COMPLIANCE AND CONTROL AUDIT REPORT

JUDICIAL BRANCH JUDICIAL COUNCIL

OBTAINING AUDIT INFORMATION

This audit was conducted by Randy Tongier, Financial-Compliance Audit Man­ager, and Roy Fitzpatrick, Auditor, of the Division's staff. If you need any additional in­formation about the audit's findings, please contact Mr. Tongier at the Division's offices.

TABLE OF CONTENTS

SUMMARY OF AUDIT FINDINGS

JUDICIAL BRANCH JUDICIAL COUNCIL

Background .......................................................................... 3

Did the Judicial Branch Comply With the Legal and Procedural Requirements Applicable To Its Receipts, and Provide Adequate Internal Control Over Them? ...................................................... .4

Recommendations .................................................... 5, 6, 7

Did the Judicial Council Comply With the Legal and Procedural Requirements Applicable to Its Expenditures? .................................... 8

Follow Up of Prior Audit Findings and Recommendations .................... 9

Recommendation ............................................................ .9

APPENDIX A: Agency Responses .................................................. 11

JUDICIAL BRANCH JUDICIAL COUNCIL

Summary of Legislative Post Audit's Findings

The Legislative Division of Post Audit conducted compliance and control audit work at the Judicial Branch and Judicial Council in partial fulfillment of the Legisla­tive Post Audit Act's requirement that audit work be conducted at each State agency at least once every three years. This compliance and control audit addressed the area of receipts for the Judicial Branch and expenditures for the Judicial Council. The au­dit also followed up on prior audit findings and recommendations. The period cov­ered by this audit was fiscal year 1991.

Did the Judicial Branch comply with legal and procedural requirement applicable to its receipts, and provide adequate internal control over receipts? With several exceptions, the agency complied with the legal and procedural require­ments applicable to its receipts, and provided adequate internal control over those re­ceipts. The Judicial Branch did not always deposit receipts in the State Treasury on a timely basis, did not properly establish a change fund it maintains, and did not deposit some receipts in the proper fund. In addition, the Judicial Branch needed to improve segregation of duties in the receipts area.

Did the Judicial Council comply with the legal and procedural require­ments applicable to its expenditures, and provide adequate internal controi over them? The agency complied with the legal and procedural requirements applicable to their expenditures.

The prior audit report addressed one recommendation to the Judicial Branch, and one to the Legislature regarding the Judicial Council. The recommendation ad­dressed to the Judicial Branch had been implemented. The recommendation regard­ing the Judicial Council had not been implemented. That recommendation is re­peated.

The report recommends that the Judicial Branch deposit receipts in the State Treasury on a timely basis, establish its Law Library change fund in accordance with statutory requirements, and request the assistance of the Division of Accounts and Reports in determining whether reimbursements for postage and computer search fees may be deposited in the Duplicate Law Book Fund. In addition, the report recom­mends that the Judicial Branch assign cash handling and cash recordkeeping responsi­bilities to different employees. Finally, the report recommends that the Legislature

may wish to amend K.S.A. 20-2206 to prohibit subsistence payments to persons not in travel status. We would be happy to discuss these recommendations or any other items in the report with legislative committees, individual legislators, or other State officials.

Barbara J. ton Legislatlve Post Auditor

JUDICIAL BRANCH JUDICIAL COUNCIL

The Legislative Post Audit Act requires that an annual financial statement audit be conducted of the State's general purpose financial statements. The Act also re­quires that audit work be conducted at each State agency at least once every three years. Audit work conducted as part of the annual financial statement audit partially fulfills the latter requirement. Also in partial fulfillment of that requirement, the Leg­islative Division of Post Audit has conducted compliance and control audit work at the Judicial Branch and Judicial Council covering fiscal year 1991.

To avoid duplication of audit work conducted as part of the annual, Statewide audit, our audit work focused on areas not covered by the Statewide audit. These ar­eas generally include receipts and locally administered funds, although none of the agencies covered by this report had locally administered funds. In addition, because the Judicial Council did not have receipts, we reviewed that agency's expenditures. Finally, we followed up on any prior audit findings and recommendations. The audit addresses the following specific questions:

1. Did the Judicial Branch comply with the legal and procedural require­ments applicable to its receipts, and provide adequate internal control over them?

