The City’s Building Inspection Division offers escrow accounts to contractors as a convenience. Essentially contractors are allowed to open an account, deposit a sum of money and make periodic withdrawals against it as the contractor purchases permits, re-inspections, etc. After becoming aware of the escrow service being provided to the construction community, the Inspector General’s (IG) Office reviewed balances within the accounting system. The IG initially found incorrect balances (e.g. negative escrow balances) and later discovered that balances were inconsistent between the general ledger and the BID system. And so, the IG’s Office began what was essentially an internal controls review, largely focused on the interaction between the general ledger and the BID system. And what the IG’s Office found in that review wasn’t good.
The IG’s findings:
Finding 1: No regular reconciliation between the escrow account balances in FAMIS (the general ledger) and the BID system (building inspection subsystem) are performed.
Finding 2: Presently, escrow accounts require no formal agreement to sign up. Building Inspection had a form in the past but is not using one presently.
Finding 3: No fees are charged to open, modify or maintain an escrow account.
Finding 4: Fifty percent (50%) of the escrow accounts maintained by Building Inspection do not reflect the same balance in the City’s general ledger and the Building Inspection computer system. In addition, approximately one year after the new general ledger (GL) account came into use (22009), the old GL account (22005) still has a balance.
Finding 5: Building Inspection does not have any policies, standards or procedures governing the activities surrounding escrow accounts.
Finding 6: Building Inspection does not monitor escrow accounts for dormancy and has no policies/standards/procedures governing such.
Finding 7: In reviewing deposit transactions we found that 83.7% of the quantity of transactions accounts for only 42.6% of the dollar value of transactions. Over 300 deposit transactions were for $100 or less.
Finding 8: The same generic default password is given to every contractor upon account creation, and the contractor is not forced to change it. In discussions with ITD we learned that no formal policy addresses authentication decisions made when implementing new software/systems.
Finding 9: Checks were ‘re-issued’ in names that were different than those originally depositing the funds.
Most of the IG’s recommendations to fix the problems centered on establishing a more structured set of controls over escrow accounts. In addition, the IG recommended a review of the cost/benefit of providing escrow services, with a focus on the effect credit cards have had on escrow usage.
You can read the entire IG report here.