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Public Administrator/ Public Administrator/ Guardian/Conservator’s Guardian/Conservator’s Office (PAGC) Internal Office (PAGC) Internal Controls AuditControls Audit

January 27, 2011January 27, 2011

Bill.Perrone@iad.sccgov.orgBill.Perrone@iad.sccgov.org

408-299-6830408-299-6830

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OverviewOverview

Background Background Lessons Learned Lessons Learned (or take aways)(or take aways) Findings and Findings and

Recommendations (by Recommendations (by categories)categories)

Corrective ActionsCorrective Actions

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BackgroundBackground Definition of PAGCDefinition of PAGC

– Administration is no apparent heirsAdministration is no apparent heirs– Guardian takes care of the person.Guardian takes care of the person.– Custodian takes care of the assetsCustodian takes care of the assets..

Purpose:Purpose:– Determine whether adequate controls exist Determine whether adequate controls exist

over financial operations and compliance with over financial operations and compliance with applicable laws and regulations.applicable laws and regulations.

Conclusion:Conclusion:– There were a total of 27 findings covering There were a total of 27 findings covering

financial accountability, fees, client assets held financial accountability, fees, client assets held in trust, inefficient processes, management of in trust, inefficient processes, management of client estate, computer systems, and policies client estate, computer systems, and policies and procedures.and procedures.

– There were many internal control issues that There were many internal control issues that accumulated as results of practices that accumulated as results of practices that evolved over the years, prior to the current evolved over the years, prior to the current management.management.

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Background (Continued)Background (Continued)

PAGC agreed to all the facts of the PAGC agreed to all the facts of the findings contained in the report.findings contained in the report.

All indications were that clients All indications were that clients were receiving the properly care. were receiving the properly care.

This was a complex audit with This was a complex audit with many challenges:many challenges:– PAG implemented a new case PAG implemented a new case

management system during the audit.management system during the audit.– Changes in management (PAGC Changes in management (PAGC

Director and DAAS Director).Director and DAAS Director).

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Lessons LearnedLessons Learned (or take aways)(or take aways) ReconciliationsReconciliations (Other restricted assets, residual interest)(Other restricted assets, residual interest) : :

– Do timely.Do timely.– Correct reconciling items in one cycle.Correct reconciling items in one cycle.– Fix process when know it does not work. Fix process when know it does not work. – Have an escalation policy.Have an escalation policy.– Include reconciling to the general ledger.Include reconciling to the general ledger.

Timely recordingTimely recording (residual interest)(residual interest) : :– Gives management real time informationGives management real time information..

Management can not manage well with inconsistent, Management can not manage well with inconsistent, incomplete or untimely dataincomplete or untimely data..

– Have an escalation policyHave an escalation policy.. Schedules not met.Schedules not met. Procedures not followed.Procedures not followed. Policies not followed.Policies not followed. Regulations not followed.Regulations not followed. Possible impactsPossible impacts..

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Lessons LearnedLessons Learned (or take aways)(or take aways)

Use of technology Use of technology (computrust did not have electronic files nor pass to SAP)(computrust did not have electronic files nor pass to SAP)

– limit printed reports.limit printed reports.– do pdf if only need to see information.do pdf if only need to see information.– pass data to different systems.pass data to different systems.– Constantly improve.Constantly improve.

Record all transactions at source document Record all transactions at source document level level (cash receipts posted to holding account)(cash receipts posted to holding account) : :– Best Practices.Best Practices.– Eliminates correction journals.Eliminates correction journals.– Gives management real time information.Gives management real time information.– Hard edits give management a “known accuracy Hard edits give management a “known accuracy

baseline”.baseline”.– Soft edits give management a “known range Soft edits give management a “known range

baseline”.baseline”.

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Findings and Findings and RecommendationsRecommendations

Financial Accountability-Needs ImprovementFinancial Accountability-Needs Improvement– Controls over protection of client assets:Controls over protection of client assets:

Client assets of $72.5M recorded in Client assets of $72.5M recorded in financial statement could not be fully financial statement could not be fully verified. (#1)verified. (#1)

– Items no longer held by PAGC still had balanceItems no longer held by PAGC still had balance– Duplicate entriesDuplicate entries– Items under PAGC’s responsibility are not Items under PAGC’s responsibility are not

includedincluded– Client assets are not recorded at current fair Client assets are not recorded at current fair

market valuemarket value

PAGC adjusted balance to $29.4M.PAGC adjusted balance to $29.4M.

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Findings and Findings and Recommendations Recommendations (Continued)(Continued) Financial Accountability-(Cont.)Financial Accountability-(Cont.)

– Controls over protection of client assets Controls over protection of client assets (Cont.):(Cont.):

No financial expertise sought to manage No financial expertise sought to manage client financial securities (estimated client financial securities (estimated $6.8M). (#12)$6.8M). (#12)

We were unable to determine whether We were unable to determine whether the 2009 periodic physical inventory of the 2009 periodic physical inventory of client assets had taken place at the client assets had taken place at the warehouse. (#22)warehouse. (#22)

Fiscal oversight of financial operations by Fiscal oversight of financial operations by PAGC and SSA is lacking. (#4)PAGC and SSA is lacking. (#4)

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Findings and Findings and Recommendations Recommendations (Continued)(Continued)

Financial Accountability-(Cont.)Financial Accountability-(Cont.)– Controls over protection of client assets (Cont.):Controls over protection of client assets (Cont.):

Lack of timely transfer from trust fund to General Lack of timely transfer from trust fund to General Fund for quarterly residual interest payments Fund for quarterly residual interest payments ($450K). (#2). This has been fixed.($450K). (#2). This has been fixed.

