Deep in the Ticket Tangle

A new audit suggests Municipal Collections is better at making money than doing its job

Nine months ago, the president of a nationally known collection agency was asked to recall how Municipal Collections Inc. won a contract from the city of Houston to help track down some $60 million in delinquent traffic-ticket fines.

"This thing," he offered, shaking his head in disgust, "stunk right from the beginning."

Now it's taxpayers who are caught downwind of a deal that, according to an audit released this week by City Controller George Greanias, has cost the city close to $1.5 million in lost revenue.

The controller's audit reports that, with the "knowledge and cooperation" of Larry Miller, director of Municipal Courts Administration -- the city department that oversees the ticket collection contract -- Municipal Collections has been paid $672,000 more than it has actually earned as one of two contractors hired to track down and collect on delinquent traffic tickets.

In addition, auditors found that in the two years since Municipal Collections was awarded its contract, city employees have performed roughly $300,000 worth of work for the company -- one of a number of "major contract deviations" allowed by Miller.

The audit of Municipal Collections' contract was initiated by Greanias last November following a story in the Houston Press that raised questions about how Municipal Collections beat out apparently more qualified competitors. Earlier this year, findings flowing from that audit revealed that Bayou City Enterprises, a minority subcontractor working for Municipal Collections, was acting as a "pass through" company, being paid $480,000 for work that was then handed off to, and actually performed by, yet another firm.

After a three-month political standoff, Mayor Bob Lanier removed Bayou City from the city's ticket collection contract. But despite Greanias' urging, the administration has made no effort to seek reimbursement from Bayou City. Similarly, it appears likely there will be no attempt to recoup some $729,000 that the controller believes Municipal Collections should refund to the city.

In another bit of political dejà vu, the city's Legal Department has reprised the role it played in the Bayou City imbroglio by leading the challenge to the controller's latest report. Instead of expressing an interest in checking out what Greanias' audit seems to have uncovered, City Attorney Gene Locke sent the controller a four-page memo that, while agreeing that certain amendments to the ticket collection contract were in order, argued that the city had a legal right to little, if any, reimbursement.

Moreover, the Municipal Courts Administration's director, Larry Miller, has cited the Legal Department's "interpretation" in his response to Greanias' audit, which he says is "in error."

On Monday, during his release of the audit, the controller responded to the Legal Department's memo wryly. "I expect I'll have hair," the smooth-pated Greanias said, "before the Legal Department accepts any audit findings from my office."

The findings in the city controller's study of Municipal Collections' relationship with the city argue that, since being awarded the contract to collect "new warrant" cases (traffic tickets that are less than 210 days delinquent), Municipal Collections has been the happy beneficiary of the city's willingness to ignore -- if not outright manipulate -- the terms of its own contract. For example, the audit discovered that:

* Municipal Collections was assigned tickets before they were actually delinquent. The importance of this is that Municipal Collections was due 28 percent of each ticket assigned to the company that was then paid off. By assigning the company tickets before the 30-day grace period on them had elapsed, the likelihood of the company enjoying a windfall from people who intended to pay their tickets, but were waiting for the last legal minute to do so, was increased. According to the audit, Municipal Collections earned $110,000 in fees for collecting on parking tickets assigned to them before the grace period had elapsed.

* Another $134,000 was paid to Municipal Collections even though the traffic violators involved had squared their debts with the city before collection efforts began. That happened because Municipal Collections incorrectly recorded the "date of first notice" -- the day collection efforts officially begin and the company becomes eligible for a fee. Auditors determined that the actual "date of first notice," which was supposed to be when dunning notices were first mailed, was usually several days later than recorded.

* The audit also suggested that the city is permitting Municipal Collections to collect on tickets that are more than 210-days delinquent, even though Municipal Collections' contract states that such tickets are to be passed along to another contractor. But in some instances, Municipal Collections was allowed to keep tickets for an additional two weeks in order to collect them and earn a fee.

* City employees in the Municipal Courts mailroom were doing work Municipal Collections had agreed to perform under the contract. Auditors estimated the city spent $300,000 processing mail payments that Municipal Collections should have handled.

The collector's audit also shed more light on the curious relationship between Municipal Collections and Bayou City Enterprises, the minority subcontractor that was banished from the collection deal in March for being a "pass through."

The controller's audit revealed that Municipal Collections was tapping a portion of the 19 percent minority set-aside that Bayou City was receiving. Before Greanias stopped payments to Bayou City in December, the subcontractor had paid Municipal Collections a total of $207,000.

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