This is a sample copy of the audit report that the CPA firms issue upon completion of a Chapter 7 panel trustee audit.

 

U.S. DEPARTMENT OF JUSTICE

AUDIT
REPORT

name
CHAPTER 7 TRUSTEE
BANKRUPTCY ESTATE ADMINISTRATION

ANYTOWN, ANYSTATE
UST REGION __

Date issued

Name
CHAPTER 7 TRUSTEE
BANKRUPTCY ESTATE ADMINISTRATION

INTRODUCTION

Audit firm, Certified Public Accountants, have completed an audit of the administrative and cash management procedures followed by chapter 7 trustee name. Our purpose was to assess the quality of the trustee’s accounting for bankruptcy estate assets and related cash management practices and procedures. Our review focused on the trustee’s most recent interim reporting period ending ____________. The fieldwork was conducted on _______________ by ___________________.

Scope and Methodology

The audit was performed under an agreement with the Executive Office for United States Trustees (EOUST), in accordance with its Statement of Work. The audit was conducted in accordance with government auditing standards for performance audits, except as noted below.

• The audit report is issued to the U.S. Trustee rather than to the auditee.

• The report contains no recommendations and is issued closed.

• Findings are limited to identification of criteria and conditions.

In our opinion, these departures from government auditing standards have no adverse effect on the audit results.

The scope of the audit generally encompassed a review of the trustee’s: (1) asset administration and case progress review; (2) receipts and disbursements; (3) segregation of duties; (4) banking; and (5) computer operations and file maintenance. The audit did not include a review of the trustee’s automated data processing system as a whole. However, computer generated data was compared to other independent sources. We also tested assets and transactions that occurred during the trustee’s interim reporting period.

At the end of the latest interim reporting period, _________________, the trustee reported a total of ___ asset cases; ____ cases had cash balances totaling $_________ and ____ cases did not have funds. The trustee’s caseload was not confirmed with the Clerk of the Court. Therefore, we cannot provide assurance that all cases assigned to the trustee were accounted for in the interim report.

The cases selected for testing are listed in Appendix I. We contacted the Office of the United States Trustee on January X, 200X. All information provided by the Office was considered in planning the work to be performed during the audit.

Background

Name has served as a trustee under the U.S. Trustee program since ____________. [He] OR [she] [is] OR [is not] currently on the U.S. Trustee’s active rotation for receiving new chapter 7 cases. At the time of our review, the trustee was conducting his/her bankruptcy-related duties from his/her [law office] OR [business office] located at _________________.

Trustee name’s administration of bankruptcy estates was previously audited in ____ by [the Department of Justice’s Office of the Inspector General] OR [an independent CPA firm]. In addition, the U.S. Trustee previously reviewed the trustee’s administration of bankruptcy estates and issued its UST Field Examination Report dated ___________. [The findings previously reported did not recur in the current audit.] OR [Previously reported weaknesses were found again in the current audit. These findings are so identified in the main body of the report.]

AUDIT RESULTS

In our opinion, the trustee’s accounting and cash management practices and procedures were adequate for the safeguarding of bankruptcy estate funds in accordance with the Handbook for Chapter 7 Trustees, except for:

• __________________________________________
• __________________________________________
• __________________________________________

Our opinion is based on the transactions tested. Our audit was more limited than would be necessary to express an opinion of the trustee’s bankruptcy operations as a whole. However, aside from the preceding, nothing came to our attention for the transactions not tested to indicate that the trustee’s accounting and cash management practices were not adequate. The items listed above and other findings are discussed in the following sections of this report and are listed in Appendix IV.

Asset Administration and Case Progress Review

We reviewed the assets and cases listed on Appendix I and found that the trustee’s asset administration and case progress review procedures were in compliance with the Handbook for Chapter 7 Trustees.

or

We reviewed the assets and cases listed on Appendix I and found that the trustee’s asset administration and case progress review procedures were generally in compliance with the Handbook for Chapter 7 Trustees, except for the following:

1. The trustee’s system for reviewing case progress did not indicate the date of the trustee’s review (Handbook page 8-42). While we were able to determine that the trustee was periodically reviewing case progress, we could not determine that the review was performed at least quarterly. The trustee stated that he will document his timely performance of the case progress review in the future.

2. In case XX-XXXXX (__________), we noted that the trustee failed to actively pursue collections for an account receivable in the amount of $________ (Handbook pages 8-10, 9-18 to 9-19). Per discussion with the trustee, he/she believes that the account receivable is collectible. However, a demand letter was not sent as of the date of fieldwork; the case was filed on __________. The trustee explained that he/she plans to file suit ______________; however, he/she acknowledged that a letter should have been sent shortly after he/she was named trustee to the case.