2. Did the Judicial Council comply with the legal and proced,ural require­ments applicable to its expenditures, and provide adequate internal con­trol over them?

At the request of the Supreme Court, the Legislative Post Audit Committee au­thorized a performance audit reviewing moneys collected through the Office of the Clerk of the Appellate Courts. That performance audit, issued in September 1991, covered fiscal years 1989, 1990, and 1991. It found that the moneys collected by that Office were properly handled and recorded. In addition, the audit found that the po­tential for loss or misuse of receipts could be reduced by assigning the responsibilities for handling and recording receipts to different employees, or by having periodic, in­dependent comparisons of actual cash amounts to the Office's fee records. Although the Office of the Clerk of the Appellate Courts is part of the Judicial Branch, the per­formance audit findings and recommendations are not presented in this report to avoid duplication.

To address the questions for this audit, we identified the applicable legal and procedural requirements by reviewing relevant statutes, administrative regUlations, and sections of the Division of Accounts and Reports' Policy and Procedure Manual. We also interviewed agency personnel, reviewed written procedures, and examined related supporting documents to identify the agencies' applicable procedures. We then compared those procedures with the applicable legal and procedural require­ments. In addition, we identified the potential for loss or misuse in the areas covered by the audit, and we evaluated the level of control provided by the agencies' proce-

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dures in preventing and detecting loss or misuse. Finally, we performed analytical tests, reviewed accounting records, and tested a sample of transactions at each agency.

In general, we found that the Judicial Branch did not always deposit its receipts in the State Treasury on a timely basis. In addition, the Judicial Branch did not de­posit all its receipts in the State Treasury as required, but rather used a portion of those receipts to establish a change fund. The agency also may have deposited a por­tion of its receipts in an improper fund. Finally, the Judicial Branch could improve its internal control over receipts by either assigning the responsibility for handling cash receipts to employees other than those responsible for recording cash receipts, or pre­paring a control listing of receipts collected and comparing that list to deposits in the State Treasury.

In conducting this audit work, we followed all applicable generally accepted government auditing standards set forth by the U.S. General Accounting Office.

2.

Background

This audit report covers two State agencies-the Judicial Branch and the Judi­cial Council. The operations of each agency are briefly described below.

Judicial Branch

The Judicial Branch, as a separate branch of State government, hears and dis­poses of all civil suits and criminal cases except those under the jurisdiction of mu­nicipal courts. The Judicial Branch comprises the Supreme Court, a Court of Ap­peals, and 105 district courts organized into 31 judicial districts. The Office of Judi­cial Administration assists the Supreme Court in its administrative and supervisory responsibilities.

The operations of the Judicial Branch are funded mainly by appropriations from the State General Fund, with additional funding provided by payments for child support enforcement services and various fees. During fiscal year 1991, the agency collected about $4.4 million in payments and fees, $3.3 million of which was for child support enforcement activities. According to the Governor's Budget Report, the agency's fiscal year 1991 expenditures totaled about $56.2 million, about $54.6 mil­lion (97 percent) of which was for salaries and wages.

Judicial Council

The Judicial Cou~cil is responsible for an ongoing study of the judicial branch of government, recommending improvements to both the Supreme Court and the Leg­islature. The Council comprises 10 members, 8 of whom are appointed by the Chief Justice of t'le Supreme COUll. The chairs of the Senate and House Judiciary Commit­tees complete the membership.

The operations of the agency are funded by appropriations from the State Gen­eral Fund. According to the Governor's Budget Report, the agency's fiscal year 1991 expenditures totaled about $220,000, about $170,000 (77 percent) of which was for salaries and wages.

3.

Did the Judicial Branch Comply With the Legal and Procedural Requirements Applicable To

Its Receipts, and Provide Adequate Internal Control Over Them?

For fiscal year 1991, our review showed that the Judicial Branch complied with legal and procedural requirements applicable to receipts, except that the agency did not deposit receipts in the State Treasury on a timely basis, did not properly establish a change fund it maintains, and did not deposit some receipts in the proper fund. The Judicial Branch's procedures provided adequate internal control over receipts, except that cash handling and cash recordkeeping responsibilities should be segregated. Our conclusions were based on the following.

