The Finance Department has made great strides in improving the way it processes bad checks, Finance Commissioner Angel Dawson Jr. said Friday in response to an audit to the V.I. Inspector General’s office that slammed the way the government handles those checks.
“We were very assertive in responding,” Dawson said.
TeleCheck was key to the improvements, he said, adding that the process was barely implemented when the audit was done. TeleCheck guarantees that all checks it approves will clear the issuer's financial institution. Gov. John deJongh in a Thursday press release said TeleCheck addresses the issue of dishonored checks on the front end, as opposed to the more labor intensive and costly back end.
Since its introduction in Fiscal Year 2010, TeleCheck has been primarily responsible for a 42 percent decline in the number of dishonored checks received by the government, the governor and Dawson said. He said this reduction comes even before the government's single largest collector, Internal Revenue, has been integrated into the system. Dawson said that the TeleCheck system at Internal Revenue has some kinks to work out, but he expected it would be fully implemented in a “couple of months.”
The auditor indicated that Finance could not “support as accurate” 1,519 bad checks valued at $3.3 million. The audit also slammed the Justice Department for its failure to take action on collection of outstanding bad checks. The Internal Revenue Bureau got faint praise for updating its collection procedure, but the audit indicated the department had not effectively implemented the new procedures and didn’t adequately increase collection efforts.
“We attribute these conditions to the departments’ and agencies’ failure to adequately implement prior report recommendations and proposed corrective measures designed to improve the government’s accounting and collection activities for dishonored checks,” the auditors wrote.
The audit indicates all bad checks are sent to Finance. According to the audit, once Finance gets the check, it updates its bad check list and sends the check back to the department or agency that accepted the check. That department or agency is responsible for collecting on the bad check. Justice is responsible for enforcing collection of the bad check, and Internal Revenue imposes penalties for the bad check.
A similar audit was issued in 2008. It found serious issues with the bad check collection process during the years 2005 and 2006. The Inspector General’s Office did the follow-up audit that included bad checks received in from Oct. 1, 2009 through May 31, 2011 to determine if improvements were made.
DeJongh Jr. and Dawson both took issue with the follow-up audit results. The governor said agencies responsible for collecting payments to the government have remedied faults exposed by the initial audit.
“The Departments of Finance and Justice and the Bureau of Internal Revenue are committed to proactively ensure the continuity and/or the implementation of updated measures to address the issue of dishonored checks for the government of the Virgin Islands,” deJongh wrote in a letter responding to the followup report.
According to the governor, the follow-up audit grossly overstates remaining debts from bad checks passed to the government, and he disputes the fairness and effectiveness of the methodology used to calculate the outstanding balance on bad checks reported by the Inspector General.
The audit indicated Finance’s files were a mess, which forced the auditors to do a limited sampling of checks. The auditors evaluated 30 checks written for more than $100. Those checks totaled $92,870. The audit indicated that two of those checks were not included on the “dishonored check” list kept by Finance.
Dawson said the follow-up audit fails to take account of many payments already collected, uses far too small a sample to guess at a total outstanding balance, and minimizes the effectiveness of the measures given priority by the administration to remedy the problem of receiving bad checks.
Dawson was particularly incensed that the audit used only 30 checks, and said he did not agree that the files were disorganized. He said the filing issue was addressed by digitizing the system. The checks are scanned and available as an electronic image, he said.
The audit also addressed the issue of repeat offenders. Of the 1,519 bad checks written during the audit period, 791 of them valued at $1.2 million were written by 234 repeat offenders. They accounted for 52 percent of the bad checks. Dawson said using TeleCheck, which is now in place at all government departments that collect money, takes care of that problem.
The governor in his response to the audit said Finance has a project under way, funded by more than $1.5 million in bond proceeds, to renovate its antiquated work environment. Dawson said the oldest part of Finance’s building in downtown Charlotte Amalie was completely gutted and in the midst of renovation
In citing other improvements, deJongh said the Justice Department has established, and will share with the Inspector General's office, its policies and procedures for enforcing checks. Those policies have internal as well as inter-agency components, including provisions for the prosecution of repeat offenders or those who write bad checks for large amounts. Justice, however, does not have the staff at the time to establish a Government Collection Unit as recommended in the initial audit, de Jongh wrote.