[Audit Report on Business Licensing Fees,  Department of Licensing and Consumer Affairs,  Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 98-I-293

Title: Audit Report on Business Licensing Fees,  Department of
       Licensing and Consumer Affairs,  Government of the Virgin
       Islands

     Date: February 27, 1998



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     U.S. Department of the Interior
     Office of Inspector General
                                      
     AUDIT REPORT
         
     BUSINESS LICENSING FEES, DEPARTMENT OF LICENSING
     AND CONSUMER AFFAIRS, GOVERNMENT OF THE VIRGIN ISLANDS
                                      
                                      
     REPORT NO. 98-I-293
     FEBRUARY 1998
         
         
     MEMORANDUM
  
     TO:               The Secretary
  
     FROM:             Robert J. Williams
                       Acting Inspector General
  
     SUBJECT SUMMARY:  Final Audit Report for Your Information - 
                       "Business Licensing Fees, Department of
                       Licensing and Consumer Affairs,
                       Government of the Virgin Islands" (No. 98-I-293)
  
  
     Attached for your information is a copy of the subject final audit
     report. The objective of the audit was to determine whether (1)
     businesses were obtaining licenses as required, (2) bills for license
     fees were issued timely and accurately, and (3) collection
     enforcement efforts were effective.
  
     We concluded that, although the Department of Licensing and Consumer
     Affairs was generally effective in its business licensing activities,
     improvements were needed in the areas of licensing procedures,
     collection practices, and enforcement activities. Specifically, the
     Department did not process business license applications in a timely
     manner and did not always require the necessary approvals from other
     reviewing agencies before it issued business licenses, did not
     maintain adequate control over daily collections, and was not
     effective in enforcing the licensing laws. As a result, the start-up
     of new businesses was delayed, which resulted in a loss of tax
     revenues to the Government, and the potential existed for businesses
     to operate without consideration of factors such as the suitability
     of the businesses' locations or of business owners. Also, collection
     shortages occurred, and delinquent licensees had outstanding fees and
     penalties that totaled more than $3 million. Additionally, we believe
     that the procedures used for the testing and the professional
     licensing of draftsmen and building contractors could be improved.
  
     Based on the response from the Governor of the Virgin Islands, we
     considered 8 of the report's 16 recommendations resolved and
     implemented and requested additional information for the 8 remaining
     recommendations, including 1 that is considered unresolved.
  
     If you have any questions concerning this matter, please contact me at
     (202) 208-5745.
  

     Attachment                                            V-IN-VIS-003-96
  
  
     Honorable Roy L. Schneider
     Governor of the Virgin Islands
     No. 21 Kongens Gade
     Charlotte Amalie, Virgin Islands 00802
  
     Subject:   Audit Report on Business Licensing Fees, 
                Department of Licensing and Consumer Affairs, 
                Government of the Virgin Islands (No. 98-I-293)
  
     Dear Governor Schneider:

     This report presents the results of our review of the business
     licensing functions of the Virgin Islands Department of Licensing and
     Consumer Affairs that occurred during fiscal years 1995 and 1996. The
     objective of the audit was to determine whether (1) businesses were
     obtaining licenses as required, (2) bills for license fees were
     issued timely and accurately, and (3) collection enforcement efforts
     were effective.
  
     We found that, although the Department was generally effective in its
     business licensing activities, improvements were needed in the areas
     of licensing procedures, collection practices, and enforcement
     activities. Additionally, we believe that improvements should be made
     with regard to the testing and professional licensing of draftsmen
     and building contractors. Specifically, we found that:
  
     - The Department did not process business license applications in a
     timely manner and did not always require the necessary approvals from
     other reviewing agencies (for factors such as whether the applicant
     had a criminal record and whether the business location met zoning
     and fire safety requirements) before business licenses were issued.
     Based on our review of 150 business license applications, we found
     that the average processing time was 31 workdays, with a range of 1
     to 198 workdays, as compared with its 7-day initiative under the One
     Stop Licensing Program.
  
