A REPORT BY THE NEW YORK STATE OFFICE OF THE STATE COMPTROLLER

A REPORT BY THE NEW YORK STATE OFFICE OF THE STATE COMPTROLLER Alan G. Hevesi COMPTROLLER NEW YORK DEPARTMENT OF MOTOR VEHICLES AUDIT OF THE DEPARTMENT S ASSESSABLE EXPENSES FOR THE ADMINISTRATION OF THE MOTOR VEHICLE FINANCIAL SECURITY ACT AND SAFETY RESPONSIBILITY ACT FOR THE THREE FISCAL YEARS ENDED MARCH 31, 2001 2002-S-18 DIVISION OF STATE SERVICES

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NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES AUDIT OF THE DEPARTMENT S ASSESSABLE EXPENSES FOR THE ADMINISTRATION OF THE MOTOR VEHICLE FINANCIAL SECURITY ACT AND SAFETY RESPONSIBILITY ACT FOR THE THREE FISCAL YEARS ENDED MARCH 31, 2001 Table of Contents Page Comptroller s Report 1 Statement of Assessable Expenses For the Fiscal Year Ended March 31, 2001 Exhibit A-1 For the Fiscal Year Ended March 31, 2000 Exhibit A-2 For the Fiscal Year Ended March 31, 1999 Exhibit A-3 Notes to the Statements 2 Comptroller s Report on Compliance Issues Comptroller s Report on Internal Controls Supplementary Information Appendix A Appendix B Appendix C Comparative Analysis of Assessable Expenses For the Fiscal Years Ended March 31, 2000 and March 31, 2001 C-1 For the Fiscal Years Ended March 31, 1999 and March 31, 2000 C-2 For the Fiscal Years Ended March 31, 1998 and March 31, 1999 C-3

ALAN G. HEVESI COMPTROLLER 110 STATE STREET ALBANY, NEW YORK 12236 STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER Comptroller s Report New York State Department of Motor Vehicles We have audited the accompanying Statements of Assessable Expenses (Statements) for the three fiscal years ended March 31, 2001. The Statements are the responsibility of Department management. Our responsibility is to express an opinion on the Statements based on our audit. We conducted our audit in accordance with government auditing standards generally accepted in the United States of America. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the Statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statements. An audit also includes assessing the accounting principles used, and significant estimates made, by management, as well as evaluating the overall Statement presentations. We believe that our audit provides a reasonable basis for our opinion. As described in Note 3, the accompanying financial statements were prepared on the cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the Statements present fairly, in all material respects, the Department s assessable expenses for the three fiscal years ended March 31, 2001 in conformity with the cash basis of accounting. In accordance with Government Auditing Standards, we have also issued a report on Department compliance with selected laws and regulations pertaining to the Department s assessment process (Appendix A) and a report on the Department s internal control structure (Appendix B). Office of the State Comptroller Date: February 11, 2003

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES STATEMENT OF ASSESSABLE EXPENSES FOR THE FISCAL YEAR ENDED MARCH 31, 2001 Direct Expenses: (Note 1) Administration $1,865,770 Operations 5,789,386 Transportation Safety 1,376,779 Insurance Services 7,763,628 Aid to Localities 0 Total Direct Expenses $16,795,563 Fringe Benefits and Indirect Costs (Note 5) 4,373,332 Adjustments: Audit Adjustments (Note 6) 0 Prior Year Company Adjustments (Note 7) 0 Total Adjustments 0 Gross Assessable Expenses $21,168, 895 Less: Fees Paid by Self-Insurers (Note 8) $141,337 Bonded Vehicles (Note 8) 5,441 (146,778) Net Assessable Expenses $21,022,117 The accompanying notes are an integral part of the Statement. EXHIBIT A-1

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES STATEMENT OF ASSESSABLE EXPENSES FOR THE FISCAL YEAR ENDED MARCH 31, 2000 Direct Expenses: Direct Expenses: (Note 1) Administration $2,075,299 Operations 5,285,810 Transportation Safety 973,567 Insurance Services 6,749,733 Aid to Localities 3,895 Total Direct Expenses $15,088,304 Fringe Benefits and Indirect Costs (Note 5) 3,834,257 Adjustments: Audit Adjustments (Note 6) $167,702 Prior Year Company Adjustments (Note 7) 250,232 Total Adjustments 417,934 Gross Assessable Expenses $19,340,495 Less: Fees Paid by Self-Insurers (Note 8) $155,397 Bonded Vehicles (Note 8) 8,685 (164,082) Net Assessable Expenses $19,176,413 The accompanying notes are an integral part of the Statement. EXHIBIT A-2

