NEW HANOVER COUNTY
C
LERK OF SUPERIOR COURT
WILMINGTON, NORTH CAROLINA
F
INANCIAL RELATED AUDIT
J
UNE 2018
S
TATE OF NORTH CAROLINA
OFFICE OF THE STATE AUDITOR
B
ETH A. WOOD, CPA
STATE OF NORTH CAROLINA
Office of the State Auditor
Beth A. Wood, CPA
State Auditor
20601 Mail Service Center
Raleigh, NC 27699-0600
Telephone: (919) 807-7500
Fax: (919) 807-7647
http://www.ncauditor.net
AUDITOR’S TRANSMITTAL
June 11, 2018
The Honorable Roy Cooper, Governor
The General Assembly of North Carolina
The Honorable Jan G. Kennedy, New Hanover County Clerk of Superior Court
This report presents the results of our financial related audit at New Hanover County Clerk of
Superior Court. Our work was performed by authority of Article 5A of Chapter 147 of the
North Carolina General Statutes and was conducted in accordance with the performance
audit standards contained in Government Auditing Standards, issued by the Comptroller
General of the United States.
The results of our audit identified a deficiency in internal control and an instance of
noncompliance that is considered reportable under Government Auditing Standards. This
item is described in the Audit Findings, Recommendations, and Responses section of this
report.
North Carolina General Statutes require the State Auditor to make audit reports available to
the public. Copies of audit reports issued by the Office of the State Auditor may be obtained
through one of the options listed in the back of this report.
Beth A. Wood, CPA
State Auditor
PAGE
B
ACKGROUND........................................................................................... 1
A
UDIT OBJECTIVES AND SCOPE ................................................................. 2
M
ETHODOLOGY ........................................................................................ 3
R
ESULTS AND CONCLUSIONS ..................................................................... 4
A
UDIT FINDINGS, RECOMMENDATIONS, AND RESPONSES ............................ 5
O
RDERING INFORMATION .......................................................................... 7
TABLE OF CONTENTS
Beth A. Wood, CPA
State Auditor
Article V, Chapter 147 of the North Carolina General Statutes, gives the Auditor broad powers to examine all books,
records, files, papers, documents, and financial affairs of every state agency and any organization that receives public
funding. The Auditor also has the power to summon people to produce records and to answer questions under oath.
1
B
ACKGROUND
As authorized by Article 5A of Chapter 147 of the North Carolina General Statutes, we have
conducted a financial related audit at New Hanover County Clerk of Superior Court. There
were no special circumstances that caused us to conduct the audit, but rather it was
performed as part of our effort to periodically examine and report on the financial practices of
state agencies and institutions.
The voters of each county elect a Clerk of Superior Court for a four-year term. Clerks are
responsible for all clerical and record-keeping functions of the superior court and district
court. The Clerks’ Offices collect, invest, and distribute assets in a fiduciary capacity. For
example, the Clerks’ Offices collect fines and court costs, hold cash and property bonds,
administer estates on behalf of minors, and distribute resources to governmental and private
parties as required.
The North Carolina Administrative Office of the Courts (NCAOC) provides statewide support
services for the courts, including court programs and management services; information
technology; human resources services; financial, legal, and legislative support; and
purchasing services. In addition, the NCAOC prepares and administers the court system's
budget.
2
A
UDIT
O
BJECTIVES AND
S
COPE
The general objective of this financial related audit was to identify improvements needed in
internal control over selected fiscal matters. Management is responsible for establishing and
maintaining effective internal control. Internal control is a process designed to provide
reasonable assurance that relevant objectives are achieved. Errors or fraud may
nevertheless occur and not be detected because of the inherent limitations of internal
control. Also, projections of any evaluation of internal control to future periods are subject to
the risk that conditions may change or that compliance with policies and procedures may
deteriorate. Our audit does not provide a basis for rendering an opinion on internal control,
and consequently, we have not issued such an opinion.
Our audit scope covered the period July 1, 2017 through February 28, 2018. During our
audit, we considered internal control related to the following objectives:
Cash – The Clerk’s Office collects various fines, fees, and court costs daily, as well
as collections for bonds, judgments, and other matters. We examined internal
controls designed to ensure that the Clerk properly safeguards and accounts for cash
receipts. We also examined internal controls designed to ensure compliance with
laws and regulations related to depositing cash receipts. During the audit period, the
Clerk collected $34,413,002 in cash.
Estates – The Clerk’s Office ensures all estates are charged an application fee plus
an assessment based on the value of the estate’s inventory. An estate inventory is to
be filed by the representative of the estate. We examined internal controls designed
to ensure that the Clerk properly obtains an inventory for each estate in compliance
with laws and regulations. We also examined internal controls designed to ensure
compliance with laws and regulations related to the appropriate assessment and
collection of estate fees. During the audit period, the Clerk collected $388,558 in
estate fees.
Bond Forfeitures – The Clerk’s Office ensures that all motions or orders to set aside
bond forfeitures meet specified criteria and are supported by required documentation.
We examined internal controls designed to ensure compliance with laws and
regulations related to the processing of these bond forfeitures. During the audit
period, $1,504,949 in bond forfeitures were set aside.
