A recent city audit found that Chattanooga City Court has overcharged residents with outstanding traffic tickets or water quality bills by tacking on the collection agency's fee to the cost of the bill.
The practice violates current city ordinance and also resulted in the collection agency, Nationwide Recovery Services, overcharging City Court for its collection fees by $36,000 in 2013, the audit shows.
The city's Internal Audit office also found other negligence in City Court practices in which NRS applied an incorrect commission rate to residents' delinquent water quality fees. The audit also found the process to close a customer's account leaves room "for fraud and loss of revenue."
But City Auditor Stan Sewell said he believes the mistakes were made in good faith and no one intentionally financially gained from the errors.
In part, the oversight was because clerks were unaware of the ordinance that states any collection fees cannot be added to a defendant's judgment cost, Sewell said. This means when a clerk sent a judgment to the collection agency, he or she automatically tacked on the agency's 17 percent fee. Then when the agency billed the court for their services, it billed a fee on top of the new total, overcharging the court.
"There's no personal benefit to anybody," Sewell said. "If you had no knowledge of that city code section, it makes perfect sense."
In response to the auditor's finding, the city's attorney's office has asked City Council to change the ordinance so residents can legally be charged for an agency's collection fee. This will also ensure City Court isn't overcharged.
City Attorney Wade Hinton said it is standard business practice for a company to require the debtor to pay the collection agency's fee. Several city council members said it is the fiscally responsible move.
"The city still has a right to recover the [collection fee]," said Councilman Chip Henderson.
The City Council is expected to vote on the final reading of the bill tonight.
Angela Hines, NRS's director of operations, based in Cleveland, Tenn., said the company is not commenting on the audit findings.
The findings also found the City Court was losing millions of dollars from past due citations and water bills. City Court only handles misdemeanors such as traffic tickets, a nuisance citation or past-due city fees.
In 2012 and 2013, clerks turned over 41,723 accounts to NRS, which amounted to $12.7 million. But NRS only recovered $1 million during the two-year period.
In part, the auditors found the agency didn't have the authority to sue someone on behalf of the city to collect the money. Hinton said the City Attorney's office will start to allow the collection agency to pursue litigation for fines of more than $450 and after all other attempts have been exhausted.
The city's contract with NRS, first approved in 2010 and extended last year, expires this month.
Contact staff writer Joy Lukachick at email@example.com or 423-757-6659.