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES STATEMENT OF ASSESSABLE EXPENSES FOR THE FISCAL YEAR ENDED MARCH 31, 1999 Direct Expenses: (Note 1) Administration $1,769,184 Operations 4,939,372 Transportation Safety 903,792 Insurance Services 6,762,671 Aid to Localities 0 Total Direct Expenses $14,375,019 Fringe Benefits and Indirect Costs (Note 5) 3,649,024 Adjustments: Audit Adjustments (Note 6) $607,886 Prior Year Company Adjustments (Note 7) (6,723) Total Adjustments 601,163 Gross Assessable Expenses $18,625,206 Less: Fees Paid by Self-Insurers (Note 8) $76,544 Bonded Vehicles (Note 8) 2,525 (79,069) Net Assessable Expenses $18,546,137 The accompanying notes are an integral part of the Statement. EXHIBIT A-3

Notes to Statements of Assessable Expenses 1. Department Operations The New York State Department of Motor Vehicles (Department) is charged with enhancing traffic safety, providing consumer protection and information services, and assisting other government agencies, such as the State Insurance Department, the Division of State Police, and local police agencies, to achieve their missions. More specifically, the Department licenses motor vehicle operators, registers motorized vehicles, issues license plates, and promotes traffic safety through driver training programs and outreach efforts. The Department collects fees and generates non-tax revenues to support these objectives. To help the Department achieve these objectives, the Legislature enacted the Motor Vehicle Financial Security Act (Article 6) and the Motor Vehicle Safety Responsibility Act (Article 7). These Acts help ensure that the operators of motor vehicles driven in New York possess adequate insurance coverage to compensate those persons they might injure, or whose property they might damage, as a result of an accident. During the audit period, Department activities were segregated into five major program areas: Administration, Operations, Transportation Safety, Insurance Services, and Aid to Localities. The responsibilities for each of these program areas are as follows: Administration The Department s Administration Program provides overall agency direction and support services, and includes the Commissioner s Office, the Communications Office, Fiscal Management, and Human Resources. This program also includes the Motor Vehicle Appeals Board, which is responsible for hearing appeals from motorists and motor vehicle-regulated businesses whose licenses, registrations, or permits have been revoked, suspended, or denied by the Department, or who have been convicted of moving traffic violations. Operations The Department s Operations Program is responsible for the operation of the regional offices and for providing efficient and courteous customer service, including: issuing licenses, registrations, and permits; administering vision and driving examinations; and verifying title and insurance status. Transportation Safety The Department s Transportation Safety Program is responsible for enhancing transportation safety through the licensing, education, and oversight of vehicle operators and businesses involved in the sale, repair, and inspection of motor vehicles. 2

Insurance Services The Department s Insurance Services Program is responsible for ensuring vehicle owner compliance with mandated liability insurance coverage for registered vehicles. Aid to Localities The Department s Aid to Localities Program reimburses certain counties and municipalities for providing services similar to those available from the Department s regional offices. 2. Cost-Recovery Methods Article 6, Section 317, and Article 7, Section 363, of New York State s Vehicle and Traffic Law (Law) stipulate that the Commissioner of Motor Vehicles and the Office of the State Comptroller shall ascertain the total amount of expenses the Department incurs in its administration of the Motor Vehicle Financial Security Act (Security Act) and the Motor Vehicle Safety Responsibility Act (Responsibility Act). Once the amount of such administrative expenses is determined, the Commissioner assesses providers of automobilerelated liability (bodily injury) insurance a pro-rata share of the expenses based on their respective premiums written in this line of insurance. Assessable Department expenses include: personal service costs, maintenance and operations, retirement contributions, workers compensation premiums, real estate rental costs, and all other direct and indirect costs. Fees paid by self-insurers and for bonded vehicles under Sections 316 and 370 of the Law are to be applied toward reducing the assessment. 3. Basis of Accounting The Department s Statement of Assessable Expenses is prepared on the cash basis of accounting; consequently, revenues are recognized when received and expenditures are recognized when paid. 4. Accounting Records The direct expenses, indirect costs, adjustments, and offsetting fees used to compile the Statement are based on the financial records maintained by the Department, and are in agreement with those maintained by the Office of the State Comptroller. 5. Fringe Benefits and Indirect Costs The fringe benefit and indirect cost recovery rates used by the Department are determined by the New York State Division of the Budget and are applied to personal service costs only. For the three fiscal years ended March 31, 1999, March 31, 2000 and March 31, 2001, the fringe benefit rates were 29.60%, 30.17%, and 30.16% respectively. The indirect cost recovery rates for the same periods were 4.26%, 4.26%, and 4.27%. 3

