Feb 5th, 2009 | By | Category: Voices

SOME property tax refund checks still are being signed only by employees without the approval of managers, auditors at BDO Seidman, LLP found in preparing their independent annual report of the District’s finances and financial management systems.


“[Twelve] vouchers were only signed by the Real Property Tax Administration and Adjustment Unit employee who prepared the vouchers.  A manager’s review and approval was not documented for these vouchers,” auditors wrote in their management letter commonly called the “yellow book.”


BDO Seidman auditors found six weaknesses in the city’s internal controls—two (treasury functions and Medicaid program) were serious enough to be considered material; the others were labeled as significant. If there aren’t improvements in the material weaknesses, the District’s credit rating could be adversely affected.


It’s baffling to learn that even after nearly $50 million was embezzled from the property tax unit, controls remain lax. Auditors indicate the refund vouchers processed without a manager’s approval happened before Chief Financial Officer Natwar Gandhi instituted his “Interim Refund Directive on March 31, 2008.” The only way such irresponsible management could be acceptable is if the refund vouchers were approved before November 2007, which is when the embezzlement became public.


After the discovery of the massive theft—the largest in the District’s history—Gandhi fired several senior level managers and reportedly instituted procedures to protect the public’s money. But the report from BDO Seidman indicates that the new rules and policies apparently were not followed.


Reading the yellow book should scare District officials. Certainly taxpayers would revolt if they knew the sloppy and irresponsible manner in which the government finances are being managed.


“On January 5 2009, the Office of Integrity and Oversight (OIO) “identified an employee who was able to process unauthorized adjustments to taxpayers accounts because he was granted access rights beyond his job responsibilities,” the auditors revealed.


“OIO is in the process of reviewing other transactions recorded by this individual,” auditors continued. “In addition, management has changed the access rights for this individual and restricted modification rights in ITS.”


During the review auditors conducted a sample of users and found five employees were noted as terminated but still had access to the system. Four users (two student trainees, one administrative assistant and I clerical assistant) did not have the appropriate access.


It isn’t just who can tap into the system, there also are with problems with reconciliation and appropriate recording of monies. Several notations deal with the fact that accounts weren’t reconciled, or entries weren’t correctly made, resulting in overstatement or understatement of balances.


The District’s policy requires reconciliation between 30 and 45 days. “The District currently is not in compliance with its own internal policies,” auditors wrote.


Two journal errors that were corrected only during the auditing process resulted in a “decrease of cash and an increase in liabilities by $27.5 million.” Finance officials requested stop payments on checks of more than $3 million. But the bank honored tens of thousands of dollars. 


Additionally, auditors found an “erroneous balance of approximately $12,000,000 that had been carried in a Miscellaneous Agency Funds, without any money in the bank(s). This resulted in an overstatement of the account balance as of Sept. 30, 2008.”


And there were bank accounts that could not be identified by the relevant finance officials, auditors said.


I had to stop reading. The CFO, of course, provides explanations for these: On the delayed reconciliations and stopped payments, the management response is the various divisions will work more closely together. Or we work so hard during the preparation of the annual report, we have to let things slide; reconciliations will be back on track by the end of February. And then there’s this one: “Management will ensure that all user profiles are reviewed and rights are assigned appropriately.”


Suffice to say, the internal financial management controls are a mess.


Last year, when problems were identified, Gandhi retorted that he is a “bean counter” and that he can’t be held accountable for issues inside agencies like Medicaid. But the Office of Tax and Revenue and the Treasury, cited by auditors as having significant deficiency and material weaknesses respectively, are under his direct authority.


Residents forgave Gandhi when money walked out his shop the first time. He can bet if it happens again, even in a smaller amount, mercy and forgiveness will be on vacation.

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  1. ron drake says:

    Did the CFO buy job insurance by facilitating the baseball stadium with creative accounting of costs.

  2. Joyce Paul says:

    All of Fentys overpaid staff is sire to giarantee that he is a one TERM MAYOR!

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