AUDITOR’S REPORT · Gary Gray, C.P.A. First Assistant County Auditor 1001 Preston, Suite 800 Houston, Texas 77002-1817 (832) 927-4600 FAX (713) 755-8932 Help Line (713) 755-HELP

AUDITOR’S REPORT

DISTRICT ATTORNEY DEVON ANDERSON

CLOSEOUT PROCEDURES

November 17, 2017

Michael Post, C.P.A., M.B.A.

Harris County Auditor

Gary Gray, C.P.A. First Assistant County Auditor

1001 Preston, Suite 800 Houston, Texas 77002-1817

(832) 927-4600

FAX (713) 755-8932 Help Line (713) 755-HELP

1

MICHAEL POST , C.P.A., M.B.A.

HARRIS COUNTY AUDITOR

November 17, 2017

Kim Ogg, District Attorney

Harris County Office of District Attorney

1310 Prairie, 5th Floor

Houston, Texas 77002

RE: District Attorney Devon Anderson Closeout Procedures as of December 31, 2016

With the change in officials at the Harris County Office of District Attorney (the Office), the

Auditor’s Office - Audit Services Department performed closeout procedures in accordance with

the Harris County Road Law. Although you were not the office holder during the period of our

procedures, we are addressing the Auditor’s Report to you as the current office holder.

With the transition in the Office, we selectively tested to determine whether:

Petty cash in the Office reconciled to the imprest balance authorized by Commissioners

Court, and the balance is accurately recorded in the County’s Financial Records (IFAS).

Collections on hand reconciled to County receipts, financial reports generated by the

Office, and validated bank deposit slips or Treasurer’s receipts.

Controlled and capital assets existed, controlled and capital assets were recorded in

accordance with County policy, and capital assets were accurately recorded in IFAS.

Bank account balances were accurately stated and account activity was accurately

recorded in IFAS, bank reconciliations were timely and accurately prepared, and

reconciling items were timely resolved.

Procurement and travel cards assigned to the Office were in the Office’s possession and

were used to make appropriate County purchases.

The engagement process included providing you with a combined engagement and scope letter

and conducting an entrance and exit conference with your personnel. The purpose of the letter

and conferences was to explain the process, identify areas of concern, describe the procedures to

be performed, discuss issues identified during the engagement, and solicit suggestions for

resolving the issues. A draft report was provided to you and your personnel for review.

The work performed required our staff to exercise judgment in completing the scope objectives.

As the procedures were not a detailed examination of all transactions or property, there is a risk

that fraud, errors, or omissions were not detected during this engagement. The official therefore,

retains the responsibility for the accuracy and completeness of their financial records and

property and for ensuring sufficient controls are in place to detect and prevent fraud, errors, or

omissions.

Kim Ogg, District Attorney

Harris County Office of District Attorney

2

The enclosed Auditor’s Report presents the significant issues and recommendations identified

during our procedures. We appreciate the time and attention provided by you and your staff

during this engagement.

Sincerely,

Michael Post

County Auditor

cc: District Judges

County Judge Ed Emmett

Commissioners:

R. Jack Cagle

Rodney Ellis

Jack Morman

Steve Radack

Vince Ryan

William J. Jackson

3

TABLE OF CONTENTS

OVERVIEW ...................................................................................................................................4

RESULTS .......................................................................................................................................4

ISSUES AND RECOMMENDATIONS ......................................................................................5

Undeliverable Restitution and Merchant Fees ........................................................................5

Bank Reconciliation Outstanding Checks ................................................................................7

Safeguarding of Assets ...............................................................................................................9

The Texas Anti-Gang (“TAG”) Assets ...................................................................................11

Inventory Asset Identifying Information ...............................................................................13

Petty Cash .................................................................................................................................15

4

OVERVIEW

The objective of this engagement was to perform procedures in accordance with Section 10 of

the Harris County Road Law (Chapter 17, Special Laws, Acts of the 33rd Legislature, Regular

Session, 1913, as amended by Chapter 422, Acts of the 66th Legislature, 1979).