Money in temporary holding accounts of Money in temporary holding accounts of approximately $252K were not recorded in the approximately $252K were not recorded in the client’s account or returned to sender on a timely client’s account or returned to sender on a timely basis. (#10)basis. (#10)

Review of cash and check deposits not performed Review of cash and check deposits not performed in a manner that would detect misappropriation of in a manner that would detect misappropriation of client funds. (#14)client funds. (#14)

– Controls over vendor master data:Controls over vendor master data: Anyone could set up a vendor in the system. (#26). Anyone could set up a vendor in the system. (#26).

This has been fixed.This has been fixed.

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Findings and Findings and Recommendations Recommendations (Continued)(Continued)

Fees:Fees:– Certain fees are not submitted to the Board for Certain fees are not submitted to the Board for

review and acceptance (fees are approved by the review and acceptance (fees are approved by the court as specified by Probate Code). (#6)court as specified by Probate Code). (#6)

– Full cost recovery method not employed. (#6)Full cost recovery method not employed. (#6)– $4.5M in deferred and unpaid fees not $4.5M in deferred and unpaid fees not

communicated to SSA management and the Board. communicated to SSA management and the Board. (#9)(#9)

– PAGC’s policy of implementing new fees resulted in PAGC’s policy of implementing new fees resulted in $180K of monthly fees not charged. (#11)$180K of monthly fees not charged. (#11)

– No annual review for determination of fee increase. No annual review for determination of fee increase. (#17)(#17)

– No written policy on fee waivers (for representative No written policy on fee waivers (for representative payee fees). (#20)payee fees). (#20)

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Findings and Findings and Recommendations Recommendations (Continued)(Continued)

Client assets held in trust:Client assets held in trust:– No tracking and monitoring of No tracking and monitoring of

Inventory and Appraisal reports Inventory and Appraisal reports (38%) that are not submitted to (38%) that are not submitted to court by the due date specified in court by the due date specified in Probate Code. (#3)Probate Code. (#3)

– No escalation procedures for real No escalation procedures for real property sales that take longer than property sales that take longer than one year. (#16)one year. (#16)

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Findings and Findings and Recommendations Recommendations (Continued)(Continued) Inefficient processes:Inefficient processes:

– Inefficient process of monitoring Inefficient process of monitoring the payment of client’s bill. (#5)the payment of client’s bill. (#5)

– Recurring checks received in the Recurring checks received in the mail not set up as ACH deposits. mail not set up as ACH deposits. (#13)(#13)

– Inefficient process of computing Inefficient process of computing bond fee. (#18)bond fee. (#18)

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Findings and Findings and Recommendations Recommendations (Continued)(Continued)

Management of client estate:Management of client estate:– Final accountings required for the final Final accountings required for the final

distribution of client estates are not done distribution of client estates are not done timely. (#15)timely. (#15)

– Improvements are needed over Improvements are needed over timeliness of closing terminated and timeliness of closing terminated and decedent accounts. (#21)decedent accounts. (#21)

– Improved communications are needed to Improved communications are needed to ensure that PAGC is aware of all General ensure that PAGC is aware of all General Assistance loans to conservatees. (#24). Assistance loans to conservatees. (#24). This has been fixed.This has been fixed.

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Findings and Findings and Recommendations Recommendations (Continued)(Continued)

Computer Systems:Computer Systems:– Data integrity verification is needed to Data integrity verification is needed to

ensure the accuracy and completeness ensure the accuracy and completeness of data converted to the new case of data converted to the new case management system (Panoramic). (#7)management system (Panoramic). (#7)

– Although PAGC is aware of the benefits Although PAGC is aware of the benefits of interfacing Panoramic with SAP, of interfacing Panoramic with SAP, other priorities have prevented PAGC other priorities have prevented PAGC from pursuing the interface during from pursuing the interface during implementation. (38)implementation. (38)

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Findings and Findings and Recommendations Recommendations (Continued)(Continued)

Policies and Procedures:Policies and Procedures:– Written policies and procedures for Written policies and procedures for

approving bond fee payments should be approving bond fee payments should be followed. (#19)followed. (#19)

– PAGC needs to complete its review and PAGC needs to complete its review and update of written policies and procedures. update of written policies and procedures. (#23)(#23)

– SSA is not recording low value assets in SAP SSA is not recording low value assets in SAP as required by County policy. (#25)as required by County policy. (#25)

Other Findings-there are various findings we Other Findings-there are various findings we considered less significant. (#27)considered less significant. (#27)

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Corrective ActionsCorrective Actions

PAGC has either taken corrective actions or have PAGC has either taken corrective actions or have committed to take corrective actions to fix all the committed to take corrective actions to fix all the findings.findings.

SSA Financial Management Services has begun SSA Financial Management Services has begun conducting a comprehensive review of PAGC conducting a comprehensive review of PAGC financial operations. financial operations.

SSA did not include completion dates in their SSA did not include completion dates in their response to the audit report as the agency felt that, response to the audit report as the agency felt that, due to the magnitude of the findings, their due to the magnitude of the findings, their comprehensive review of PAG financial operations comprehensive review of PAG financial operations needs to be completed first before dates can be needs to be completed first before dates can be determined.determined.

SSA will provide FGOC, through the Controller’s SSA will provide FGOC, through the Controller’s Office, with an implementation plan in six months.Office, with an implementation plan in six months.