Year Ended March 31, 1999 Fringe Benefit Costs ($10,776,799 @ 29.60%) $3,189,932 Indirect Costs ($10,776,799 @ 4.26%) 459,092 Total $3,649,024 Year Ended March 31, 2000 Fringe Benefit Costs ($11,136,384 @ 30.17%) $3,359,847 Indirect Costs ($11,136,384 @ 4.26%) 474,410 Total $3,834,257 Year Ended March 31, 2001 Fringe Benefit Costs ($12,702,098 @ 30.16%) $3,830,953 Indirect Costs ($12,702,098 @ 4.27%) 542,379 Total $4,373,332 6. Audit Adjustments On March 5, 2001, the Office of the State Comptroller issued a report on the Department s assessable expenses for the fiscal years ended March 31, 1998 and March 31, 1997 (Report 2000-S-36). That audit identified assessable expenses that were not included in the corresponding years Statements, resulting in a total understatement of $775,558 in the net assessable expenses for both fiscal years. The Department has chosen to include these amounts in the assessable expenses for the two fiscal years ended March 31, 1999 and March 31, 2000 rather than issuing revised bills to the insurance carriers for the prior years. The adjustments are as follows: March 31, 1999 $607,886 March 31, 2000 167,702 Total $775,588 7. Prior Year Company Adjustments Department staff adjust assessable expenses on active insurers for insurance companies that have gone out of business without paying their share of the assessment for the prior year. The unpaid balance for these companies is added to the current year s assessment. 8. Offsetting Cash Receipts In accordance with Sections 316 and 370 of the Vehicle and Traffic Law, certain motor vehicle registrants (self-insured and bonded) are required to pay an annual fee to the Department, which is established at $1.50 and $3.00, respectively. The statutes mandate that these fees offset any Article 6 and Article 7 assessments on insurance carriers. 4

9. Comparative Analysis of Assessable Expenses Fiscal Year 1999-Fiscal Year 1998 The significant increases in Administration, Operations and Insurance Services expenses were a result of an increased State appropriation for fiscal year 1999 and a corresponding increase in the percentage of expenses subject to assessment. The significant increase in Transportation Safety expenses was a result of an increased number of cost centers (e.g., Auto Theft sites, etc.) assigned to the Program. The significant decrease in Aid to Localities is the result of the Department not receiving an appropriation for this Program for Fiscal 99. The significant decrease in Fees Paid by Self-Insurers is the result of fewer collections and collection/recording timing differences. Fiscal Year 2000-Fiscal Year 1999 The significant increase in Administration expenses is the result of computer-related activities relating to Y2K compliance. The increase in Aid to Localities is the result of a renewed appropriation for this Program. The significant increase in Fees Paid by Self-Insurers and Bonded Vehicles is the result of increased fee collections and collection/recording timing differences. Fiscal Year 2001-Fiscal Year 2000 Administration expenses decreased due to a drop in the number of license renewals processed by the Department. As a result of appropriation changes, the Department charged some of its office rental expenses to the Transportation Safety Program thus increasing Transportation Safety expenses for this period. Insurance Services expenses increased due to implementation of the Insurance Information Enforcement System Program, which was not previously assessed against insurers. Aid to Localities decreased as no appropriation was received for this period. 5

ALAN G. HEVESI COMPTROLLER 110 STATE STREET ALBANY, NEW YORK 12236 STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER Comptroller s Report on the Department of Motor Vehicle s Compliance with Selected Statutory Requirements Applicable to Articles 6 and 7 of the Vehicle and Traffic Law New York State Department of Motor Vehicles We have audited the accompanying Statements of Assessable Expenses for the fiscal years ended March 31, 1999, March 31, 2000 and March 31, 2001. In connection with our audit of the Statements, we selected certain transactions applicable to Article 6, Section 317, and Article 7, Section 363 of the Vehicle and Traffic Law and assessed Department Compliance therewith. These sections address the mandated obligation of certain insurance carriers to finance Department costs incurred in administering the Motor Vehicle Financial Security Act and Safety Responsibility Act. These sections also address the Department s requirement to prepare a final assessment of annual expenses as soon as practical after April first of the subsequent year. The procedures we followed to assess Department compliance were substantially less than those performed during an audit, the objective of which is to express an opinion on Department compliance with these requirements. Accordingly, we do not express such an opinion. Regarding the assessment methodology, with respect to the items tested, we found no material instances of noncompliance with the requirements relating to the annual assessment of costs on insurance carriers. With respect to the items not tested, nothing came to our attention that caused us to believe that the Department had not complied, in all material respects, with those requirements and would not be in compliance with the law if they continue to apply the same methodology(s). This report is intended for the information and use of Department management and the State of New York. However, this report is a matter of public record and its distribution is not limited. Office of the State Comptroller Date: February 11, 2003 Appendix A

