Butte County Board of Supervisors Agenda Transmittal

Transcription

1 Butte County Board of Supervisors Agenda Transmittal Clerk of the Board Use Only Agenda Item: 3.01 Subject: Compliance Review of the Social Security Truncation Program Department: Auditor-Controller's Office Meeting Date Requested: Contact: David A. Houser Phone: Regular Agenda Consent Agenda Department Summary: (Information provided in this section will be included on the agenda. Attach explanatory memorandum and other background information as necessary). In compliance with California Government Code Section 27361, the Butte County Auditor-Controller's Office conducted an agreed-upon procedures review of the Butte County Clerk-Recorder s Social Security Number (SSN) Truncation Program. This is the first of two required program compliance reviews. The review period was March 1, 2008 through June 30, The objectives of the review included: (1) to determine if funds generated by the program are used only for the purpose of the program; (2) to determine the progress of the county recorder in truncating recorded documents pursuant to California Government Code Section 27301; and, (3) to estimate any ongoing costs to the county recorder in complying with the requirements of California Government Code Section 27301, subdivisions (a) and (b). This agreed-upon procedures review was conducted in accordance with Generally Accepted Governmental Auditing Standards. This report is intended solely for the information and use of the Butte County Board of Supervisors and management of the Butte County Clerk-Recorder s Department and is not intended to be and should not be used by anyone other than these specified parties. Fiscal Impact: None Personnel Impact: None Action Requested: Review and accept the Program Review Report for The County Recorder Social Security Number Truncation Program for the period March 1, 2008 through June 30, Administrative Office Review: Shari McCracken, Deputy Chief Administrative Officer

2 County of Butte Program Review Report On Applying Agreed-Upon Procedures For the County Clerk-Recorder Social Security Number Truncation Program Review Period March 1, 2008 through June 30, 2013 November 26, 2013 Auditor-Controller: David A. Houser Manager, Governmental Accounting: Kathryn Mathes Internal Auditor: Annie Liu

3 EXECUTIVE SUMMARY In compliance with California Government Code Section 27361, the Auditor-Controller's Office conducted an agreed-upon procedures review of the Butte County Clerk-Recorder s Social Security Number (SSN) Truncation Program. This is the first of the two required program compliance reviews. The review period is for the period March 1, 2008 through June 30, The objectives of the review included: (1) to determine if funds generated by the program are used only for the purpose of the program; (2) to determine the progress of the county recorder in truncating recorded documents pursuant to California Government Code Section 27301; and, (3) to estimate any ongoing costs to the county recorder in complying with the requirements of California Government Code Section 27301, subdivisions (a) and (b). This agreed-upon procedures review was conducted in accordance with Generally Accepted Governmental Auditing Standards. This report is intended solely for the information and use of the Butte County Board of Supervisors and management of the Butte County Clerk-Recorder s Office and is not intended to be and should not be used by anyone other than these specified parties. The County Clerk-Recorder started the SSN Truncation Program pursuant to Government Code Section 27301(a), in As of this report date, the project is close to completion. The expected completion date is December 31, The review concluded that the County Recorder has used funds generated by the SSN Truncation Program solely for purposes of the program. During the review period from March 1, 2008 through June 30, 2013, total costs associated with the SSN Truncation Program were $323,548. Incurred costs of $145,816 had been charged to the SSN Truncation Restricted Cash. The remaining costs, along with the other ongoing program costs, will be charged to the SSN Truncation Restricted Cash after FY , accordingly, as sufficient funds are collected. The estimated costs for FY are $66,000. It is estimated the annual ongoing costs thereafter to be $18,000. BACKGROUND California Assembly Bill 1168, chapter 627, effective October 13, 2007 (AB1168), requires the implementation of a social security truncation program to protect citizens against the risk of identity theft. AB1168 added/amended the following government codes: California Government Code Section directs the County Recorder of each county to establish a social security number truncation program in order to create a public record version of each official record. The program requires the Recorder to create an electronic version of each official record recorded between January 1, 1980 and December 31, 2008 and, to truncate all social security numbers (SSN) contained in those records. For each official record recorded after January 1, 2009, the Recorder shall create a copy of that record in electronic format and truncate any social security number contained in the record.

