WILLIAM C. THOMPSON, JR.
NEW YORK CITY COMPTROLLER
Testimony
Oversight - Department of Finance's Collection of Penalties
Imposed in Environmental Control Board Cases
City Hall
New York, New York

January 27, 2003
(As prepared for delivery)

Good morning, Chairman Weprin, Chairwoman Brewer, and members of the City Council. Thank you for the opportunity to testify on the Department of Finance's (DOF's) collection of Environmental Control Board (ECB) penalties.

As the City's Chief Fiscal Officer, it is my responsibility to help identify ways the City can reduce waste and increase the effectiveness of City services.

I have instructed my staff to work aggressively to identify uncollected revenue that will help the City in these difficult fiscal times.

It is particularly important that the Department of Finance, as the primary agent responsible for collecting fines and penalties due to the City, maximize its efforts.

I am pleased that the Council is addressing this important issue, and I welcome the opportunity to share some of my office's findings in this matter.

In June 2002, I issued an audit of the Department of Finance. The audit indicated that the City had failed to collect over 634 million dollars in outstanding penalties on Environmental Control Board cases.

The audit estimated that at least 26.2 million dollars could have been collected through enhanced collection efforts.

The collection process involves several stages of effort by both the Department of Finance and the Environmental Control Board.

The ECB issues the fines. After providing a forum for contesting Notices of Violations issued by various City agencies, and mailing at least two request-for-payment notices, called dunning notices, ECB forwards the cases to DOF for final penalty collection efforts. DOF has handled final-stage collection efforts on ECB cases since July 1996.

Upon receipt of ECB cases on a computer tape, DOF procedures require a computer-system-generated mailing of at least one additional dunning notice. This mailing is followed by an effort to contact the respondent by phone, an attempt to identify the respondent's assets, and a referral, if appropriate, to the DOF legal affairs unit.

Depending on the nature of the case, the legal affairs unit then either initiates an execution of the judgment by the Sheriff's Office, or a docketing of the case in court by the City Law Department.

Our audit found that in Fiscal Year 2001, DOF made efforts to collect on certain ECB cases -- with penalties totaling roughly 12 million dollars, but the agency only collected about 1.9 million dollars on these cases.

The audit also found that DOF made no effort to collect on more than 452 million dollars in Automated Violations Processing System or AVPS cases.

AVPS cases involve violations, such as Sanitation Department infractions, that do not require corrective action by the respondent.

Although ECB would be able to forward computer tapes on AVPS cases, DOF officials informed us during our audit that they did not request such tapes because they do not have enough staff to work on the cases.

The audit found that DOF also made no effort to collect on more than 182 million dollars in BARAMIS cases.

BARAMIS, which stands for Bureau of Air Resources Automated Management Information System, is the second major type of ECB case. These cases involve violations, such as Buildings and Fire Department infractions, that require corrective action by the respondent.

DOF does receive computer tapes from ECB on these cases. However, DOF works primarily on current BARAMIS cases. Cases that are more than one year old are generally placed automatically in an inactive status within DOF's Computer-Assisted Collection System.

Penalties in BARAMIS cases in Fiscal Year 2001 totaled 36 million dollars. Based on our review of 150 randomly selected cases from that period, as of January 2002, 68 percent of the cases -- with penalties totaling more than 24 million dollars -- had not been worked on by DOF.

In addition, by not working on the older BARAMIS cases, DOF ignored an additional 158 million dollars in penalties.

The audit estimated that more than 10 percent of the penalties in current AVPS cases and three percent of the penalties in older cases could have been collected in Fiscal Year 2001. In addition, the audit estimated that 10 percent of the penalties in current BARAMIS cases and three percent in older BARAMIS cases could have been collected.

On its own, the City could have collected fines totaling as much as 26.2 million dollars.

Had the 372 million dollars in older AVPS cases and the 158 million dollars in older BARAMIS cases been referred to a private collection agency, as an earlier Comptroller's Office audit recommended, at least 15.9 million dollars could have been collected.

Even after providing the contractor a 20 percent commission on this amount, the City still could have realized 12.7 million dollars through this approach during Fiscal Year 2001.

Our audit also determined that DOF's Computer-Assisted Collection System data were not consistently updated to include case status changes noted in ECB's computer system, and that required dunning notices were often not sent by DOF.

As a result of our findings, we make four primary recommendations to DOF in the audit. First, we recommend that DOF significantly enhance its efforts to collect payments on ECB cases.

Second, we recommend that DOF refer its older ECB cases to a private collection agency.

Third, we recommend that the agency closely monitor case information in its Computer-Assisted Collection System to make sure that it contains updated information available in ECB's computer system.

Finally, DOF should improve its consistency in sending dunning notices.

In its written response to the audit's findings and recommendations, DOF stated that our revenue collection estimates were too high, but that it "agree[d] with the draft audit's main conclusion that the collection rate on ECB debt has been unacceptably low" and that "the draft contains useful observations and recommendations that will help Finance improve its efforts to collect delinquent ECB debt."

The City of New York imposes penalties for violations because our lawmakers have determined that certain actions and conditions are a threat to the public's health and safety. We will not change behavior if the public views the penalties as meaningless because the City does not assertively enforce its own laws.

In addition to the benefit of protecting our citizenry, enhanced collection efforts will yield additional revenue in these difficult economic times. We, as a city, have much to gain by improving the collection system.

Thank you.