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Court bank account source of deficiencies in city audit

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The fiscal year 2020 audit for the city of Roswell contained several findings against the city, and one of the most significant of them spurred discussion at last week’s city council meeting regarding the constitutional separation of powers of the municipal court and the other branches of local government.

The Roswell City Council heard reports from city staff at Thursday’s meeting detailing how the findings will be corrected and voted to accept the audit, as required by the New Mexico Department of Finance and Administration. The vote was 10-0.

Two of the most significant findings in the audit, conducted by Pattillo, Brown and Hill of Albuquerque, centered around the Roswell Municipal Court. The audit discovered the court opened a bank account without following city policy, specifically that the Finance Department is responsible for city bank account management and the city council must approve signatories on bank accounts. The finding was labeled as a significant deficiency.

The audit also found the municipal court clerk was an authorized signer on the bank account. Because the court clerk is also responsible for maintaining the court’s financial records, the audit declared that a lack of segregation of duties, a material weakness.

“Performing these functions causes a breakdown of internal controls over the Municipal Court accounting,” the audit said.

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The audit did not find any fraudulent activity concerning the bank account, but noted having the same person maintain financial records and be a signer on the court’s bank account increased the risk of fraud or of detecting errors in a timely fashion.

Finance Director Janie Davies told the city council the court has agreed to remove the court clerk as a signer on the bank account and place another court employee as a signer.

“I will also be meeting with them and going over their internal control of segregation of duties, and that will be completed by July 1,” Davies said.

Regarding the bank account itself, the auditors recommended the account be closed. However, city staff will request a modification to the Finance Department Operational Procedures and Policies to allow the account, Davies told the council.

The proposed change will specify the Finance Department is responsible for management of all bank accounts except for the Municipal Court but the finance director will have viewing access to the court’s account, Davies said.

Prior to the account being opened, City Manager Joe Neeb reported, Municipal Court would give funds it received for fines, fees and other revenue to the Finance Department on a daily basis. No one from Municipal Court could write checks from any city accounts.

“They would remit the money into our city account, and they would request us to write certain checks for the benefit of the court,” Neeb said.

Municipal courts are allowed to handle their finances through either method, City Attorney Parker Patterson said. If the court has its own bank account, state statute requires funds to be transferred to the municipal treasury by the 10th of each month.

“In the past, different judges have every day given it to the municipality. The current judge went a different way,” Patterson said of Municipal Judge Joseph Sesky. He was appointed to the bench in August 2019 and won the March 2020 election for the position.

Local governments, like the state and federal level, are comprised of three branches. Municipal court is the judicial branch, the city council is the legislative branch and the mayor and city manager are the executive branch.

“The issue here is that … because the court is the judicial branch of the municipality, it’s not like other departments within the municipality. He does have that independent constitutional authority to run his day-to-day operations without interference by the city administration,” Patterson said.

Councilor Jeanine Best questioned the city’s liability regarding its financial and service support for the court, especially after Neeb said a court employee was the only person who did not sign an acknowledgement of receiving training to correct one of the other findings in the audit.

In that finding, the auditor found that in two of 25 transactions it tested, purchase orders for goods and services had been dated after the vendor’s invoice dates. Purchase orders are to be approved before the goods or services are acquired from a vendor. The transactions in the finding totaled $375.

In her report, Davies said all city staff that handle purchase orders had received mandatory training to correct the issue.

Neeb confirmed a court employee had received the training but had not signed the acknowledgment form. He did not say who the employee was or name the position.

Neeb said the employee not signing the form is because Sesky wants to maintain the separation between the city and municipal court.

“And this is a legal thing? The court can do whatever the heck they want? Why should we supply them with a building other than they’re paying for it?” Best asked.

“The municipal court is a unique entity in our entire governmental system in that they are part of the municipality and yet at the same time are an independent entity,” Patterson said. “The city administration doesn’t tell the judge what to do any more than President Biden tells Chief Justice Roberts what to do. They’re an independent entity that has to control their own day-to-day operations, and it would be a violation of the separation of powers for the city administration to get involved in how the court operates.”

That separation of powers is in the state constitution and has been upheld by the New Mexico Supreme Court, Patterson said.

The tricky part, he said, is that unlike other courts, municipal courts do not have their own departments such as human resources, finance or purchasing and must rely on the city for those services.

In addition, Neeb said, the court does not generate its own money to cover operating costs. The city provides funding for the court through the general fund and gross receipts taxes, he said. In the current fiscal year, the city has budgeted $725,000 for court personnel and operating costs. For fiscal year 2022, the city has budgeted $767,800.

“It needs the guidance and help of the city administration, but at the same time it has to chart its own course in order to maintain that constitutional division,” Patterson said. “Where exactly that line is, we are trying to work that out. It’s a give-and-take on both sides.”

Best asked about the city’s liability in that support for the court, such as if the city sends an incorrect paycheck or wrong paycheck to a municipal court employee.

“Are we getting paid for our services, and is there a contract saying that we are rendering those services, they’re paying for it, we’re not held liable if that paycheck doesn’t get to where it needs to?

“I’m having a little bit of an issue here because liability is a big thing. This is a big liability,” she said.

“I would agree with that, councilor,” Patterson said.

Best asked what could be done about the liability. Neeb answered the city is working on building controls.

“We are building the controls so that both entities are protected and covered. We just haven’t built them all because this is fairly new for all of us. This is the first judge that has asked to participate in the manner that they’re legally allowed to,” Neeb said.

Councilor Jacob Roebuck noted the municipal court judge is an elected official, not a city employee, and therefore accountable to the public.

“Ultimately I think we need to be careful that we respect the will of the people in this case. They put that judge in place and if they decide to change that judge when the election comes up so be it. It doesn’t mean I don’t appreciate the staff working on proper controls. The judge doesn’t work for us, the judge works directly for the people of the community of Roswell,” he said.

City/RISD reporter Juno Ogle can be reached at 575-622-7710, ext. 205, or reporter04@rdrnews.com.