ALAN G. HEVESI COMPTROLLER 110 STATE STREET ALBANY, NEW YORK 12236 STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER Comptroller s Report on Internal Controls Applicable to our Audit of the Department s Assessable Expenses New York State Department of Motor Vehicles In planning and performing our audit of the Statements of Assessable Expenses for the fiscal years ended March 31, 1999, March 31, 2000 and March 31, 2001 we considered the Department s internal control structure in order to determine our auditing procedures for the purpose of expressing an opinion on the Statements, and not to provide assurance on the Department s internal control structure. Our consideration of the internal control structure would not necessarily disclose all matters therein that might be a material weakness under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the internal control structure elements does not reduce, to a relatively low level, the risk that errors or irregularities, in amounts that would be material in relation to the Statements being audited, may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We conveyed the results of our review of the Department s internal control structure in a separate letter to Department management, which includes a description of management s responsibility to establish and maintain the Department s internal control structure, and the objectives of, and inherent limitations in, such a structure. The letter addresses the administration of Insurance Information Enforcement System revenues, and follows up on issues discussed in our prior report (2000-S-36). The letter noted above is intended solely for the information and use of Department management and others within the organization. Office of the State Comptroller Date: February 11, 2003 Appendix B

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES AUDIT OF THE DEPARTMENT S ASSESSABLE EXPENSES FOR THE ADMINISTRATION OF THE MOTOR VEHICLE FINANCIAL SECURITY ACT AND SAFETY RESPONSIBILITY ACT FOR THE THREE FISCAL YEARS ENDED MARCH 31, 2001 Supplementary Information Comparative Analysis of Assessable Expenses Appendix C

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES COMPARATIVE ANALYSIS OF ASSESSABLE EXPENSES FOR THE FISCAL YEARS ENDED MARCH 31, 2000 AND MARCH 31, 2001 2000-2001 1999-2000 % Variance Direct Expenses: Administration $ 1,865,770 $ 2,075,299 (10.10) Operations 5,789,386 5,285,810 9.53 Transportation Safety 1,376,779 973,567 41.42 Insurance 7,763,628 6,749,733 15.02 Aid to Localities 0 3,895 (100.00) Total Direct Expenses $16,795,563 $15,088,304 11.32 Fringe Benefits and Indirect Expenses 4,373,332 3,834,257 14.06 Adjustments 0 417,934 N/A Gross Assessable Expenses $21,168,895 $19,340,495 9.45 Less: Fees Paid by Self-Insurers $ 141,337 $ 155,397 (9.05) Bonded Vehicles 5,441 8,685 (37.35) Net Assessable Expenses $21,022,117 $19,176,413 9.62 See Note 9 to the Statements for explanations of the significant variances. C-1

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES COMPARATIVE ANALYSIS OF ASSESSABLE EXPENSES FOR THE FISCAL YEARS ENDED MARCH 31, 1999 AND MARCH 31, 2000 1999-2000 1998-1999 % Variance Direct Expenses: Administration $ 2,075,299 $ 1,769,184 17.30 Operations 5,285,810 4,939,372 7.01 Transportation Safety 973,567 903,792 7.72 Insurance Services 6,749,733 6,762,671 (0.19) Aid to Localities 3,895 0 100.00 Total Direct Expenses $15,088,304 $14,375,019 4.96 Fringe Benefits and Indirect Costs 3,834,257 3,649,024 5.08 Adjustments 417,934 601,163 N/A Gross Assessable Expenses 19,340,495 $18,625,206 3.84 Less: Fees Paid by Self-Insurers $ 155,397 $ 76,544 103.02 Bonded Vehicles 8,685 2,525 243.96 Net Assessable Expenses $19,176,413 $18,546,137 3.40 See Note 9 to the Statements for explanations of the significant variances. C-2

NEW YORK STATE DEPARTMENT OF MOTOR VEHICLES COMPARATIVE ANALYSIS OF ASSESSABLE EXPENSES FOR THE FISCAL YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1999 1998-1999 1997-1998 % Variance Direct Expenses: Administration $ 1,769,184 $ 1,389,400 27.33 Operations 4,939,372 4,251,770 16.17 Transportation Safety 903,792 693,113 30.40 Insurance Services 6,762,671 6,122,388 10.46 Aid to Localities 0 7,080 (100.00) Total Direct Expenses $14,375,019 $12,463,751 15.33 Fringe Benefits and Indirect Costs 3,649,024 3,638,479 0.29 Adjustments 601,163 571,153 N/A Gross Assessable Expenses $18,625,206 $16,673,383 11.71 Less: Fees Paid by Self-Insurers 76,544 105,123 (27.19) Bonded Vehicles 2,525 2,451 3.02 Net Assessable Expenses $18,546,137 $16,565,809 11.95 See Note 9 to the Statements for explanations of the significant variances. See OSC Report 2000-S-36, issued March 5, 2001, for Comptroller s audit of the Department s Net Assessable Expenses for the fiscal year ended March 31, 1998. C-3