3. In case XX-XXXX (_________), the following assets listed on the petition were not recorded on Form 1: cash, office equipment and furnishings, and inventory (Handbook pages 9-9, Forms-3 to 4). This type of weakness was reported in the prior UST Field Examination. The trustee made the corrections and provided a new Form 1 during our field work.

Receipts and Disbursements

We reviewed ____ receipts and ___ disbursements and found that the related internal control, record keeping, and financial reporting requirements were in compliance with the Handbook for Chapter 7 Trustees.

or

We reviewed ____ receipts and ___ disbursements and found that the related internal control, record keeping, and financial reporting requirements were in compliance with the Handbook for Chapter 7 Trustees, except for the following:

4. In case XX-XXXXX (__________), the auctioneer remitted funds net of the auctioneer commission without court order (Handbook page 8-27). The trustee advised that this was the first time the trustee used this auctioneer and will advise the auctioneer that this practice can only be used if specifically authorized by court order.

5. In case XX-XXXXX (_________), a November 21, 2004 receipt in the amount of $10,000 for the settlement of a fraudulent conveyance action did not appear on Form 1. Additionally, no asset reference number and no Uniform Transaction Code were recorded for this receipt on Form 2. The correct asset reference number is #15. The correct UTC is 1241-000. (Handbook pages Forms-6 and Forms-9). The trustee acknowledged the finding.

6. Four of the ____ receipts reviewed were not recorded on the receipts log. This type of weakness was reported in the prior UST Field Examination. (Handbook page 9-1).

XX-XXXX1 MMDDYY $_______ XX-XXXX2 MMDDYY $_______
XX-XXXX3 MMDDYY $_______ XX-XXXX4 MMDDYY $_______

These receipts were received directly by the trustee at § 341(a) meetings and did not come through the mail. The trustee agreed that these receipts should have been included on the receipts log.

Segregation of Duties

We reviewed the segregation of duties within the trustee’s office, including the matrix provided by the trustee (and reproduced herein at Appendix II), and found that the trustee operation was in compliance with the requirements set forth in the Handbook for Chapter 7 Trustees.

or

We reviewed the segregation of duties within the trustee’s office, including the matrix provided by the trustee (and reproduced herein at Appendix II), and found that the trustee operation was in compliance with the requirements set forth in the Handbook for Chapter 7 Trustees, except for the following:

7. Trustee Assistant #1 performed some of the duties that the trustee is required to perform per the Handbook at page 9-13. Specifically, the assistant opened the bank statements and reviewed the statements and canceled checks for unusual items before giving them to the trustee to review. In addition, the assistant was responsible for setting up passwords and changing security access controls for the trustee’s computerized case management system. The trustee said he/she was not aware that these functions must be personally performed by the trustee.

Banking

The trustee’s internal controls and procedures relating to bank accounts were in compliance with the Handbook for Chapter 7 Trustees.

or

The trustee’s internal controls and procedures relating to bank accounts were in compliance with the Handbook for Chapter 7 Trustees, except for the following:

8. In case XX-XXXXX (___________), funds totaling $96,000 have been on deposit in a savings account for 18 months (Handbook page 9-3). The trustee should have considered higher yielding investments. During fieldwork, the funds were invested in a certificate of deposit.

9. In case XX-XXXXX (__________), we noted that the December 31, 2004, bank reconciliation omitted a significant reconciling item. The $750 item cleared the bank but was not recorded on Form 2. (Handbook pages 9-10, 9-14, and Forms-8). The trustee said he/she would investigate and make the appropriate corrections. Further, the trustee said that he/she would ensure that all reconciliations were complete in the future.

Computer Operations and File Maintenance

Computer operations and file maintenance were in compliance with the requirements stated in the Handbook for Chapter 7 Trustees. Access to, and use of, the ______________ software is controlled according to the computer access matrix at Appendix III.

or

Computer operations and filed maintenance were generally in compliance with the requirements stated in the Handbook for Chapter 7 Trustees, except for the following:

10. We noted that the trustee did not develop or maintain a comprehensive written disaster recovery plan for estate financial and administrative records and for the computer system data (Handbook page 9-23). The trustee explained that there are ways to recover the records; however, the procedures are not documented. The trustee is currently in the process of writing a plan.

11. The Chapter 7 computer records were not backed-up daily (Handbook page 9-21). The computer records were backed-up weekly and a copy was stored off-site.

Access to, and use of, the ______________ software is controlled according to the computer access list in Appendix III. However, as previously noted, the ability to set up and change passwords and other access controls is not limited to the trustee. See Finding # 7.

Views of Responsible Officials

During our audit and particularly at the exit conference, we solicited the comments of the trustee. His/her comments have been incorporated into the appropriate sections in the body of the report.

