Blunders yield bonanza

By Brian Eckhouse

Thursday, May 15, 2008 | 2 a.m.

Shoddy accounting by a government usually drains coffers. But the mishandling of one particular fund for more than a decade produced a windfall of extra interest on millions of dollars for the county.

Here’s how: When attorneys filed lawsuits, they had to put down deposits as earnest money. If a case closed before a jury was empaneled, the deposit was supposed to be promptly returned. But in many cases, months or sometimes years passed.

For more than a decade, the county reaped extra interest off these unreturned deposits, though court officials are unsure how much. They attribute the uncertainty, in part, to other money that went into the same fund, including fees for appealing cases to the state Supreme Court and dollars for pending settlements of cases. From 2000 to February of this year, the courts’ trust fund account at Nevada State Bank netted $5.4 million in interest, and state law says the government gets to keep the interest on deposits not tied to judgments.

Chuck Short, chief executive of District Court in Clark County, assumed control of the fund in January 2007 and is still working to reconcile the overdue refunds, the amount of which remains uncertain.

Short describes the fund as “the most difficult and complicated financial bowl of spaghetti I’ve ever encountered.”

He brought in an outside auditor to help him, at a cost of $275,000, and he persuaded the state Supreme Court to suspend deposits. The logic: Of the 4,000 civil cases filed each year, on average only 150 make it to trial, so why devote so much staff time to soliciting and then refunding deposits for disputes that probably won’t require a jury?

The fund used to be the responsibility of the Clark County clerk, but the state Supreme Court approved a December 2006 request by Chief District Judge Kathy Hardcastle to shift it to Short. The high court’s approval effectively limited the functions of the county clerk to handling marriage licenses, fictitious business names, notary bonds and passports.

That left Short and other court officials trying to make sense of a trust fund that he says “wasn’t managed properly” for at least 15 years. They found, for example, that the county clerk’s office had duplicated repayments totaling about $800,000. Most of that, about $795,000, has since been recovered. The remaining $5,000 probably is unrecoverable; the duplicate check went to a company that no longer exists, according to court records.

Court officials say they also discovered that the office of the current county clerk, Shirley Parraguirre, had been on the verge of giving out an additional $4.96 million that had already been returned. Short also is trying to determine whether duplicate repayments were made totaling as much as $26 million, money dispensed during the last quarter of 2006 — the final quarter in which Parraguirre handled the account.

Parraguirre attributes the enormous amount of those final reimbursements to a hope she could leave the fund in as good a condition as possible upon the transfer, as well as a discovery by information specialists of old cases that had been locked in Blackstone, the county’s case management computer system.

“We just kind of put every available resource we could find to get it done,” she says.

About 85 percent of the pending cases have been reconciled in the past year, Short says. He expects another large chunk of active cases will be resolved by July 1, but court officials believe about 100 others will require more time to investigate.

Short says that as far back as the late 1990s he heard rumblings about possible problems with the trust fund. Parraguirre recalls his warning her shortly after she was elected in 1999 that she was “going to inherit a mess.”

Luckily for the county, the lawyers never made a stink about the withheld deposits to Parraguirre, she says. Some officials suspect many lawyers just ate the cost of the deposits because they were usually relatively small, just $120 per case for a long period. But “who knows who fronted them, the attorneys or their clients,” Parraguirre says. Several prominent civil attorneys say they had no idea the trust fund remains unreconciled; they said they were not affected by it.

Court officials say the sloppy bookkeeping began under Parraguirre’s predecessor, Loretta Bowman, who was county clerk for more than 30 years.

After Parraguirre replaced her, her office began refunding hundreds of overdue $120 checks.

“It’s not like money sat there for 10 years,” says Diana Alba, the assistant county clerk. “We had a very active account.” Whenever attorneys asked for their deposits back, checks were immediately cut, Parraguirre says.

But although at least 400 checks were sent out most months, the problem wasn’t minimized. Instead, it grew as the number of filings surged, county officials say.

“The clerk’s office explained to us that they couldn’t get the details out of Blackstone,” says Jeremiah Carroll, director of the county’s audit department. Blackstone is frequently criticized as inefficient, and county officials have been saying for years that a replacement is on the way.

Blackstone’s records also didn’t align with the county clerk’s other ledger of the deposits: stacks of index cards. Short found Blackstone reported 10,500 active cases, while the index cards totaled 10,000.

The scope may have been surprising, but the problem wasn’t. County auditors had documented the unreconciled ledgers in at least two audits, most recently in 2001.

“As it kept going on, it got to the point where you couldn’t figure out where it was,” Carroll says of the amount the county owed.

Some index cards were misplaced, and some may still be missing. Court officials recently found 74 deposit cards in a box in the evidence vault.

“It’s just incredible that staff keeps finding stacks of information in various places,” Chief Judge Hardcastle wrote in a recent court magazine.

Parraguirre has acknowledged there could have been “tighter controls, more intricate oversight, greater emphasis placed on these processes ... but certainly at a cost to other operational areas.” But she believes she could have reconciled all the accounts in the fund years ago if the county had given her outside help, as it has with Short.

Parraguirre, however, did more to try to fix the problem than her predecessor, Bowman, did, according to court officials. Attorneys say it was customary for Bowman to wait out multiple requests from attorneys before returning their deposits.

“Did she do it intentionally? Let’s put it this way: She wasn’t fast,” attorney Kermitt Waters says. “Shirley would do it quickly.”

Efforts to reach Bowman were not successful.

Waters believes the whole mess could have been avoided had state law mandated that such interest belonged to attorneys or their clients, as is widely the case outside Nevada.

(Editor's Note: This story has been modified. In an earlier version, the headline read, "County blunders yield bonanza" and the second sentence in the first paragraph read, "But the county's mishandling of one particular fund for more than a decade produced a windfall of extra interest on millions of dollars for the county." In both instances, the word, "county," was taken out. In addition, the original version referred to "Blackstone" as the county's case management system, instead of the District Court's case management system.)