4 Per California Government Code Section 27304, no later than June 1, 2008 the Recorder shall petition their County Board of Supervisors for authority to levy a fee to fund the truncation program. Per California Government Code Section the County Board of Supervisors shall require the County Auditor to conduct two reviews to verify that funds generated by the fee are used for purposes of the program. The first review must be completed no earlier than June 1, 2012 and no later than December 31, The second review must be completed no earlier than June 1, 2017 and no later than December 31, On January 29, 2008, the Butte County Board of Supervisors by resolution authorized collection of an additional $1 fee for recording the first page of every instrument, paper, or notice required or permitted by law, pursuant to Government Code Section 27361(d), effective March 1, This additional $1 fee collected is to be deposited into a special fund used solely by the County Recorder for the purpose of implementing the social security truncation program. The fee collection will sunset after December 31, 2017, unless reauthorized by the Board. By the same resolution, the Butte County Board of Supervisors also requested the County Auditor-Controller to conduct two reviews to verify that the funds generated by this fee are used only for the purpose of the social security truncation program within the time frames provided under Government Code Section 27361(d)(4). The Clerk-Recorder began collecting truncation fees on March 1, A SSN Truncation Revenue account and a SSN Truncation Restricted Cash account (SSN Restricted Cash) were set-up for recording the revenues and depositing the fees. Total cash deposited to the SSN Truncation Restricted Cash account by June 30, 2013 was $255,131, including fees collected from March 1, 2008 through June 30, 2013 and, interest generated from the revenue. The Clerk-Recorder has used DFM Associates RiiMS software for the County recording system. Documents recorded since March 1988 have been stored digitally using this software. The software was upgraded to help Recorder staff redact all records from March 1988 to present. However, documents recorded prior to March 1988 were stored on microfilm and microfiche. In order to redact the social security numbers from these documents, the Clerk-Recorder entered into a contract with PFA, Inc., in April 2011, to implement the digital conversion and indexing of records from 1980 to March PROCEDURES The Auditor-Controller's Office has performed the procedures enumerated below with respect to the Butte County Recorder s SSN Truncation Program. These procedures, agreed to by the Butte County Clerk-Recorder, were performed to assist the County in meeting the requirements of California Government Code Section This agreed-upon procedures engagement was conducted in accordance with Generally Accepted Governmental Auditing Standards. The sufficiency of these procedures is solely the responsibility of the parties specified in the report. Consequently, the Auditor-Controller's Office makes no representation regarding the sufficiency of the procedures described either for the purpose for which this report has been requested or for any other purpose.

5 1. Obtained the County Board of Supervisors approval of the fee to fund the SSN Truncation Program and determined its compliance with California Government Code Sections 27301(c), 27304(b), and 27361(d). 2. Obtained adequate documentation and traced program revenue obtained through the collection and deposit of approved fee to the SSN Truncation Revenue and SSN Truncation Restricted Cash account established for the accounting of truncation program fiscal activity. 3. Obtained adequate documentation and traced program expenditures to the SSN Truncation Restricted Cash account established for the accounting of the truncation program fiscal activity. 4. Obtained program status reports required pursuant to California Government Code Section and reviewed samples of truncated documents to determine the current status of the truncation program. 5. Obtained support contracts and performed analysis for the estimation of ongoing costs of the truncation program. The Auditor-Controller's Office was not engaged for and did not conduct an audit, the objective of which would be the expression of an opinion. Accordingly, the Auditor-Controller's Office does not express such an opinion. REVIEW ANALYSIS AND CONCLUSION Program Progress The Auditor-Controller's Office discussed with Recorder staff and reviewed reports and samples of truncated documents to determine the County Recorder SSN Truncation Program status. The contract with PFA, Inc., to implement digital conversion and indexing of records from 1980 to March 1988 was completed in April Approximately 1,080,000 pages of records were successfully converted to digital images and an index was created. The complete range of digitized images and their index was uploaded into the Recorder s current recording system, RiiMS. The Recorder staff then checked and verified for completeness and accuracy of the documents, made correction to the images and index errors, and then redacted Social Security Numbers from all document images. As of this report date, the SSN Truncation Program project was close to completion stage. All official records recorded from January 1, 1980 to present have a copy of the record in electronic format and social security numbers contained in the record are truncated as required by Government Code Section The project expected completion date is December 31, 2013.

