Business & Real Estate

Grand jury: Sacramento County debt collection ‘dysfunctional, inefficient and costly’

Sacramento County is doing a poor job of collecting debt, a grand jury report contends.
Sacramento County is doing a poor job of collecting debt, a grand jury report contends. Bay Areas News Group/Bee file

In a scathing report, the Sacramento County grand jury found that the county’s debt collectors have failed to recover hundreds of millions of dollars and mishandled thousands of payments they did receive.

The jury of 19 county residents criticized the Department of Revenue Recovery for lack of effective management, implementing a flawed software system and obstructing auditors. Outstanding debt owed to the county rose from $370 million in 2008 to $658 million in 2015, while collections stagnated at around $40 million per year despite the installation of an expensive computer system intended to increase revenue, according to the report issued at the end of June.

“The analysis revealed that these poor collection results were the direct outcome of management failing to focus its efforts on reducing the outstanding debt, as well as the impact of the dysfunctional Debt Management and Collection System,” the report states.

The Department of Revenue Recovery has 57 employees who collect victim restitution, court-ordered fines and other fees owed to the county. They are not responsible for child support or property taxes.

County spokeswoman Chris Andis said the department is reviewing the report and will submit a point-by-point response to the findings by the Sept. 29 deadline.

Marti Overton, the jury foreperson, said the Board of Supervisors and the county need to address problems with the revenue recovery operation.

“I see it as our most significant report this year,” she said. “It’s a really complicated, complex issue.”

In 2009, the county began using its Debt Management and Collection System (DMACS), custom-built software that was supposed to improve the debt collection process.

According to the report, the Department of Revenue Recovery collects about 6 percent of outstanding debt per year. As proposed, the DMACS project was supposed to elevate the collection rate to between 32 percent and 38 percent of outstanding debt by 2011.

The DMACS was completed years late and is ineffective, according to the jury report, requiring ongoing maintenance and input from the developer. In the last seven years, the county sank more than $12 million into the system, the report said.

At one point, the jury requested a DMACS report on the annual revenue collected and outstanding debt owed to the county.

“According to IT witness testimony, this report was not a management tool within the DMACS program,” the report stated. “Moreover, County IT told the Grand Jury that this was the first and only time this report had been requested.”

Controversy has surrounded DMACS since 2011, when The Sacramento Bee reported that the county awarded the DMACS contract to a software developer who had lived with a woman who was instrumental in his selection. The county did not seek other bids for the project and awarded the developer a $4.4 million contract.

Besides failing to collect hundreds of millions of dollars, the county mishandled some payments it did collect.

In at least 53,000 transactions equaling about $5 million, DRR cashiers processed payments without the debtors’ account information, so the debtors never received credit for reducing the amount they owed. The payments went into an Unallocated Trust Account where they stay until debtors dispute their inaccurate account balance, the report said.

DMACS also mistakenly duplicated 12,000 debtor accounts and charged them at least $3 million since 2009 due to what witnesses described as a programming issue, the report said. The jury found that a collection issue is only corrected if a debtor or county agency brings it to the Department of Revenue Recovery’s attention.

“There’s no checks and balances in this system,” Overton said.

Other debtors get away with paying minimal amounts and taking several years to pay off their debts with no consequences, the report said, because payment plan guidelines are inconsistently followed.

On the other end of the spectrum, jurors found that at least $1.4 million in refunds were owed to debtors who overpaid. Witnesses told the jury the department is focused on returning overpayments made after July 2015. But the jury said in its report that the approach “raises serious ethical and potential legal questions” about refunds owed to people who paid before that date.

In a 2014 DMACS review, auditors from the county’s Department of Finance found potential fraud and other financial irregularities within the collections system. DRR management interfered with the auditors’ investigation and no final report was ever submitted to the Board of Supervisors and no discussion was held with county executives, according to the report.

Jurors reviewed policies, procedures and documentation related to the system and an independent technical analysis of its functionality. For witness testimony, the jury interviewed 23 past and present county employees. Overton estimated the investigation spanned 11 months.

The grand jury’s operations are confidential, which limited what details Overton was able to provide about the investigative process.

Ellen Garrison: 916-321-1920, @EllenGarrison