CASE AND ASSET SAMPLES

The following cases and assets/dispositions were reviewed:

	Case Number	Case Name	Asset/Disposition
1.	XX-XXXXX	Any Name	Preference Claim/Settlement
2.	XX-XXXXX	Any Name	Real Estate/Auction To be Held
3.	XX-XXXXX	Any Name	Accounts Receivable/Fully Collected
4.	XX-XXXXX	Any Name	Real Estate/Abandoned
5.	XX-XXXXX	Any Name	Tax Refund/To Be Collected
6.	XX-XXXXX	Any Name	Furnishings & Fixtures/Abandoned
7.	XX-XXXXX	Any Name	Automobile/Held For Sale
8.	XX-XXXXX	Any Name	Rents/Collection
9.	XX-XXXXX	Any Name	Fraudulent Conveyance/Under Investigation
10.	XX-XXXXX	Any Name	Collectibles/Auction Held
11.	XX-XXXXX	Any Name	Accounts Receivable/Partially Collected
12.	XX-XXXXX	Any Name	Inventory/Under Investigation
13.	XX-XXXXX	Any Name	Personal Injury Action/Awaiting Settlement
14.	XX-XXXXX	Any Name	Investment in Private Company Stock/Under Investigation
15.	XX-XXXXX	Any Name	Bank Account/Fully Collected

SEGREGATION OF DUTIES MATRIX

	Duties	Responsible Persons				Remarks
	Initials:	Trustee
a	Receives mail
b	Opens mail
c	Endorses checks for deposit only
d	Records receipts in receipts log
e	Posts receipts to Form 2
f	Prepares deposits
g	Mails or makes deposits at bank
h	Compares, on test basis, receipts log to bank statements*
i	Prepares disbursements
j	Posts disbursements to Form 2
k	Reviews supporting documents*
l	Authorizes disbursements*
m	Has custody of blank check stock
n	Signs checks*
o	Mails checks
p	Receives unopened bank statements*
q	Reviews bank statements*
r	Opens bank accounts
s	Closes bank accounts
t	Authorizes bank fund transfers
u	Arranges for stop payment orders on checks outstanding over 90 days
v	Authorizes stop payment orders*
w	Verifies payee information on stop payment; promptly re-issues the check
	Reconciles bank statements to:
x	- Form 2
y	- Receipts log
z	Reviews bank reconciliations*
aa	Prepares Forms 1, 2, & 3
bb	Accesses ADP system

COMPUTER ACCESS MATRIX

	User ID	User Name	Remarks
1.
2.
3.
4.
5.
6.

		User’s Access Rating
		1	2	3	4	5	6	Remarks
	Rating; Y= Yes N= No
a.	Security maintenance
b.	Deactivate/reactivate cases
c.	Purge/archive cases
d.	Print checks
	Rating; I = Inquiry only C = Change, add and/or delete
e.	Assets
f.	Claims
g.	Checks
h.	Deposits
i.	Transfers
j.	Adjustments

LIST OF AUDIT FINDINGS

The trustee’s system for reviewing case progress did not indicate the date of the trustee’s review (Handbook page 8-42).

In case XX-XXXXX (__________), we noted that the trustee failed to actively pursue collections for an account receivable in the amount of $________ (Handbook pages 8-10, 9-18 to 9-19).

In case XX-XXXX (_________), the following assets listed on the petition were not recorded on Form 1: cash, office equipment and furnishings, and inventory (Handbook pages 9-9, Forms-3 to 4). This type of weakness was reported in the prior UST Field Examination.

In case XX-XXXXX (__________), the auctioneer remitted funds net of the auctioneer commission without court order (Handbook page 8-27).

In case XX-XXXXX (_________), a November 21, 2004 receipt in the amount of $10,000 for the settlement of a fraudulent conveyance action did not appear on Form 1. Additionally, no asset reference number and no Uniform Transaction Code were recorded for this receipt on Form 2. The correct asset reference number is #15. The correct UTC is 1241-000. (Handbook pages Forms-6 and Forms-9).

Four of the ____ receipts reviewed were not recorded on the receipts log (Handbook page 9-1). This type of weakness was reported in the prior UST Field Examination.

Trustee Assistant #1 performed some of the duties that the trustee is required to perform per the Handbook at 9-13.

In case XX-XXXXX (___________), funds totaling $96,000 have been on deposit in a savings account for 18 months (Handbook page 9-3).

In case XX-XXXXX (__________), we noted that the December 31, 2004, bank reconciliation omitted a significant reconciling item. The $750 item cleared the bank but was not recorded on Form 2. (Handbook pages 9-10, 9-14, Forms-8)

We noted that the trustee did not develop or maintain a comprehensive written disaster recovery plan for estate financial and administrative records and for the computer system data (Handbook page 9-23).

The Chapter 7 computer records were not backed-up daily (Handbook page 9-21).