6 Use of SSN Truncation Restricted Cash After reviewing all relevant SSN Truncation Program related cash, revenue and expenditure documents, staff determined the County Recorder has used funds generated by the SSN Truncation Program solely for purposes of the program. All costs charged to the SSN Truncation Restricted Cash were program-related expenses. Facts Total expenditures charged to SSN Truncation Restricted Cash were $145,816. However, the review identified this amount did not capture the entire SSN Truncation program-related costs incurred through June 30, The following costs were not included in the amount that had been charged to the program: o From FY to FY , only direct staff costs were charged to the SSN Truncation Program. No other direct cost and overhead cost were charged to the program, except FY o Total payments in the amount of $118, paid to PFA Inc. in FY2011/12 for the digital conversion contract were loaned from Recording System Restricted Cash account. The Clerk-Recorder has developed plans to repay the loan with the SSN Restricted Cash within three years from FY to FY The Recorder has been tracking staff time for the truncation program. Journals were processed on January 30, 2009 and June 30, 2009 to charge direct staff costs associated with the program to the SSN Restricted Cash. Direct staff costs for the program were again charged to SSN Restricted Cash on March 31, The balance in the SSN Restricted Cash was $10, after the March 31, 2010 charge. Up until then, no overhead cost was considered. Direct staff costs along with overhead costs for period August 1, 2011 through March 23, 2012 were charged to SSN Truncation Restricted Cash account on March 29, More direct staff costs, incurred between July and December 2012, were charged to the SSN Restricted Cash at the end of FY , on June 30, However, no overhead cost was charged to the SSN Truncation Program in FY The balance in the SSN Restricted Cash was $109,315 on June 30, The digital conversion contract with PFA, Inc., started in 2011, was completed in The Recorder arranged a loan in the amount of $129,088 from Modernization/Recording System Restricted Cash account to cover the contract costs. The actual costs for this contract were $118, None of this loan has been repaid. The Recorder has set-up a three year payment plan starting in FY , with yearly payments of $39,530. Analysis & Recommendation An inconsistency charging the overhead costs associated with the truncation program, resulted in program expenditures not being recorded properly. The actual costs for the program were understated. The balance in the SSN Truncation Restricted Cash account does not reflect the accurate balance in the SSN Truncation Program.

7 We recommend that the Recorder record all SSN truncation-related expenditures, including indirect overhead costs in the year the expenses incurred. For costs incurred, but not charged to the SSN Restricted Cash, the Recorder should develop a plan to adjust those expenses to the SSN Restricted Cash. Recorder Management Response When the program first established in 2008, the cost to implement the program back to 1980 was unknown, but it was expected to be large. The Clerk-Recorder was aware that revenues from the program would not be sufficient to cover the costs associated with the program in the first few years, and therefore has been conservative in charging the costs to the SSN Restricted Cash. The initial strategy was to charge the direct staff costs to the SSN Restricted Cash until sufficient fees were collected to cover all the costs. Overhead costs were once charged to the SSN Restricted Cash in FY , but not consistently after that time. The Recorder s Office revisited all costs associated with the SSN Truncation Program and identified additional indirect overhead costs in the amount of $50,180 should be charged to SSN Restricted Cash. A plan will be set-up to charge these costs to the SSN Restricted Cash in the next few years. Total SSN Truncation Program costs, from March 1, 2008 to June 30, 2013, were $323,548. Estimate of Ongoing Costs: The Auditor-Controller's Office worked with the Recorder s Office to perform analysis of cost data and business operations related to the SSN Truncation Program. Staff determined the estimated ongoing costs of the program are primarily associated with program maintenance and staff time, as to the verifying and redaction of Social Security Numbers in recording documents. The estimate costs for FY are $66,000. Ongoing costs, at the current document count and time allocations, are expected to be approximately $18,000 per year after FY The Recorder s goal is after the initial sunsetting of the fee, that the department begins absorbing these ongoing costs into the recording fees annually. FINAL COMMENT This review helps the Recorder to revisit the actual incurred costs and analyze the future ongoing costs for the SSN Truncation Program. The recommendations developed through this review, together with Recorder s management response, will assist the Recorder in improving accountability over SSN truncation revenues and expenditures.