With a Few Exceptions, the Judicial Branch Complied With Applicable Requirements And Provided Adequate Controls

In the area of receipts, we identified the Judicial Branch's procedures for han­dling receipts, determined whether those procedures met applicable legal require­ments, evaluated the internal controls provided by those procedures, and tested a sample of transactions, records, and reports to determine whether the applicable pro­cedures had been followed. In particular, we determined whether:

o amounts due the agencies were properly assessed and collected

o amounts collected by the agencies were deposited in the State Treasury on a timely basis

o the agencies' receipts procedures provided adequate controls to limit to an ac­ceptable level the risk of loss or misuse of receipts and the risk of noncompli­ance with legal and procedural requirements

With the exceptions discussed in the following sections, we found that amounts due were properly assessed and collected, amounts collected were deposited on a timely basis, and agency procedures provided adequate controls.

The Judicial Branch Did Not Always Deposit Receipts As Often as Required by State Law

State law generally requires State agencies located in Topeka to deposit re­ceipts in the State Treasury on a daily basis, unless the Pooled Money Investment Board grants an exemption to that requirement. However, State statutes specifically applicable to several types of Judicial Branch receipts allow deposit of these moneys as infrequently as monthly. The types of receipts covered by these statutes include such items as registration fees for attorneys, docket fees, and fees charged for books and reports.

4.

In testing for compliance with the requirements for timely deposit of receipts, we found that the Judicial Branch deposited most types of receipts on a timely basis. However, we also found that the Judicial Branch deposited some types of receipts­mainly reimbursements of expenditures-weekly or even monthly when they should have been deposited daily. During fiscal year 1991, these receipts accounted for about $10,000 of the $1.1 million collected from sources other than State agencies. Although the total amount of receipts not deposited on a timely basis was not large compared to total Judicial Branch receipts, the amount was significant enough to war­rant corrective action.

Timely deposit of receipts not only achieves compliance with legal require­ments, but it also reduces the risk of loss or misuse because moneys in the State Treasury are more secure than moneys on hand at a State agency's offices. In addi­tion, those moneys are not available for the Pooled Money Investment Board to in­vest, and the State loses the interest it could be earning on those moneys. Although information was not available to allow us to estimate the loss, it appears that the amount of interest lost was very small. However, even this loss could have been avoided.

Recommendation

The Judicial Branch should ensure that it meets the State's require­ments for timely deposit of moneys in the State Treasury. If the agency thinks a daily deposit requirement is not appropriate for the receipts now un­der that requirement, it should request the Pooled Money Investment Board for an exemption from that requirement.

The Judicial Branch Used a Portion of Its Receipts To Establish a Change Fund

State statutes call for State agencies to deposit all receipts in the State Treasury. In testing for compliance with this requirement, we found that the Judicial Branch had withheld about $60 from its receipts to establish a change fund for the Law Library. This action was contrary to statutory requirements.

K.S.A. 75-3075 and 75-3078 specify the procedures to be used by a State agency in establishing a change fund. These procedures include obtaining approval from the Director of Accounts and Reports and establishing appropriate internal con­trol procedures.

5.

Recommendation

To provide a Law Library change fund in accordance with statutory re­quirements, the Judicial Branch should deposit the receipts previously with­held, and follow the change fund procedures specified by State law.

The Judicial Branch May Have Deposited a Portion of Its Receipts in an Improper Fund

K.S.A. 20-156 establishes the Duplicate Law Book Fund, and states that pro­ceeds from the sale of duplicate books, sets of works, or other duplicate or temporary material shall be deposited in this fund. In testing deposits to this fund, we found that, in addition to $7,686 for copying fees and the sale of publications, these deposits included $1,483 for reimbursement of postage and computer search fees.

Although the statutory language specifically does not prohibit deposit of other types of fees in the Duplicate Law Book Fund, it is not clear that deposit of reim­bursements for postage and computer search fees in this fund is appropriate. The Di­vision of Accounts and Reports may be able to provide some appropriate guidance in this area.