     - The Department did not maintain effective control over daily
     collections. Specifically, collections were not adequately
     safeguarded or reconciled and deposited daily, and unauthorized
     personnel were allowed to make collections. Our review of collection
     documents for sample time periods disclosed shortages totaling at
     least $3,846. In addition, licenses were issued to businesses whose
     payment checks were not honored by the banks. As a result, the
     Department did not receive revenues totaling $40,624 because of
     checks that were not honored. - The Department was not effective in
     enforcing the licensing laws. Enforcement officers did not identify
     and notify licensees of their delinquent status until an average of 1
     to 3 years after their licenses had expired and did not follow up
     with delinquent licensees after the initial notification. The
     Department's records indicate that more than 6,000 business licensees
     were delinquent and that the associated outstanding fees and
     penalties totaled more than $3 million. Additionally, an amnesty
     program for delinquent licensees that was instituted during February
     and March 1995 resulted in the loss of about $694,000 in potential
     revenues from penalties.
  
     - Although the Department's Office of Boards and Commissions was
     responsible for testing and licensing most professionals, applicants
     for professional licenses as draftsmen and building contractors were
     tested by the Department of Public Works. However, Public Works did
     not have written rules and regulations or formal policies and
     procedures for administration of the draftsman and building
     contractor tests, and it did not have complete records on applicants'
     test results. Further, in our opinion, the test for building
     contractors should be more comprehensive to ensure that only
     qualified individuals are licensed.
  
     On November 21, 1997, we transmitted a draft of this report to you,
     requesting your comments by January 8, 1998. On January 30, 1998, we
     received your response (Appendix 2) dated January 26, 1998, which
     generally concurred with the report's 16 recommendations. Based on
     your response, we revised one recommendation (No. C.6), and we
     consider eight recommendations resolved and implemented and request
     additional information for eight recommendations, including one that
     is unresolved (see Appendix 3). We commend your commitment to
     improving the effectiveness and efficiency of the Department of
     Licensing and Consumer Affairs.
  
     The Inspector General Act, Public Law 95-452, Section 5(a)(3), as
     amended, requires semiannual reporting to the U.S. Congress on all
     audit reports issued, the monetary impact of audit findings (Appendix
     1), actions taken to implement audit recommendations, and
     identification of each significant recommendation on which corrective
     action has not been taken.
  
     In view of the above, please provide a response, as required by Public
     Law 97-357, to this report by March 27, 1998. The response should be
     addressed to our Caribbean Regional Office, Federal Building - Room
     207, Charlotte Amalie, Virgin Islands 00802. The response should
     include the information requested in Appendix 3.
  
     We appreciate the assistance of personnel of the Department of
     Licensing and Consumer Affairs during the conduct of our audit.
                                                                                                                   


                                               Sincerely,                                                          
                                               
                                               Robert J. Williams
                                               Acting Inspector General
  
                                 
                             CONTENTS
  
  
                                                           Page
  
  INTRODUCTION . . .  . . . . . . . . . . . . . . . . . .   1 
  
      BACKGROUND. . . . . . . . . . . . . . . . . . . . .   1 
      OBJECTIVE AND SCOPE . . . . . . . . . . . . . . . .   2 
      PRIOR AUDIT COVERAGE. . . . . . . . . . . . . . . .   2 
  
  FINDINGS AND RECOMMENDATIONS . . .  . . . . . . . . . .   3 
  
      A. BUSINESS LICENSING PROCEDURES. . . . . . . . . .   3 
      B. COLLECTION PRACTICES . . . . . . . . . . . . . .   8        
      C. ENFORCEMENT ACTIVITIES . . . . . . . . . . . . . .13 
      D. PROFESSIONAL LICENSING PRACTICES . . . . . . . . .19 
  
  APPENDICES
  
      1. CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . .21 
      2. GOVERNOR OF THE VIRGIN ISLANDS RESPONSE. . . . . .22 
      3. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . .29 
  
                           INTRODUCTION





  
     BACKGROUND
  
     The Department of Licensing and Consumer Affairs was created by Title
     3, Chapter 16, of the Virgin Islands Code to "provide and administer
     consumer services and programs . . . ; establish, administer,
     coordinate and supervise the regulation and licensing of private
     business and professions; and . . . administer services to
     [professional licensing] agencies, boards, and commissions." The
     Department's Division of Licensing is the primary unit responsible
     for issuing licenses for businesses and professions in the Virgin
     Islands, collecting license fees, and enforcing the licensing laws.
     Through eight boards and commissions, the Department also administers
     tests to applicants and approves licenses for professions such as
     plumbers, electricians, and beauticians.
  