As excerpted below:

“Upon the death, resignation or retirement of any officer or employee, the Auditor shall require an

accounting of all property of every kind of the County or its political subdivisions of which he has

custody, possession, control or supervision …”

RESULTS

Based upon the procedures performed, in accordance with the Harris County Road Law, the

Office’s bank account balances were accurately stated and account activity was accurately

recorded in IFAS. In addition, collections reconciled to County receipts, financial reports

generated by the Office, and validated bank deposits slips or Treasurer’s receipts. Furthermore,

procurement and travel cards assigned to the Office were used to make appropriate County

purchases.

However, our procedures identified the following opportunities for improvement:

Controls related to undeliverable restitution and merchant fees need improvement as the

Office had financial instruments which were not managed and tracked.

Procedures surrounding the custodial bank account reconciliation process need

improvement as the Office had checks outstanding for more than 366 days.

Procedures for recording asset serial numbers, model numbers, addresses, make, and

location need improvement as data fields in IFAS were inconsistently completed.

Controls related to safeguarding petty cash need improvement as multiple staff members

had access to the key for the petty cash lockbox.

These matters and others are discussed in more detail in the following Issues and

Recommendations section of this report.

ISSUES AND RECOMMENDATIONS

5

Undeliverable Restitution and Merchant Fees ##IS968C8D33C13A479884B5E798CCFE1C8C##Subject

Background Although County Accounting Procedure C.2-1, Undeliverable Restitution Checks/Money

Orders, specifically applies to the Justice of the Peace, the procedures outlined represent a best

practice for County entities receiving undeliverable restitution checks/money orders. Pursuant to

the County’s Accounting Procedure C.2-1, a Justice of the Peace that accepts cashier’s checks

and/or money orders for restitution to victims is required to adhere to certain procedures

regarding the disposition of these financial instruments. These procedures pertain to

instruments which are payable to the victim (company or individual) who filed the claim for a

worthless check, theft, or forgery, and do not apply to cash received for restitution or restitution

checks accepted which are payable to the County.

It is the responsibility of the Justice of the Peace to mail these restitution instruments to the

victims. If the restitution instruments are returned as undeliverable, the County Office should

make a reasonable effort to locate the victim. If the victim cannot be located, the instrument

should be adequately safeguarded until it becomes invalid.

The Justice of the Peace is not required to report as unclaimed property the tangible un-cashed

cashier’s checks and money orders, which are held for victims. The issuing institutions are

required to report and remit to the State Treasury the funds these cashier’s checks and money

orders represent; three years, respectively, from the date they are issued. ##IS968C8D33C13A479884B5E798CCFE1C8C##Background

Issue The Office’s Check Fraud and Victim Restitution Divisions have not been managing and

tracking undeliverable retained cashier’s checks and money orders. It was noted that the Check

Fraud and Victim Restitution Divisions had retained financial instruments payable to victims in

two separate safes dating back as early as 1967. The check Fraud Division had 1,104 financial

instruments totaling $358,535.44, and the Victim Restitution Division had 1,719 financial

instruments totaling $979,690.86.

Failure to manage and track retained cashier’s checks and money orders can result in the

Office’s inability to deliver funds due to victims, and creates an increased risk that these

financial instruments could be misappropriated. ##IS968C8D33C13A479884B5E798CCFE1C8C##Finding

Recommendation Office Management should improve its procedures for managing and tracking undeliverable

retained cashier’s checks and money orders by following the County’s Accounting Procedure

C.2-1, Undeliverable Restitution Checks/Money Orders.

In accordance with County Accounting Procedure C.2-1, the following steps should be

followed:


6

Undeliverable Restitution and Merchant Fees (Continued)

On a quarterly basis, prepare an inventory listing of money orders and cashier checks

that represent undeliverable restitution checks for that quarter.

Use a copy of the inventory listing for reference purposes to respond to calls from

victims who have not yet received their restitution checks or money orders.

Annually, under dual control, remove the undeliverable restitution checks and money

orders which have an issue date more than one year old.

Destroy the items under dual control. Note: All individuals participating in the

destruction must sign the inventory listing certifying that all listed items have been either

destroyed or previously released to the victim, the method of destruction, and the date of

destruction.

Retain documentation of destruction for 10 years.

In addition, as County Accounting Procedure C.2-1 specifically applies to the Justice of the

Peace, the Office should work with the Auditor’s Office - Systems and Procedures Department

to update County Accounting Procedure C.2-1 to include the Office and their associated

processes.

