Mercer County Forensic Audit

Final Report
Presented to the Mercer County Executive

Presented by Joseph A. DeLuca Advisory & Consulting Services LLC

September 1, 2023

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 Board Authorizations & Scope of Services

• On January 26, 2023, by Resolution No. 2023-75, the Mercer County (the “County” or the “MC”) Board of
Commissioners called for a full independent forensic audit into the County’s finances.

• On February 21, 2023, by Resolution No. 2023-167, the County Board of Commissioners authorized the
County Executive to execute a professional service agreement with Joseph A. DeLuca Advisory & Consulting
Services LLC (“DeLuca Advisory”) for special forensic audit services for the County. The scope of services
specified in the agreement were:

• Perform an independent forensic audit of County finances and accounts to identify any attempted or
actual embezzlement or misapplication of funds; and
• Assist the County’s newly created Finance Committee in its development of a Committee Charter that
will provide for comprehensive financial oversight of the Finance Department and the County’s
finances.

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 Disclaimer
The New Jersey Office There were matters
of the Attorney General that arose during
(“AG”) initiated an On March 1, 2023, DeLuca Advisory’s
investigation, into DeLuca Advisory forensic audit that
former MC Chief initiated and required additional DeLuca Advisory
Financial Officer maintained contact follow-up beyond the devised a
The forensic audit (“CFO”) David Miller’s with the AG’s office scope of our audit, methodology for
covered the period of (“Miller”) failure to pay
during the course of our authority, and performing the
January 2018 thru payroll taxes that the
County owed to the the forensic audit, ability to access forensic audit. Some
December 2022.
federal and state including the certain key financial factors considered
governments, and his opportunity to review and business records. were:
expiration and lapsing MC records in their Those matters were
of his licensing and custody. referred to the AG’s
certifications for the office on June 28,
position of CFO. 2023.

Large number of MC bank accounts and vendors;

High volume of financial transactions in the bank accounts;

Lack of County records and antiquated financial computer systems; and

Lack of knowledge and relevant experience of MC Finance Department (“FD”) staff.

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 Findings
.
The following are the Findings of the forensic audit related to the County Finance Department during Miller’s tenure:

A. Financial Controls
Lack of
sufficient
Lack of tracking and
adequate accountability
Lack of asset of grants.
separation and management,
Lack of timely transparency tracking, and
reconciliation of accounts accountability.
Lack of and with client
segregation of management agencies.
Lack of duties. of bank
financial accounts.
controls.

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 Findings
The following are the Findings of the forensic audit related to the County Finance Department during Miller’s tenure.

Staff ’s apparent lack of

B. Ethics & Conduct confidence and fear of
retaliation in reporting
issues.
Staff complaints of
workplace issues not
managed in a consistent
manner.
Difficult and inefficient
working environment.

Based on the review of

available documents and
information, there was no
apparent evidence of
attempted or actual
embezzlement or
misapplication of funds by
Miller or his associates.

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 Findings
The following are the Findings of the forensic audit related to the County Finance Department during Miller’s tenure.

Lack of adherence to
C. Operational & Staffing records management
policies, including proper
Lack of Chapter 12 Capital retention and organization
Funding reimbursement of records, transparent data
application through the reporting capabilities and
State of New Jersey. reporting requirements.
Lack of knowledgeable and
experienced staffing related
to financial positions, and
Lack of policies, procedures, filling of vacancies.
and manuals.

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 Forensic Audit Tasks Performed

Documents Reviewed Meetings Conducted

Third party investigative Emails and 4 Other current

reports including NJ Office computer records County staff
of the State Comptroller Annual County 19 Current Finance
of Miller and other including other
Report and Genova Burns audit reports Department staff
Confidential Investigative Finance departments’
Report Department staff representatives

8 Representatives
60 boxes of Miller’s Financial records ( 9 Former Finance from 6 County Legal
records in the General and i.e., vendor
Subsidiary ledgers Department staff and Accounting
custody of the AG’s invoices and Consultants
Office cancelled checks) 4 declined
1 declined

Procurement Board of Former County CFO

County bank Records (i.e., Commissioners’ David Miller
statements vendor files and Meeting Minutes Attempted/No
purchase orders) 2018 – 2022 response

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 Forensic Audit of Bank Accounts

Methodology and Sampling Criteria

For the Current Obtained a listing of Utilized professional Based on the Examination of For all bank
all existing bank conversion software Applied
Account (the results of the transactions accounts under
operating bank accounts with the to convert PDF Sampling Criteria sampling criteria, included review of
County and statements, (examples) review, sent an
account with the 344 transactions supporting Information
requested all Bank containing over
highest volume of Statements for the 73,000 bank • One-time or were examined documentation,
transaction across all including: Request letter to 9
corresponding transactions tied to Low Volume of
activity) of the accounts. Such financial
accounts. the Current Account, High Dollar • Direct Payment
County, obtained into Microsoft excel Amounts transactions institutions with
Vouchers
five-years worth of files for trend • Issuance of included: which the County
(“DPV’s”)
monthly Bank analysis. Duplicate Check • Incoming/ has a relationship,
Statements and • Purchase Orders
An additional 72,000 #’s Outgoing Wire inquiring on the
Cancelled Checks. • Vendor Files
transactions were • Amounts right Transfers bank account
reviewed for 30 • Cancelled signatories,
under • Checks Checks
accounts across 8 thresholds (i.e., beneficiaries,
financial institutions. • Deposits/ • Wire Transfers
$999, $9,999) Withdrawals account status,
• Suspicious and other
transactions information.
• Auditor’s
Judgment

