-Most unpaid fines owed by unlicensed home improvement contractors
and tow operators-

-Thompson makes 17 recommendations to resolve flaws-

View Audit

New York City Comptroller William C. Thompson, Jr. today reported that that the Department of Consumer Affairs (DCA) failed to collect as much as $28.3 million in fines over a six-year period.

In an audit issued today, Thompson highlighted a series of flaws in DCA’s controls over the processing of violations and collection of fines, and noted that most of the unpaid fines involved unlicensed home improvement contractors and tow operators.

The audit – which covered Fiscal Year 2005 - can be viewed at www.comptroller.nyc.gov.

“DCA would increase its ability to collect fines by addressing inefficiencies and weaknesses that contribute to the limited effectiveness of the DCA collection activities,” Thompson said in the audit. “These weaknesses contributed to fines totaling $28.3 million remaining unpaid out of the total $68.5 million in fines assessed against violators from January 1, 2000 to July 29, 2006.”

DCA administers and enforces the City’s Consumer Protection Law, City and State Weights and Measures Laws, City License Laws and Tobacco Laws, investigates deceptive trade practices, conducts administrative hearings, mediates consumer complaints, and pursues large-scale litigation. DCA also licenses more than 60,000 businesses in 55 industries. DCA inspectors and the New York City Police Department issue violations for infractions of DCA-administered laws, rules and regulations. DCA’s Consumer Complaint Division also may issue violations based on a consumer complaint.

All case dispositions and other information are recorded in DCA’s City Agencies Management Information System (CAMIS) database, and payments receipts and support documentation are sent to its Collections Unit for processing.

Auditors selected 156 violations that were assessed fines in Fiscal Year 2005, compared CAMIS data for these violations to corresponding source documentation, and additionally reviewed data in CAMIS from January 1, 2000 to July 29, 2006.

The audit also found that DCA does not maintain adequate controls over the processing of violations and collection of fines, which led to operational deficiencies and procedural weaknesses in the performance of Adjudication and Collections functions.

Although DCA has a framework of activities to encourage respondents to pay fines, collectively, these activities are limited in their effectiveness to recoup the total of assessed fines. Some of the limitations include:

• While DCA has a framework of activities to encourage respondents to pay fines, collectively, these activities are limited in their effectiveness to recoup the total of assessed fines. Of the $1,564,452 in fines imposed against 156 sampled violations, for instance, DCA collected $317,601 (20.3%) for 118 (75.6%) violations. The remaining $1,242,515 (79.4%) of fines associated with 38 (24.4%) unpaid violations and the balance of $4,336 for nine partially paid violations remained uncollected and outstanding.

• Adjudication activities resulted in 82 (52.5%) of the 156 sampled violations being paid or partially paid. The remaining 74 – with fines totaling $1,515,622 – remained unpaid.

“In terms of violations, the DCA practices appear to be successful in encouraging respondents to pay their fines,” Thompson said. “However, in terms of fines overall, these activities are limited in encouraging respondents to pay fines, especially respondents found guilty and assessed large fines for carrying out unlicensed activity.”

• DCA imposes large fines against entities that are found guilty of performing unlicensed activity, but there is a strong likelihood that these fines will go uncollected because DCA fails to aggressively pursue violators. For instance, 15 of 38 unpaid sampled violations were issued to respondents for performing unlicensed activity and carried significant fines totaling $1,197,600. Most of the 15 involved home improvement contractors.

Over time, the fines imposed for unlicensed activity represent the largest amount of fines that remain uncollected. From Jan. 1, 2000 to July 29, 2006, fines assessed against violators for unlicensed activity represented $27.5 million (40.1%) of all fines imposed by DCA – yet $18,583,560 (65.6%) remained uncollected. During that period, $18,218,610 fines were assessed for tobacco law violations and $3,892,614 (13.7%) remained uncollected.

The audit also found that DCA did not have formal written policies and procedures to comprehensively address and establish standards for all aspects involved in the adjudication of violations and collection of fines.

Auditors additionally determined that DCA maintained adequate controls to provide reasonable assurance that cash receipts collected for fines were appropriately accounted for, safeguarded, and recorded in the City’s financial records. Also, DCA’s internal controls also were adequate to ensure that respondents whose licenses are expired, revoked or suspended will not be reinstated or renewed while fines remain unpaid.

Thompson issued 17 recommendations, including that DCA:

• Establish controls to ensure that Adjudication and Collections tasks are performed in a consistent, timely and efficient manner.
  
  
• Ensure that assessed fines imposed by hearing officers or administrative law judges are verified for accuracy prior to the amounts being recorded in CAMIS and the decision being mailed to the respondents.
  
  
• Require the periodic reporting, review, investigation, and resolution of violations and payments to ensure that payments are appropriately posted in CAMIS in a timely manner.
  
  
• Comply with Comptroller’s Directive #21 by developing procedures to report its accounts-receivable balance monthly, identify or estimate and write-off fines deemed uncollectible, and report its write-off procedures, along with any write-off amounts, to the Comptroller.
  
  
• Develop a comprehensive policies and procedures manual that addresses all internal processes and functions throughout the agency and distribute the manual to appropriate DCA departments and personnel.

DCA generally agreed with 13 recommendations, partially agreed with three, and generally disagreed with one. However, Thompson noted in the audit that “DCA offered contrived arguments and contentious language…Even though we shared extensive audit information and analysis with DCA officials during the audit and after the exit conference, DCA management has been resistant to accept the findings.”

He added: “It is encouraging to note, however, that they generally agreed with almost all of our 17 recommendations, which indicates that they recognize the need to improve.”

###