Management Response We agree with this audit finding and recommendation. The Ogg Administration has taken the

following steps to clear the Victim Witness and Check Fraud Divisions’ undeliverable checks:

On or about September 28, 2016, the HCDAO stopped accepting Cashiers’ Checks (CC) and

Money Orders (MO) for victim restitution payments. Instead, the HCDAO directed defendants

making restitution to victims to mail restitution payments directly to the HCDAO bank lockbox

account at Amegy Bank (now Cadence Bank, as of June 1, 2017).

In addition, at the beginning of the new HCDAO term in January of 2017, the Ogg

Administration’s management team performed an audit of departmental funds and financial

instruments. As a result of the procedures performed, the management team identified 1,719

undelivered Victim Witness restitution checks totaling $979,690.86 (dating back to 1987).

Similarly, the Ogg Administration’s management team identified 1,104 undelivered Check Fraud

restitution checks and merchant fees totaling $358,535.44 (dating back to 1967).

The Ogg Administration’s management team implemented a plan to clear these items. Both the

Victim Witness and Check Fraud Divisions’ undelivered Cashier’s Checks over seven years old

and Money Orders over three years old were scanned and destroyed because they were non-

negotiable instruments. The issuing financial institutions had already escheated the funds to the

State Comptroller in the name of the purchasers/defendants. Only 16 Cashier’s Checks and/or

Money Orders are currently active. The Harris County District Attorney’s Office has a list of 16

undelivered Cashier’s Checks and Money Orders available for pick up by victims.


7

Bank Reconciliation Outstanding Checks ##IS968C8D33C13A479884B5E798CCFE1C8C##Subject

Background Pursuant to County Accounting Procedure C.6, Undeliverable Checks, for undeliverable checks

returned, the applicable County department/agency/entity is to attempt to determine the correct

address for the payee. If a correct address is determined, the check is to be re-mailed to the

payee. If a correct address cannot be determined, the check is to be voided and subsequently

reissued if the payee makes contact with the department/agency/entity.

In addition, except for Fee Officer checks, undeliverable checks that are outstanding 366 days

or more (i.e., stale dated) may be cancelled and credited back to the County in accordance with

Texas Local Government Code §116.116(c) which prescribes, “An order for payment or check

[…] issued by the county treasurer in settlement of a claim against a county that is not presented

for payment before the 366th day following the date of issuance is overdue and nonnegotiable.

The sum of the overdue order or check shall be credited as revenue to the county if delivery to

the payees was attempted or occurred within a reasonable time following the issuance of the

order or check.”

Pursuant to County Accounting Procedure D.14, Unclaimed Property, Auditor’s Office -

Revenue Accounting is responsible for mailing notices related only to Fee Officer Checks. The

mailing of the remaining notices to meet this requirement is the responsibility of the respective

departments that file the unclaimed property reports for their presumed abandoned property.

Also, Chapter 76 of the Texas Property Code provides for property valued at $100 or less

meeting the same conditions as outlined in Chapters 72 and 75 be delivered to the County

Treasurer and held in an unclaimed money fund. However, property valued in excess of $100

must be sent to the State of Texas after 3 years. ##IS968C8D33C13A479884B5E798CCFE1C8C##Background

Issue The Office’s custodial bank accounts had 164 outstanding checks totaling $43,305.20 that were

older than 366 days and out of compliance with County Accounting Procedure C.6,

Undeliverable County Checks and/or D.14, Unclaimed Property.

Bank Account 770xxxx has 70 outstanding checks totaling $12,463 that were older than

366 days and an additional 63 outstanding checks totaling $17,469 were older than 3

years.

Bank Account 691-302xxxx has 4 outstanding checks totaling $331 that were older than

366 days and an additional 2 outstanding checks totaling $87 were older than 3 years.

Bank Account 770xxxx has 22 outstanding checks totaling $12,900 that were older than

3 years.

Bank Account 807-163xxxx has 3 outstanding checks totaling $55 that were older than 3

years.


8

Bank Reconciliation Outstanding Checks (Continued)

Undeliverable checks that are outstanding 366 days or more are out of compliance with County

Accounting Procedure C.6, Undeliverable County Checks, and/or D.14, Unclaimed Property,

and could result in overstatement of liabilities and understatement of revenues. ##IS968C8D33C13A479884B5E798CCFE1C8C##Finding

Recommendation Office Management should perform procedures to ensure compliance with County Accounting

Procedure C.6, Undeliverable County Checks and/or D.14, Unclaimed Property, to address all

checks older than 366 days and all checks that are over 3 years.

