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Report Finds Government Collections Not Documented

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Jan. 19, 2005 – An Inspector General's audit of money collected by the Lt. Governor's office reveals breaches of internal controls, lack of sufficient monitoring, poor security practices and a number of other unusual activities from 2001 through 2003.
The audit, conducted at the request of Lt. Gov. Vargrave Richards and Finance Department Commissioner Bernice Turnbull, paints an unsettling picture of financial practices in the office's five divisions, and suggests there is evidence of theft.
In November Delbert Hewitt, chief of operations in the Lt. Governor's office, responded to recommendations made by the Inspector General Steven G. van Beverhoudt, and the report states the issues are resolved.
The report, based on interviews with personnel and a review of documents in the divisions of Banking and Insurance, Corporations and Trademarks, Passports, Recorder of Deeds and the Tax Assessor's office, concludes:
– Collectors were not following established procedures designed to ensure money was accurately collected, secured and deposited in government bank accounts.
– Revenues were not properly reported to the Finance Department.
– Senior staff was not regularly monitoring the activities of the collectors.
The document also notes that in April 2003, one collector was fired for embezzlement, and a supervisor was slapped with a three-day suspension for having knowledge of and concealing the theft. These actions were taken by Richards at the conclusion of his office's own internal investigation, the report said.
The audit found irregularities in the use of pre-numbered receipt books intended to generate a revenue paper trail. Some collectors were not able to account for books assigned to them by Finance, others failed to maintain records that would indicate the number of unused books on hand, and in one instance a collector was not able to find a completed 2003 receipt book at all. Additionally, it was found that one collector was using the books out of sequence.
Security was also a problem noted in the report, with one collector keeping her books at her desk "in full view and access to all other coworkers." Still others kept these books in locked facilities to which unauthorized personnel had access.
"The potential for loss of public funds by way of theft of unsecured receipt books is equally as high as for the theft of unsecured cash," the report stated.
Problems with the handling of deposits were also pointed to in the audit. The report analyzed 299 days of receipts totaling more the $6.4 million in collection from property taxes, passport fees, banking fees, deed recording fees and elsewhere. It found deposits to government bank accounts were made the day of collection, as required by internal rules, on only two occasions. The report said 65 percent of all collections were held from two days to more than a week, and 25 percent were held from 10 to 41 days.
"From our review, there have been long lapses in making deposits throughout fiscal years 2001 to 2003, inclusive and the evidence suggests that a cash-lapping scheme was occurring," the audit states. Cash-lapping is a scheme by which theft of public funds from one collection period can be covered up using money collected later.
And where were the public funds kept during the sometimes-long stretches between collection and deposit? According to the report, "Revenues that were retained in the Lt. Governor's Office were not secured in storage facilities that were equipped with locks, and adequately safeguarded against access by unauthorized personnel."
Some "unusual" security practices included collectors sharing safes with non-collectors, and funds being stored in a portable cash box for which an extra key was missing. In one case, money was kept in a safe that could not be locked because "no one remembered its combination code numbers," the report said.
Despite senior staff member's direct responsibility for maintaining conformance to internal controls, the report stated that during the review, auditors "saw no evidence to indicate that persons who were senior in rank periodically reviewed the revenue processing activities of the collectors."
This lack of internal oversight, according to the audit, led to collectors issuing unauthorized refunds and voiding transactions they could not later account for.
The Inspector General's office has issued a host of recommendations, which the Lt. Governor's office has agreed to implement, or is already putting in place, according to documents provided with the audit.
Hewitt's letter from the Lt. Governor's office, dated Nov. 9, stated that a central location for cash collections has been located and a search for fireproof safes has begun. The letter also notes that steps are being taken to centralize responsibility for reviewing and approving daily cash receipts, and that periodic reviews will be conducted to ensure proper procedure is being followed.
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