     In accordance with the Virgin Islands Code, every person or
     association wishing to engage in a business, occupation, profession,
     or trade in the Virgin Islands is required to apply for and obtain a
     license to engage in or to conduct such activity. As part of the
     licensing process, applicants are required to obtain approvals from
     several Governmental agencies, including the Bureau of Internal
     Revenue, the Department of Planning and Natural Resources, the Police
     Department, the Fire Department, the Department of Licensing and
     Consumer Affairs, and the Department of Health (if applicable).
  
     Licenses are to be renewed annually, with fees determined by the type
     of business and the number of licenses requested. Agencies of the
     Virgin Islands and U.S. Government and religious, charitable, and
     educational organizations are exempt from the licensing requirements.
     The Department can impose a penalty of not more than $500 against
     businesses found to be operating without a license.  In addition, the
     Department can assess administrative fines of not more than 25
     percent of the applicable license fee per month against persons or
     businesses that do not timely renew their licenses.
  
     During fiscal year 1985, Act No. 5060 established the Stop Tax Evasion
     Program, which requires that all businesses receive a tax clearance
     letter from the Bureau of Internal Revenue stating that all tax
     obligations have been fulfilled in order to receive a current
     business or professional license.  Furthermore, Title 27, Section
     304(k), of the Virgin Islands Code states, "The Commissioner [of
     Licensing and Consumer Affairs] shall, after ten days' notice, revoke
     any license of a person who fails to file and pay all taxes,
     penalties and interest due to the Virgin Islands Bureau of Internal
     Revenue in connection with the operation of his business activities,
     or who has not made a satisfactory agreement to pay the same." The
     One Stop Licensing Program, another initiative of the Department,
     changed the approval procedure by requiring the Division of Licensing
     to obtain the necessary approvals from the appropriate Governmental
     agencies and to issue business licenses within 7 workdays of the
     receipt of applications.
  
     The staff of the Division of Licensing comprises 25 individuals, who
     coordinate licensing activities in both the St. Thomas/St. John and
     the St. Croix districts. Two collectors assigned to the Department of
     Licensing and Consumer Affairs collect (1) fees for business and
     professional licenses, foreign sales corporations, vendors' plaza
     tenants, and copies of applicants' police records and (2) penalties
     for late renewals and noncompliance with licensing laws. During
     fiscal years 1995 and 1996, respectively, the Department issued
     16,776 and 16,825 business licenses and collected $3.1 and $3 million
     in fees and penalties.
  
     OBJECTIVE AND SCOPE
  
     The objective of the audit was to determine whether (1) businesses
     were obtaining licenses as required, (2) bills for license fees were
     issued timely and accurately, and (3) collection enforcement efforts
     were effective.  The scope of the audit included activities of the
     Division of Licensing and the Office of Boards and Commissions of the
     Department of Licensing and Consumer Affairs that occurred during
     fiscal years 1995 and 1996. The audit was conducted at the Department
     of Licensing and Consumer Affairs on St. Thomas and St. Croix and at
     the Departments of Finance, Police, and Public Works and at the
     Bureau of Internal Revenue on St. Thomas. In addition, we visited a
     random sample of 25 business establishments on St. Thomas to test the
     level of compliance with licensing laws.
  
     Our review was made in accordance with the "Government Auditing
     Standards," issued by the Comptroller General of the United States.
     Accordingly, we included such tests of records and other auditing
     procedures that were considered necessary under the circumstances.
  
     We limited the evaluation of internal controls over Departmental
     operations to the extent we considered necessary to accomplish the
     audit objective. The internal control weaknesses identified were
     related to the business licensing process, the collection of
     licensing fees, and the enforcement of licensing laws. These
     weaknesses are discussed in the Findings and Recommendations section
     of this report. The recommendations, if implemented, should improve
     the internal controls in these areas.
  
     PRIOR AUDIT COVERAGE
  
     The Office of Inspector General has not conducted any audits of the
     Department of Licensing and Consumer Affairs during the past 5 years.
     However, our March 1989 report "Business Licensing Practices,
     Government of the Virgin Islands" (No. 89-56) stated that the
     Department allowed businesses to operate without proper licenses and
     did not collect all license fees or assess all appropriate penalties.
     During our current review, we found that these problems still
     existed.         