Office Management should also consider improving the bank reconciliation processes to help

ensure the identification and resolution of undeliverable County checks.

Management Response We agree with this finding and recommendation. All bank reconciliation issues have been

resolved.


9

Safeguarding of Assets

##ISB8D92D7DD77243D087A709213CAD326B##Subject

Background Pursuant to County Accounting Procedure A.1-3, Inventory Internal Control Guidelines,

materials and supplies should be inventoried at least annually and the following should be

adhered to when a physical inventory is performed: (a) The count should be coordinated by an

employee who has no inventory responsibility; (b) Inventory in remote locations or on

consignment should be counted; (c) A reconciliation and investigation of differences between

the inventory records and physical inventory should be performed; (d) Any physical inventory

to inventory record adjustment must be approved by the department's Director; and (e) The

physical inventory count should be compared to the inventory record after adjustments are

made.

Texas Local Government Code §157.903, Authority to Indemnify Elected and Appointed County

Officers (paraphrased), may provide for indemnification from the Commissioners Court of

elected or appointed officials against personal liability for loss of County funds, or loss of or

damage to County personal property incurred by the officer in the performance of official duties

if the loss was not the result of the officer’s negligence or criminal action.

County Accounting Procedure I.5, Furniture and Equipment Accounting for Deleted Property,

defines Department Inventoried Items (controlled assets) as items valued between $500 and

$4,999.99 that have a unique serial number, and all firearms valued at or below $4,999.99. In

addition, if a controlled asset needs to be deleted from the department’s inventory, the

department should complete County Auditor’s Form 3351, County Property

Deletion/Indemnification Request Form, and submit the form to the Purchasing Services

Department and wait for final approval by Commissioners Court before the asset is deleted from

departmental records.

Pursuant to County Accounting Procedure I.5, Furniture and Equipment Accounting for Deleted

Property, if a Harris County Inventoried Item (capital asset) is to be deleted, and it was not

damaged (i.e., the item is lost, stolen, waste, traded in, etc.), or it was damaged and had an

initial purchase price of less than $25,000, a Risk Management release is not required and a

completed County Auditor’s Form 3351, County Property Deletion/Indemnification Request

Form, should be forwarded directly to the Purchasing Services Department. The capital asset

should not be deleted from the County's Fixed Asset general ledger until final approval by

Commissioners Court is received. ##ISB8D92D7DD77243D087A709213CAD326B##Background

Issue One of the 124 capital and controlled assets selected for testing (HP LaserJet 9500mfp) could

not be located. The asset had a purchase price of $11,248.

Not properly safeguarding assets could result in misappropriation and/or financial loss to the


10

Safeguarding of Assets (Continued)

County and a misstatement of capital assets in the IFAS Fixed Asset Module, along with any

associated depreciation expense. ##ISB8D92D7DD77243D087A709213CAD326B##Finding

Recommendation Office Management should attempt to locate the missing asset, and steps should be taken to

identify and address the root cause. If they are unable to locate the asset, they should determine

whether County Auditor's Form 3351, County Property Deletion/Indemnification Request

Form, should be submitted to the County's Purchasing Services Department to obtain

Commissioners Court approval to remove the capital assets from the County's Fixed Asset

Module.

In addition, Office Management should also perform an inventory of all property and equipment

for the Office and update the IFAS Fixed Asset Module with sufficient information for effective

tracking and accounting of County property and equipment to comply with the County's

Accounting Procedures. This could be done in conjunction with the annual inventory required

by the County’s Purchasing Rules and Procedures Manual section 11.2.1, Inventory

Responsibilities by Department.

##IS08DA137DF5BE49FEA783F6DF7FFF9A56##Recom

Management Response We agree with this audit finding and recommendation. The Ogg Administration will incorporate

your recommended changes.


