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Wednesday, May 22, 2024 | Back issues
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California Auditor Criticizes Court Bureaucracy’s Financial Reports

(CN) - California's state auditor concluded in a report released this week that the Administrative Office of the Courts gave the Legislature incomplete and inaccurate financial data. The court's central bureaucracy also filtered information out of the reports inappropriately, said the auditor.

"The AOC's semiannual report was neither accurate nor complete with respect to data from the superior courts," said Auditor Elaine Howle.

The report is not the first time the the auditor has taken on the 800-member bureaucracy at the top of California's sprawling court system. She has blasted the agency repeatedly over its spending practices and reporting to the Legislature, focusing in the past on a software project that racked up hundreds of millions in payments to a private contractor before it was abandoned last year.

In this week's critique, the auditor noted that judicial contract law requires expense reports to the Legislature and the auditor from individual trial courts. The twice yearly reports are supposed to disclose all procurements, purchases from an outside source.

"The six courts we reviewed all use the Phoenix accounting system, administered by the AOC, and the AOC generated the semiannual report we reviewed with input from the courts," said the auditor. "The AOC filtered certain transactions out of the report. In some cases these exclusions were appropriate but in other cases they were not."

"As an example of where these exclusions were inappropriate, the AOC did not report contract activity for court security services, court reporters, and interpreters," said Howle's report.

She said that in order to provide the Legislature with accurate information on how public funds are spent, "The AOC should ensure that its process for extracting data from the courts' common accounting system provides accurate information."

Howle said 12 percent of the records tested in the AOC's report contained errors.

For example, in three of 30 of the AOC's records for Napa's superior court, the central administrative office overstated the amount the court paid for goods and services. The individual amounts involved were small, however, with the largest overstatement coming to $600.

The AOC explained that the errors were caused by "programming" issues in the Phoenix expense tracking software, that have since been corrected.

Howle responded by saying that her office will in the future take a look at the Phoenix system itself.

The Phoenix software to keep tabs on the money flowing through the court system was one of two big software projects by the central bureaucracy for California's courts. The second was the Court Case Management System, a half-billion-dollar debacle that was abandoned last year.

Howle slammed the CCMS project in a massive audit two years ago that found the bureaucrats had exercised "poor management" of the computer project, disguised its true cost, and failed to analyze the needs of the trial courts. She also criticized administrative office leaders for vastly underestimating the projected $1.9 billion cost for finishing the system.

The latest audit of the administrative office's financial accounting focused on six trial courts in Napa, Yolo, Orange, Sacramento, Stanislaus and Sutter counties.

The auditor found that those courts had "adequate to strong" internal controls on their contracts, but some some courts did not bid contracts competitively, did not research multiple vendors or did not properly advertise bids for IT services.

Howle said an amendment to the judicial contracting manual to include a preference for small businesses for IT contracts would bring it more line with the public contract code, which requires such a preference.

"We found that the judicial contracting manual does not require that court entities give preference to small businesses bidding on information technology procurements," she said.

"Because the Public Contract Code includes a small business preference for the acquisition of information technology, we expected that the judicial contracting manual would contain a similar provision," the auditor added. "The absence of such a policy renders the judicial contracting manual inconsistent with the Public Contract Code."

The AOC's legal department responded by saying the small business provisions of the public contract code do not apply to the courts.

Howle answered that she nonetheless expects the judicial code to include a similar policy because consistency with public contract code is required under Judicial Branch Contract Law.

Howle also didn't buy the argument that the courts' administrative office must first consult with the California Technology Agency.

The administrative office and its defenders have relied on the California Technology Agency in the past to challenge criticism from the auditor. In the run-up to the failure of the CCMS software project, the California Technology Agency recommended a private consultant who then supported the project and its estimated completion cost of $1.9 billion -- before the project was killed.

When the auditor criticized the consultant's report as a whitewash that relied on a host of overly positive assumptions, Justice Terence Bruiniers at the time answered, "It is difficult to understand why the Bureau of State Audits would summarily reject a report prepared over the course of several weeks by a recognized international expert in the field recommended by the state technology agency."

In the latest audit, Howle again rejected that defense.

"Regardless of the results of its consultation with the California Technology Agency," said the auditor, "the AOC should develop policies to implement the small business preference for information technology purchases."

That comment comes in the context of a recent decision by a group of trial courts working with the administrative office to approve only three big IT vendors for bidding on lucrative contracts for case management and e-filing systems in California's 58 superior courts.

Those three are all big companies based outside California: New Mexico-based Justice Systems Inc., Thomson Reuters' LT Court Tech and the dominant seller of such systems, Texas-based Tyler Technologies, which was awarded a $3 million contract earlier this year by San Luis Obispo's court.

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