Cortez Masto audited

Report says state attorney general illegally declared debts uncollectible

Attorney General Catherine Cortez Masto spoke at a Washoe County Democratic Party picnic during the 2004 campaign.

Attorney General Catherine Cortez Masto spoke at a Washoe County Democratic Party picnic during the 2004 campaign.

Photo By Dennis Myers

The audit can be read here.

Nevada Attorney General Catherine Cortez Masto has been accused in a state legislative audit of writing off as bad debts money owed to the state, something she had no authority to do.

Under Nevada Revised Statute 353c.220(1), only the Nevada Board of Examiners can approve such an action. Paradoxically, the attorney general is a member of that three-person board.

“The [Attorney General’s] Office does not have an effective or efficient system in place to manage its accounts receivable,” the audit report read. “While about $1.8 million in accounts receivable were reported to the [state] Controller’s Office at December 31, 2007, these balances were neither complete nor accurate. Further, collection was not pursued for about half of the accounts we reviewed.”

The amount involved was not cited by the audit because of the difficulty auditors had in tracking funds through various accounting systems and spreadsheets.

“Reporting the value of outstanding accounts is an important element of an effective receivable system. However, the [Attorney General’s] Office cannot readily determine all receivables due and stated balances are not always accurate. The [Attorney General’s] Office maintains several independent receivable ledgers, but its maintenance of accounts related to extradited felons is cumbersome and inefficient. As a result, a listing or aging of accounts was not able to be provided. Further, several balances reviewed on other ledgers were inaccurate because payments were posted incorrectly. Because of these weaknesses, reports submitted to the Controller’s Office detailing the [Attorney General’s] Office accounts were understated.”

A report in the Las Vegas Review-Journal—the only media entity in the state that covered the audit—gave an $8 million figure for the amount of money involved, but Legislative Auditor Paul Townsend called that figure “inaccurate.” He said the figure probably came up because of a question at a meeting of the legislative audit committee where the audit was presented. Townsend said someone asked for a total figure, and $8 million was offered, but that was the total of all accounts, not just of those written off as bad debts. Townsend said the bad debt figure would probably be in the thousands, not the millions.

The report said Attorney General “fiscal staff removed 12 receivable accounts from state records with approval from senior management. However, state law requires the Board of Examiners designate the debts as uncollectible prior to this occurring.”

In an interview, Cortez Masto said of the 12 accounts that they have not actually been written off “in budgetary terms.”

“But if the defendant were to come back and pay us now, we would take it,” she said. “So we haven’t written it off in terms of a budgeting account, written off a bad debt.”

A principal issue in the audit is the cost of extraditing accused individuals to Nevada. That cost is billed to an accused person if he or she is convicted. Some prisoners have assets, but many such billings would obviously be difficult to collect.

Where the audit said the office had been too quick to write off bad debts, in the field of extraditions it was too slow. The report said the attorney general did not write off some debts (with or without Board of Examiners’ permission) that appeared to call for it, allowing them to linger on in ledgers.

“The [Attorney General’s] Office’s extradition database has over 14,000 records dating back to the 1980s. Because these receivables are due from individuals wanted on felony warrants, collection may be difficult and impractical. Furthermore, the whereabouts of these individuals may not be known. Yet, the [Attorney General’s] Office has not identified any of these accounts for write-down or write-off.”

The auditors’ report seemed to suggest that either some or all of the money written off may not have been truly uncollectible since little effort had been made to collect it. Some accounts were apparently routinely written off: “Collection of outstanding receivable balances can be improved. Our analysis indicated the [Attorney General’s] Office performed little or no routine collection efforts on 16 of the 30 accounts” selected randomly for scrutiny.

The problem of the confused process came up more than once in the report.

“When information regarding extradition receivables is maintained, the database is not organized in a manner that allows the [Attorney General’s] Office to determine the total outstanding at any given time. For instance, the database does not account for payments that have been made. Over 2,500 payment files are maintained in individual spreadsheets and must be matched to the database to determine the amount currently owed. Furthermore, some account balances are maintained in a comment field that have [sic] to be manually reviewed to determine the appropriate balance. With over 14,000 accounts in the database, manual review of each account to determine the appropriate balance is a cumbersome and inefficient process.

“Futhermore, controls over other types of receivables did not ensure balances were correct. About 20 percent of the receivable accounts we reviewed were improperly stated in accounts receivable ledgers.”

It was not only in the area of extraditions that these kinds of problems existed, according to the audit report, which found a lack of vigor in pursuing collections of unpaid debts—though the audit did not address the lack of staff provided to the attorney general for the purpose of collections.

“As of December 31, 2007, a significant portion of the outstanding receivable balances were due from non-state government agencies for general and auto liability that were billed in September and October of 2007. Even though these accounts should be easier to collect than other receivables, several entities did not remit payment until June 2008 or later. This occurred because the collection of accounts was not actively pursued. As a result, we estimate the State lost about $20,000 in interest earnings over this period.”

In Nevada, legislative audits are the equivalent of what are called state audits in other states. Before they are released, the agency being audited is giving an opportunity to respond and that response is published along with the audit.

Cortez Masto’s response, signed by her office’s financial officer, said she “accepted” all recommendations made by the auditors for change. In the text that followed, however, she did not address the issue of the illegality of writing off bad debts without the permission of the Board of Examiners. In an interview she said her acceptance of the recommendations should be read to mean she will go to the Board in the future.

“The Office of the Attorney General,” the response said, “is developing an office-wide procedure for all accounts receivable activity related to bad debt. … This process will centralize the function of monitoring all accounts receivable and include the chief financial officer in all accounts receivable-related activity state wide and unit wide.”

Cortez Masto did not attend the meeting where the audit was presented to state lawmakers, sending her deputy Keith Munro instead.

At the meeting, John Marvel—a Republican whose term of office has already ended but who attended the meeting anyway—was caustic about similarities between operations in Cortez Masto’s office and those for which Cortez Masto is prosecuting Lt. Gov. Brian Krolicki.

“We’ll indict Mr. Munro,” Marvel said—an apparent reference to the indictment of Krolicki’s top aide, Kathryn Besser, along with the lieutenant governor.