11

The Texas Anti-Gang (“TAG”) Assets ##IS04F0193BBC2444719FF75AC94DDB3175##Subject

Background The Texas Anti-Gang (“TAG”) Center is a collective endeavor of several federal, state, and

local law enforcement agencies in which these agencies have co-located at a common facility in

order to more efficiently and effectively cooperate and collaborate on intelligence,

investigatory, and operational activities targeted at gangs operating in or affecting Harris

County and the surrounding region. The TAG Center has been supported, in part, by an original

grant of $1.75 million from the Office of the Governor, Criminal Justice Division (CJD), with

an end date of April 30, 2014 (CJD Grant No. 2542801). CJD awarded Harris County an

additional $125,000 in continued support of the project, covering the period January 1, 2014

through August 31, 2014 (CJD Grant No. 2542802).

The Office had primary responsibility for the management of the TAG Center Project, however,

on October 17, 2013, Commissioners approved a resolution to authorize the transfer of the grant

from the Office to the Harris County Sheriff’s Office. As a part of the transfer, the Sheriff’s

Office agreed to assume responsibilities for the TAG Services Center as well as the funds

associated with grant.

Pursuant to County Accounting Procedure A.1-3, Inventory Internal Control Guidelines,

materials and supplies should be inventoried at least annually and the following should be

adhered to when a physical inventory is performed: (a) The count should be coordinated by an

employee who has no inventory responsibility; (b) Inventory in remote locations or on

consignment should be counted; (c) A reconciliation and investigation of differences between

the inventory records and physical inventory should be performed; (d) Any physical inventory

to inventory record adjustment must be approved by the department's Director, and (e) The

physical inventory count should be compared to the inventory record after adjustments are

made. ##IS04F0193BBC2444719FF75AC94DDB3175##Background

Issue The Office has 232 assets in the IFAS Fixed Asset Module that belong to the Harris County

Sheriff’s Office. The assets were purchased for the TAG Center using funds from the Office of

the Governor, Criminal Justice Division, Grant 2542801. As Commissioner’s Court transferred

all responsibility of the TAG Center and its associated grant funding to the Sheriff’s Office,

these assets should be recorded in the IFAS Fixed Asset Module as belonging to the Sheriff’s

Office.

Recommendation Office Management, in conjunction with the Sheriff’s Office and the Purchasing Agent, should

transfer the 232 assets to the Sheriff’s Office as approved by Commissioners Court on October

17, 2013.


12

The Texas Anti-Gang (“TAG”) Assets (Continued)

Management Response We agree with this audit recommendation. The Ogg Administration will incorporate your

recommended changes. All assets have been properly classified.

##IS04F0193BBC2444719FF75AC94DDB3175##Finding ##IS04F0193BBC2444719FF75AC94DDB3175##Recom


13

Inventory Asset Identifying Information ##IS8B9A03CD47844F48A7D3B87C9FB2B49E##Subject

Background Pursuant to County Accounting Procedure A.2-2, Accounting for Capital Assets Excluding Real

Property, County departments are responsible for accessing the IFAS Fixed Asset Module for

Capital Assets - Category I (defined as County personal property with a unit value of $5,000 or

more) and updating the serial number, make, model, type, class and location of the asset as

applicable in the IFAS Fixed Asset Module.

Pursuant to County Accounting Procedure A.1-1, Property Handling Guidelines, Controlled

Assets – Category II (defined as County personal property with a unit value of $500 to

$4,999.99 that have a unique identifying number applied by the manufacturer) are required to be

recorded in the IFAS Fixed Asset Module. Additionally, the County department must ensure the

inventory records reflect sufficient identifying information that includes unique identifying

serial numbers applied by the manufacturer when applicable.

Pursuant to County Accounting Procedure A.1-3, Inventory Internal Control Guidelines, the

following should be adhered to when physical inventory is counted: (a) The count should be

coordinated by an employee who has no inventory responsibility; (b) Inventory in remote

locations or on consignment should be counted; (c) a reconciliation and investigation of

differences between the inventory records and physical inventory should be performed; (d) Any

physical inventory to inventory record adjustment must be approved by the department's

Director; and (e) The physical inventory count should be compared to the inventory record after

an inventory record to physical adjustment is made.