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 Forensic Audit of Bank Accounts/Findings
Bank Account Transactions Examined
Current Account
Other Accounts
Operating account
Average bank account transactions per year were 14,628, or 45 Accounts Across 9 financial institutions
approximately 60 transactions per workday. Total transactions were
73,141. One of nine banks responded to Information Request
letters. The one responding bank noted that, as of July
The 244 sampled transactions from the Current Account consisted of 197 2023, Miller was still listed as the Authorized Signatory
checks and 47 wire transactions. for two accounts with balances of over $3M, as of
December 31, 2022.
Of the 197 check transactions sampled, 107, or 54.3%, had no supporting
documentation. 7 of the sampled transactions, or 3.5%, were not fully Of the 100 sampled transactions tested of the other
supported. The remaining 83, or 42.1%, were properly supported. accounts, 100 of them were wire transactions, which were
also unsupported by any documentation. The Finance
Department staff were unable to provide such
Examples of transactions with no supporting documentation, included documentation.
but were not limited to, vendors, poll/election workers, payroll
deductions, and Medicare reimbursements.
There were 122 monthly bank statements across 29
All of the 47 sampled wire transactions, valued at more than $137M, had accounts. The Finance Department staff were unable
no supporting documentation. The Finance Department staff were to provide such documentation.
unable to provide such documentation.
CONFIDENTIAL - DO NOT DISSEMINATE

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 Forensic Audit
Procurement & Vendor Reviews

Methodology and Sampling Findings Recommendations

Criteria
• Ensure that only active, authorized
• Obtained list of 26,726 County vendors
from the County’s financial management • 23 of the reviewed vendors, or vendors remain in the database and
database. 67.6%, had no transactions disable vendors that are inactive for
• Applied Sampling Criteria to analyze, during the audit period and 18 a pre-determined time period.
including, but not limited to: were still listed as “Active.” • Periodically perform a thorough
• Duplicate vendors • Lack of uniform data input review of the vendor database to
• Use of a P.O. Box as their address policies and practices were used eliminate inactive and duplicate
• Vendors with keywords pertaining to in creating the vendor profiles, vendors.
Miller creating inconsistent data input • Only reactivate a vendor with proper
• Vendors in proximity of Miller’s home methods. supporting documentation and after
• Auditor’s judgement • Based on the review of available proper due diligence.
• Identified 34 vendors for examination and documents and information, no
review of supporting documentation for • Maintain a retrievable record of
each vendor. apparent evidence of attempted deactivated vendors.
or actual embezzlement or • Replace antiquated database and
misapplication of funds. software with modern financial
management system.

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 Areas of Recommended Actions
for Mercer County

Based on the forensic audit findings pertaining to

Compliance Internal Audit

Financial Controls
matters function

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 Recommendations for Maintain supporting
Draft a policy and procedure documentation related to
Mercer County for each major function to wire transfers including the
ensure there is proper amount, date, purpose,
segregation of duties and approvals, bank name,
Financial Controls financial controls account number, and
account name.

Based on the forensic audit Create an organizational

findings pertaining to the Finance Perform a staffing study
structure with clear lines
and create a job
Department Financial Controls, it of authority and reporting
description for each
to leadership and
is recommended that the County stakeholders.
required position.
take the following actions:

Ensure there is sufficient Assign individuals as

staffing so that all required backups to each position to
functions are accomplished ensure all functions can be
timely, properly and with accomplished during
transparency. absences or other vacancies.

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Recommendations for Mercer
County
Internal audit function
Compliance Matters

Whistleblower Policy
Create the position of Chief
Compliance Officer, reporting
directly to the County Executive,
Complaint reporting hotline and investigating
and with reporting responsibilities
complaints of misconduct
to the Finance Committee. This
position would be responsible for
managing: Training of County staff and vendors/contractors
with regards to all of the above

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 Recommendations for
Mercer County Performance Based

Internal Audit Function

Create an Internal Audit function, reporting Capital Operational

to the Chief Compliance Officer, that would Expenditures Reviews
be responsible for performing annual audit
plans based on a risk assessment. These
duties would be performed in conjunction
with the County’s executive management,
departments, outside auditors, other
appropriate stakeholders, and with input
from the Commissioners. The types of
audits could include: Finance Revenue
Management Verification

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 Recommended Next Steps
DeLuca Advisory recommends these future actions
to complete forensic audit steps that could not be completed within the time frame of the forensic audit.

Follow up with Review for any Obtain all missing Follow up with NJ Perform a follow-up
remaining 8 banks to questionable bank statements for Attorney General’s review to ensure
Complete the transactions in all all MC Bank Office regarding its DeLuca Advisory’s
Information Requests bank statements of accounts for the ongoing recommendations are
of bank accounts that MC Bank accounts period of 2018 – 2022 investigation. implemented.
DeLuca Advisory with Miller listed as and review for any
commenced and signatory after his questionable
follow up as needed. departure. transactions.

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 Finance Committee Charter

DeLuca Advisory created a draft Finance Committee

Charter that documents and describes the following key
The core purpose and value of the Finance
factors relating to the Committee: Committee is to provide oversight and
•Function accountability over the County’s financial
•Membership operations, functions, and provide
•Authority guidance and recommendations to
•Meetings and Reports
•Powers and Responsibilities
promote the County’s financial condition.

Draft Charter was submitted to the Chief DeLuca Advisory is available to assist the
of Staff and County Administrator on July County with the finalization and
19, 2023, and will be utilized to formulate implementation of the Charter, and other
the Committee’s final Charter. Committee responsibilities, as needed.

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 Thank you!
Presented by:

JOSEPH DELUCA

https://DeLucaAdvisory.com/
jdeluca@delucaadvisory.com

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