DeJongh: Audit on V.I. handling of bad checks is flawed

ST. THOMAS - In response to the V.I. Inspector General's latest audit report follow-up on bounced checks, Gov. John deJongh Jr. issued a statement disagreeing with the findings.

Inspector General Steven van Beverhoudt released a report last week following up on an audit published in June 2008. The original audit looked at how the V.I. government handled dishonored checks and found that millions of dollars were not collected each year. The audit update reviewed which recommendations have been implemented since the 2008 audit.

Van Beverhoudt said V.I. Finance officials could not produce an accurate accounting of $3.3 million in bad checks - 1,519 individual bounced checks - between the review period of Oct. 1, 2009 to May 31, 2011.

DeJongh said it was "over-reaching" to say that more than $3 million in bad checks were written to the government during the review period because the sample size used was too small.

The governor said the inspector general's conclusion that the V.I. government could not properly account for or collect more than $3 million in bad checks was based on an analysis of only 30 checks valued at under $100,000.

"This limited testing, whether or not the OIG attributes it to the alleged 'disorganization' is not sufficient to fairly represent a reasonable basis for the findings and conclusions," deJongh said in his written response to the audit.

Van Beverhoudt would not comment further on the audit Friday, but he referred The Daily News to the audit report itself, which contained his response to the governor's allegations.

In the audit, van Beverhoudt said the governor's issue with the sample size is a "misconception."

"Although limited inferences were made about the population from our judgemental sample, our findings were based primarily upon the totality of the documentation and processes we reviewed," he said.

Auditors found that 1,519 bounced checks totaling $3.3 million were accepted by the government during the review period. A sample of those checks was used to chart the process of collecting those lost funds.

"Due to the disorganized state in which dishonored check copies and other supporting records were filed at Finance, we performed limited testing of the dishonored records. Accordingly, we selected a judgemental sample of 30 dishonored checks, each with values of $100 or more, totalling $92,870. The selection was made from bank records. Fifteen dishonored checks were selected from each fiscal year reviewed," the report said.

Van Beverhoudt said the conclusions of the review were not based on taking the sample of 30 dishonored checks and projecting the results onto the total population of 1,519 dishonored checks. He said many other factors led the auditors to the report's conclusion that the government is still "inefficient" at collecting bounced checks.

For example, the bad checks list kept by the V.I. Finance Department and the V.I. Internal Revenue Bureau did not reconcile, according to the report.

"The $603,187 difference between Finance and Internal Revenue's dishonored checks records also exposed the inadequacies in accounting for the checks," van Beverhoudt said.

No dishonored checks referrals were made to the V.I. Justice Department during the years reviewed by auditors, and the Justice Department had not taken action on any of the boxes of outstanding bounced checks that previously were referred to the department, according to the report.

The report also said the government failed to address the issuance of bad checks by repeat offenders. The conclusion was not based on the sample, but rather by looking at the whole population of bad checks issued to the government. Of the 1,519 dishonored checks, 791 valued at $1.2 million were written by 234 repeat offenders, van Beverhoudt said.

Finance Commissioner Angel Dawson Jr. said last week's follow-up report to the 2008 audit fails to take account of many payments already collected and minimizes the effectiveness of the measures used to remedy the problem of receiving bad checks.

"While it is important to collect on all dishonored checks, with our limited abilities and fiscal constraints, we have taken the posture that we would like to eliminate receiving those checks altogether even more," Dawson said in a prepared statement.

The Inspector General's report does acknowledge the implementation of the TeleCheck system - a way to verify with the bank that the funds are there before accepting a check - but disagrees with the governor on how effective it has been.

The governor said because of the TeleCheck system, the number of worthless checks has gone down by 42 percent. Van Beverhoudt said Finance officials did not provide auditors with any documentation to support that statistic.

Van Beverhoudt said he found a 33 percent decline in the number of dishonored checks, and a 20 percent decline in the total value of the bad checks, compared with the original audit.

DeJongh said the three main agencies named in the audit review - Internal Revenue, Finance and Justice - are committed to continuing and implementing measures to address the number of bad checks written to the government.

Both deJongh and Dawson said the three agencies involved in collections have made significant improvements in their procedures regarding dishonored checks and have adequately addressed the findings of the initial audit.

The audit's findings involved procedures for accounting for dishonored checks, collection efforts, enforcement and dealing with repeat offenders.

"The Department of Finance has made tremendous strides in upgrading its record filing and retention policies and practices," deJongh wrote.

Finance's improvements include digitization of its records and a project under way, funded by more than $1.5 million in bond proceeds, to renovate its antiquated work environment, deJongh said.

Justice has established, and will share with the Inspector General's office, its policies and procedures for enforcing checks, the governor said. The 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.

- Contact Aldeth Lewin at 714-9111 or email alewin@dailynews.vi.

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