Recommendation

To ensure compliance with statutory requirements for deposits to the Duplicate Law Book Fund, the Judicial Branch should request the assistance of the Division of Accounts and Reports in determining whether reimburse­ments for postage and computer search fees m~y be deposited in this fund.

The Judicial Branch Needs to Improve Internal Control Over Receipts

In reviewing the internal control provided by the Judicial Branch's receipts procedures, we noted a situation that gives rise to increased risk of loss or misuse of receipts. We found that the agency's current procedures allow the same employees to not only handle cash but also do the recordkeeping for that cash. Because only one person is involved, with no independent review or check, it is more likely that cash receipts could be misplaced without that loss being detected. In addition, employees handling and recording cash receipts are in a position to misappropriate cash, and al­ter the records to hide that misappropriation. Although we saw no evidence that any losses or misappropriations had, in fact, occurred, the risk of those losses still exists.

6.

The Judicial Branch could address the risk of loss or misuse discussed above in two different ways. First, the Office could make one employee or group of employ­ees responsible for handling cash receipts, and a different employee or group of em­ployees responsible for recording those cash receipts. Second, the agency could pro­vide for a control listing of receipts collected, and a comparison of this list to deposits in the State Treasury. The adoption of either of these procedures would reduce the agency's risk of loss or misuse of cash receipts.

Recommendation

The Judicial Branch should improve its controls over cash receipts by doing one of the following:

a. assigning cash-handling responsibilities and cash-related record­keeping responsibilities to different employees or groups of em­ployees, or

b. providing for a control listing of receipts collected, and a com­parison of this list to deposits in the State Treasury.

7.

Did the Judicial Council Comply With the Legal and Procedural Requirements

Applicable to Its Expenditures?

For fiscal year 1991, we concluded that the Judicial Council complied with the legal and procedural requirements applicable to its expenditures. Our conclusion was based on the following.

In the area of expenditures, we identified the legal and procedural requirements applicable to the Council's expenditures by reviewing relevant statutes, administra­tive regulations, and sections of the Division of Accounts and Reports' Policy and Procedure Manual. We examined a sample of non-payroll expenditure vouchers to­gether with their supporting documentation, and determined whether the expenditures were made in accordance with the applicable requirements. In particular, we deter­mined that:

(; amounts paid for travel expenses were in accordance with applicable legal re­quirements

(; out-of-State travel was authorized in accordance with K.S.A. 75-3208

(; payments were made in accordance with the guidelines of the Division of Pur­chases.

8.

Follow Up of Prior Audit Findings and Recommendations

As part of this audit, we followed up on prior audit findings and related recom­mendations. The prior audit reports made one audit recommendation to the Judicial Branch and one audit recommendation to the Judicial Council. Our review indicated that one prior audit recommendations had been implemented. The other had not been implemented, and is repeated. The individual findings and recommendations are discussed in the following sections.

Judicial Branch

The prior audit report recommended that the Judicial Branch check with the Depart­ment of Administration to determine if continued permanent assignment of the agency's central motor pool vehicle is appropriate. Actual use of the vehicle was sig­nificantly less than that estimated when the original assignment was made.

We found that this recommendation had been implemented. The vehicle as­signed was a high-mileage vehicle. According to an official of the Central Motor Pool, such vehicles are commonly assigned for low-use situations.

Judicial Council

Because current statutes allow payment of subsistence expenses to Judicial Council members not actually in travel status, the Legislature may wish to reconsider the pro­visions of K.S.A. 20-2206. The prior audit noted that the Judicial Council paid about $2,000 for subsistence to members living in Topeka for attending meetings in Topeka. Although these same statutory provisions apply to legislators and certain other State officials, we are not aware of any other situation where subsistence is ac­tually paid to persons living in Topeka for attending meetings in Topeka.

We found that no changes have been made in the applicable provisions of this statute. The recommendation is repeated.

Recommendation

Because current statutes allow payment of subsistence to Judicial Council members who live in Topeka to attend meeting in Topeka, the Legis­lature may wish to amend K.S.A. 20-2206 to prohibit subsistence payments to persons not in travel status.