Escheats – The Clerk’s Office transfers abandoned property to the State. The
transfer results when the person legally entitled to the property fails to make a valid
claim on the property within a prescribed period of time. After that time, all
abandoned property held by the Clerk is required to be transferred to the North
Carolina Department of State Treasurer. We examined internal controls designed to
ensure that the Clerk properly identifies escheatable funds. We also examined
internal controls designed to ensure compliance with laws and regulations related to
escheating unclaimed funds after a prescribed period of time. During the audit period,
the Clerk transferred $427,124 in escheats to the State Treasurer.
3
M
ETHODOLOGY
To accomplish the audit objectives, auditors gained an understanding of the Clerk’s internal
control over matters described in the Audit Objectives and Scope section of this report and
evaluated the design of the internal control. Auditors then performed further audit
procedures consisting of tests of control effectiveness and/or substantive procedures that
provide evidence about our audit objectives. Specifically, auditors interviewed personnel,
observed operations, reviewed policies, analyzed accounting records, and examined
documentation supporting recorded transactions and balances, as considered necessary in
the circumstances. Whenever sampling was used, we applied a nonstatistical approach, but
chose sample sizes comparable to those that would have been determined statistically. As a
result, we were able to project our results to the population as applicable but not quantify the
sampling risk. This approach was determined to adequately support audit conclusions.
As a basis for evaluating internal control, we applied the internal control guidance contained
in professional auditing standards. As discussed in the standards, internal control consists of
five interrelated components: (1) control environment, (2) risk assessment, (3) control
activities, (4) information and communication, and (5) monitoring.
We conducted this audit in accordance with the performance audit standards contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
4
R
ESULTS AND
C
ONCLUSIONS
Based on the results of audit procedures described in the Methodology section of this report,
auditors identified a deficiency in internal control and instance of noncompliance that is
considered reportable under Government Auditing Standards. This item is described in the
Audit Findings, Recommendations, and Responses section of this report. Management’s
response is presented after the audit finding. We did not audit the response, and
accordingly, we express no opinion on it.
5
A
UDIT
F
INDINGS
,
R
ECOMMENDATIONS
,
AND
R
ESPONSES
UNTIMELY TRANSFER OF UNCLAIMED FUNDS TO THE STATE TREASURER
The Clerk’s Office did not transfer unclaimed funds to the North Carolina Department of
State Treasurer (Treasurer) in accordance with state law. During the audit period, the Clerk’s
Office transferred 915 unclaimed items totaling $427,124 to the Treasurer.
Auditors examined 66 of 915 unclaimed items totaling $125,049 that were transferred to the
Treasurer during the audit period. Nineteen (29%) of the items should have been transferred
in prior years. Specifically,
• Eighteen (27%) items totaling $3,018 in unclaimed funds should have been
transferred to the Treasurer during the periods 2013-2016.
• One (2%) item totaling $200 should have been transferred to the Treasurer in 2011.
As a result, the return of unclaimed funds to the rightful owners was delayed. Additionally,
there was a potential loss of earnings on the Unclaimed Property Fund, or Escheats Fund. A
loss of Escheats Fund earnings reduces the amount of funds available for transfer to the
North Carolina State Education Assistance Authority which provides loans and grants to
worthy and needy North Carolina students attending state-supported colleges and
universities.
According to the Clerk, the items were transferred late because employees did not
understand the North Carolina Administrative Office of the Courts (NCAOC) policies and
procedures for timely submission of unclaimed funds to the Treasurer.
North Carolina General Statute 116B-60(d) and the North Carolina Clerk of Superior Court
Escheats Manual, Section C2, sets forth the process by which the Clerks determine that
unclaimed funds are eligible for delivery to the Treasurer, and the act of transferring such
funds to the Treasurer at the appropriate time.
Recommendation: The Clerk’s Office should follow state law and the North Carolina Clerk of
Superior Court Escheats Manual to ensure the timely transfer of all unclaimed funds to the
Treasurer. Additionally, the Clerk should contact NCAOC to ensure all employees receive
proper training in the timely transfer of unclaimed funds.
Clerk’s Response: See page 6 for the Clerk’s response to this finding.
6
R
ESPONSE FROM
N
EW
H
ANOVER
C
OUNTY
C
LERK OF
S
UPERIOR
C
OURT
This audit was conducted in 204 hours at an approximate cost of $21,012.
7
ORDERING INFORMATION
COPIES OF THIS REPORT MAY BE OBTAINED BY CONTACTING:
Office of the State Auditor
State of North Carolina
2 South Salisbury Street
20601 Mail Service Center
Raleigh, North Carolina 27699-0600
Telephone: 919-807-7500
Facsimile: 919-807-7647
Internet: http://www.ncauditor.net
To report alleged incidents of fraud, waste or abuse in state government contact the
Office of the State Auditor Fraud Hotline: 1-800-730-8477
or download our free app.
https://play.google.com/store/apps/details?id=net.ncauditor.ncauditor
https://itunes.apple.com/us/app/nc-state-auditor-hotline/id567315745
For additional information contact:
Brad Young
Director of External Affairs
919-807-7513