Pursuant to Local Government Code §262.011(i), Purchasing Agents, “on July 1 of each year,

the county purchasing agent shall file with the county auditor and each of the members of the

board that appoints the county purchasing agent an inventory of all the property on hand and

belonging to the county and each subdivision, officer, and employee of the county. The county

auditor shall carefully examine the inventory and make an accounting for all property purchased

or previously inventoried and not appearing in the inventory.” Also, the County’s Purchasing

Rules and Procedures Manual section 11.2.1, Inventory Responsibilities by Department, states

that each department is responsible for conducting an annual departmental inventory and

comparing the results to the county inventory listing. Any reconciling items should be submitted

to Purchasing. ##IS8B9A03CD47844F48A7D3B87C9FB2B49E##Background

Issue The serial number, model number, address, make, and location fields for the Office’s assets in

IFAS were inconsistently completed. Additionally, there were assets in IFAS that were recorded

in bundles of quantity purchased instead of each asset individually. ##IS8B9A03CD47844F48A7D3B87C9FB2B49E##Finding


14

Inventory Asset Identifying Information (Continued)

Recommendation Office Management, with guidance from Purchasing Services, should ensure assets are recorded

individually and identify each serial number, model number, address, make, and location, if

applicable, and record the missing information in the IFAS Fixed Asset Module as needed. This

could be done in conjunction with the annual inventory required by the County’s Purchasing

Rules and Procedures Manual section 11.2.1, Inventory Responsibilities by Department. If one

of the identifying information fields is not applicable, a notation should be added to that field

that states “not applicable” for clarity.

Management Response We agree with this audit finding and recommendation. The Ogg Administration will incorporate

your recommended changes. All inventory items have been properly classified.


15

Petty Cash ##IS968C8D33C13A479884B5E798CCFE1C8C##Recom ##ISDFCFF7A3152D471FB7357F4B6FAE26B9##Subject

Background Pursuant to County Accounting Procedure D.3, Traditional General Fund Petty Cash Accounts,

a County Department performs the following duties when assigning a new petty cash custodian:

1) Counts the petty cash funds, and reconciles the petty cash fund imprest balance

(Reconciliation portion of a County Auditor’s Form 1267, Department Imprest Account -

Funding/ Reimbursement Request & Reconciliation, may be utilized) in the presence of the

authorized County Department employee that will be assigned as the new custodian; 2)

Completes County Auditor’s Form 1235A, Imprest Account - Change of Custodian Form

(Form); 3) Obtains the approval signature of the Official or the Official’s designee (other than

the custodian) on the Form [Note: When the County Department’s Official/Department Head

changes, an updated Form containing the new Official/Department Head’s approval signature

must be sent to Accounts Payable]; 4) Makes a copy of the completed Form; 5) Sends the

original Form to Accounts Payable; 6) Files and retains all documentation in accordance with

the Harris County Records Control Schedule.

Pursuant to County Accounting Procedure D.3, Traditional General Fund Petty Cash Accounts,

a County Department “keeps the petty cash in a locked place with restricted access that is under

the control of the custodian, and maintains control over any keys or combination lock to the

secure environment.” ##ISDFCFF7A3152D471FB7357F4B6FAE26B9##Background

Issue The Office did not submit a Form 1235A, Imprest Account - Change of Custodian Form to the

Auditor’s Office Accounts Payable Department, for the new custodian of their petty cash funds

as required by County Accounting Manual Procedure D.3, Traditional General Fund Petty

Cash Accounts.

In addition, the Office did not have adequate controls in place to safeguard the petty cash as

multiple staff members had access to the key for petty cash lockbox and knew the location of

the lockbox. However, all petty cash was accounted for.

Not submitting County Auditor’s Form 1235A, Imprest Account - Change of Custodian Form,

and not properly safeguarding assets could result in misappropriation and/or financial loss to the

County. ##ISDFCFF7A3152D471FB7357F4B6FAE26B9##Finding

Recommendation Office Management should submit the required Form 1235A, Imprest Account - Change of

Custodian Form, to Accounts Payable to reflect the current custodian of the petty cash funds. In

addition, Office Management should ensure that the key to gain access to the petty cash funds is

secured in an area not easily accessible to other personnel.


16

Petty Cash (Continued)

Management Response We agree with this audit finding and recommendation. The Ogg Administration has eliminated

the Petty Cash drawer.

Documents

AUDITOR’S REPORT · Gary Gray, C.P.A. First Assistant County Auditor 1001 Preston, Suite 800 Houston, Texas 77002-1817 (832) 927-4600 FAX (713) 755-8932 Help Line (713) 755-HELP