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APPENDIX A

Agency Responses

On December 17, we provided copies of the draft audit report to the Judicial Branch and the Judicial Council. Based on comments provided by the Judicial Branch, we clarified our discussion regarding the timeliness of the agency's deposits. The audited agencies' responses are included as this Appendix.

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~upreme QIourt of ~an5a5

RIC HARD W. HOLMES

Chief justice

1lihmsas 3Jubicial QIcntcr

'QIopdUt, tlRansas 66612-1507

Ms. Barbara J. Hinton Legislative Post Auditor Suite 1200

January 3, 1992

Landon State Office Building Topeka, KS 66612-2212

Dear Ms. Hinton:

JAN 31992

(913) 296-4898

Thank you for the draft copy of the Judicial Branch audit and for the professionalism and courtesy of the personnel who conducted the audit. We will take immediate action to correct the deficiencies noted, but there are a couple of the findings to which we would like to respond.

While we do not always nake deposits daily, nearly all of the moneys received are covered by K.S.A. 20-156, 20-1aOl et seq., or 20-213, which specifically require only monthly deposits. During periods of increased receipts we do deposit more frequently and we are going to coordinate our deposits among offices that receive money so even small deposits will be made more quickly. The receipts which require daily deposit are so minimal that daily deposits are really impractical and we will take the necessary steps to authorize these deposits to be made on a monthly basis also.

Concerning the other suggestions you have made, it is necessary to maintain a change fund for the convenience of the patrons of the law library and also for the proper functioning of the library. These amounts are nominal and again we will see that proper authorization is forthcoming. Considering that the Judicial Branch is a separate branch of government, and not an executive agency, this probably could be accomplished by court order as well as by other means.

The duplicate law book fund established pursuant to K.S.A. 20-156 is another area where practicality and substance should prevail over form. We are examining our procedures covering postage and computer search fees and will take appropriate action in this area.

12.

Ms. Barbara J. Hinton January 3, 1992 Page Two

Finally, we are taking steps to install a system of internal control which will separate staff cashier and accounting duties and that will generate control listings of receipts for comparison with the deposits in the state treasury.

We thank you for your assistance and suggestions and look forward to working with you in the future to meet our mutual goals of good government at the least expense to the taxpayer.

Sincerely, '""

Chief Justice RWH:cv pc: Howard Schwartz

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JUSTICE KAY McFARLAND, CHAIR ,

TOPEKA

JUDGE MARY BECK BRISCOE, TOPEKA

JUDGE NELSON E. TOBUREN, PITISBURG

JUDGE HERBERT W. WALTON , OLATHE

SENATOR WINT WINTER , JR., LAWRENCE

REPRESENTATIVE JOHN M, SOLBACH II I,

LAWRENCE

JACK E. DALTON , DODGE CITY

PHILLIP MELLOR, WICHITA

MARVIN E. THOMPSON , RUSSELL

JAMES D. WAUGH , SECRETARY, TOPEKA

KANSAS JUDICIAL COUNCIL KANSAS JUDICIAL CENTER

301 West Tenth Street, Suite 262 Topeka, Kansas 66612-1507

PHONE (913) 296-2498

FAX (913) 296-1863

January 10, 1992

Legislative Division of Post Audit Barbara J. Hinton Legislative Post Auditor 800 S.W. Jackson, Suite 1200 Topeka, KS 66612

Dear Ms. Hinton:

RANDY M. HEARRELL

RESEARCH DIRECTOR

MATTHEW B. LYNCH

RESEARCH ASSOCIATE

NELL ANN GAUNT

FISCAL OFFICER 8<

ExECUTIVE ASSISTANT

JANELLE L WEIGEL

ADMINISTRATIV E ASSISTANT

~;r~ : " .

i i Ili N' I 3 ' ~ ~: ; ,, 1"1 I . ' .... _

At its meeting held January 10, 1992, the Kansas Judicial Council considered the compliance and control audit report on the Judicial Council, covering state fiscal year 1991. The Judicial Council has no comments, corrections or clarifi­cations.

~ truly yours,

~~~H~r~ll RMH/jw

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