarding its retention of certain types of fines and
fees. Following our discussion of this issue with the House Appropriations
Committee, Subcommittee on the District of Columbia, provisions were added
to the District of Columbia Appropriations Act, 2000, which, if enacted,
would address DC Courts' retention of fines and fees. DC Courts
acknowledges that these provisions, if enacted, would address this issue.

We are sending copies of this report to Representative Eleanor Holmes
Norton, Ranking Minority Member, Subcommittee on the District of Columbia,
House Committee on Government Reform; Senator Kay Bailey Hutchinson,
Chairwoman, Subcommittee on the District of Columbia, Senate Committee on
Appropriations; Senator Richard Durbin, Ranking Minority Member,
Subcommittee on the District of Columbia, Senate Committee on
Appropriations and Subcommittee on Oversight of Government Management,
Restructuring and the District of Columbia, Senate Committee on
Governmental Affairs; and Senator George Voinovich, Chairman, Subcommittee
on Oversight of Government Management, Restructuring and the District of
Columbia, Senate Committee on Governmental Affairs. We are also sending
copies to the Honorable Annice Wagner, Chairwoman, Joint Committee on
Judicial Administration, DC Courts; the Honorable Jacob J. Lew, Director,
Office of Management and Budget; and Grace Mastelli, Deputy Assistant
Attorney General, Department of Justice. Copies will be available to
others upon request.

If you have any questions, please contact me or Steven Haughton at 
(202) 512-4476. Key contributors to this assignment were Marcia
Washington, Lou Fernheimer, Jeffrey Jacobson, and Richard Cambosos.

*****************

*****************

Gloria L. Jarmon
Director, Health, Education and Human Services
Accounting and Financial Management Issues

--------------------------------------
/Footnote1/-^DC Courts is comprised of the Court of Appeals, Superior
  Court, and the Court System of the District of Columbia. The Joint
  Committee on Judicial Administration is a policy-making body of the DC
  Courts and has among its responsibilities accounting and auditing
  functions.
/Footnote2/-^District of Columbia Courts: Planning and Budgeting
  Difficulties During Fiscal Year 1998 (GAO/AIMD/OGC-99-226, September 16,
  1999).
/Footnote3/-^An imprest bank account makes a specific amount of cash
  available for a limited purpose. Funds in an imprest account are
  periodically reimbursed from general funds upon receipt of vouchers
  supporting disbursements made from the imprest account.
/Footnote4/-^District of Columbia Appropriation Acts for Fiscal Years 1998
  (P.L. 105-100, November 19, 1997) and 1999 (P.L. 105-277, October 21,
  1998) required DC Courts to contract with GSA to perform payroll and
  finance-related services.
/Footnote5/-^On May 19, 1999, DC Courts awarded a contract to perform the
  first audit of its financial statements for the year ended September 30,
  1998, as required by the Revitalization Act.
/Footnote6/-^DC Courts could not provide a bank reconciliation for the
  Child Support account.
/Footnote7/-^As of July 1999, this was the most recent month that the bank
  reconciliations were available.
/Footnote8/-^These subledgers reflect detailed transactions that are
  summarized in general ledger control accounts.
/Footnote9/-^DHS' Office of Paternity and Child Support merged with OCC's
  Child Support Enforcement Division in April 1998.
/Footnote10/-^DC Courts' Child Support Branch Chief stated that the
  contractor upgraded the system to include the checks cleared by the bank
  in November 1998.
/Footnote11/-^Fines and fees are collected by DC Superior Court's Civil,
  Criminal, Family, and Probate Divisions and by the DC Court of Appeals.
/Footnote12/-^During fiscal year 1998, DC Courts used several different
  accounting applications and manual records to account for fines and fees
  and other nonappropriated funds.
/Footnote13/-^The Victims of Violent Crime Compensation Act of 1996, D.C.
  Law 11-243, 44 D.C. Reg. 1142, 2601 (April 9, 1997), DC Code Ann.
  Sections 3-421 through 3-438 (1999 Supp.).
/Footnote14/-^National Capital Revitalization and Self-Government
  Improvement Act of 1997, Public Law No. 105-33, Title XI, 111 Stat. 712
  (1997).
/Footnote15/-^DC Code Ann. Section 3-435 (1999 Supp.).
/Footnote16/-^Prior to January 2, 1975, DC Courts' Fiscal Officer was
  required to deposit all fines, forfeitures, fees, unclaimed deposits,
  and other money in the U.S. Treasury. P.L. 91-358, Section 111, 84 Stat.
  473, 511 (1970), as amended, DC Code Ann. Section 11-1723 (1981).
  Section 450 was enacted as part of the Home Rule Act and provides in its
  first sentence that the "General Fund of the District shall be composed
  of the District revenues which on January 2, 1975, are paid into the
  Treasury of the United States and credited either to the General Fund of
  the District or its miscellaneous receipts****Symbol:xbc****.(c) DC Code
  Ann. Section 47-130 (1981). Accordingly, fines, forfeitures, fees,
  unclaimed deposits, and other moneys that were DC Courts revenues
  deposited in the U.S. Treasury before the Home Rule Act became part of
  the General Fund of the District under Section 450 prior to the
  Revitalization Act.
/Footnote17/-^DC Code Ann. Section 47-130 (1999 Supp.).
/Footnote18/-^Section 160 (c) of H.R. 3064. Identical language was
  included in Section 160 of H.R. 2587, which was vetoed by the President.
/Footnote19/-^Section 160 (e) of H.R. 3064.
/Footnote20/-^Section 160 (d) of H.R. 3064.

COMMENTS FROM THE DISTRICT OF COLUMBIA COURTS
=============================================

*****************

*****************

*****************

*****************

*****************

*****************

*****************

*****************

*****************

*****************

*****************

*****************

(916285)

*** End of document. ***