     FINDINGS AND RECOMMENDATIONS
  
     A. BUSINESS LICENSING PRACTICES
  
     The Department of Licensing and Consumer Affairs, through its Division
     of Licensing, did not process business license applications in a
     timely manner and did not always require the necessary approvals from
     other reviewing agencies before it issued business licenses.
     Specifically, we found that it took, on the average, 31 workdays for
     business license applications to be processed, with the processing
     time ranging from 1 to 198 workdays. The Department's internal policy
     was to issue business licenses within 7 workdays. Additionally, Title
     27, Section 303, of the Virgin Islands Code and the Department's
     Standard Operating Procedures for Processing Business Licenses
     require that all applications for business licenses be approved by
     the respective agencies before licenses are issued. These
     deficiencies existed because the Department did not enforce the
     timeliness and agency approval requirements for processing business
     license applications, there was a lack of adequate supervisory
     oversight within the Department's Division of Licensing, and there
     was a lack of adequate communication between the Department and the
     reviewing agencies. As a result, the delays in the issuance of
     business licenses caused concurrent delays in the start-up of new
     businesses, resulting in the loss of tax revenues to the Government,
     and the lack of required agency approvals resulted in the potential
     for businesses to operate without consideration of factors such as
     the suitability of the business location based on zoning and fire
     safety requirements or the criminal records of business owners.
  
     Timeliness of Processing Applications
  
     The St. Croix office of the Division of Licensing had procedures for
     informing applicants of the types of licenses available and the fees
     to be paid, assisting in the completion of application forms,
     obtaining required approvals, and coordinating inspections of
     facilities by the reviewing agencies. These procedures included
     having the applicants sign an Applicant's Acknowledgment Form, which
     indicates that the applicant understands the process; preparing
     documents to be sent by facsimile to the appropriate reviewing
     agencies; coordinating the joint physical inspection of the
     facilities; and recording the date of the transmittal of data among
     the various agencies.  Since Departmental policy requires that a
     license be issued within 7 workdays of receipt of an application,
     Division personnel on St. Croix contacted the reviewing agencies when
     approvals were not returned within 5 workdays. Also, applications
     that contained deficiencies or did not receive the necessary
     approvals were mailed back to the applicants.
  
     The Division's office on St. Thomas essentially followed the same
     procedures as those on St. Croix except that it did not use the
     Applicant's Acknowledgment Form and did not inform applicants when
     approvals from reviewing agencies were denied. At our March 14, 1997,
     exit conference, Departmental officials told us that the use of the
     Applicant's Acknowledgment Form was not a part of the formal
     procedures, but the officials agreed that there were benefits to
     standardizing the use of the form. On both island offices, completed
     application packages, which included the business license
     applications, enforcement investigation reports, and reviewing
     agencies' inspection forms, were forwarded to the Director or the
     Assistant Director of Licensing, as appropriate, for review and final
     approval.
  
     To test the license application procedures, we reviewed a random
     sample of 100 new business applications on St. Thomas and 50 new
     business applications on St. Croix and computed the processing times
     from the dates the applications were received to the dates the
     applicants paid the licensing fees and the licenses were issued. (The
     licensing files did not indicate the dates that applicants were
     notified that their licenses were ready to be picked up.) The St.
     Thomas office took an average of 18 and 27 workdays during fiscal
     years 1995 and 1996, respectively, to process the applications and
     issue the licenses.  The St. Croix office took an average of 71 and
     40 workdays during fiscal years 1995 and 1996, respectively, to
     process the applications and issue the licenses.  The processing
     times ranged from 1 to 179 workdays in the St. Thomas office and from
     2 to 198 workdays in the St. Croix office. Because of the lengthy
     application process, instead of the stated 7 days, businesses were
     delayed in opening as follows:
  
     - On October 3, 1996, an applicant on St. Thomas applied for two
     business licenses: as a mobile food service provider and as a tavern
     keeper. The seven required agency approvals were all received by the
     Division by October 22, 1996. However, the licenses were not issued
     until December 15, 1996, or 44 workdays later. Although the Liquor
     Control Board had to perform a separate review pertaining to the
     tavern keeper license, the Department's files did not indicate how
     many days the additional review entailed. The total time from
     submission of the application to issuance of the licenses was 55
     workdays.
  
     - On March 21, 1996, an applicant on St. Thomas applied for a
     business license to operate an art studio. Of the four agency
     approvals required, three were received by the Division by March 28,
     1996, but the fourth was not received until May 29, 1996. The license
     was not issued until June 11, 1996, or 13 workdays later. The total
     time from submission of the application to issuance of the license
     was 58 workdays.
  
     - On September 30, 1995, an applicant on St. Croix applied for a
     business license to operate an air charter service. The Division did
     not submit the requests for approval to the approving agencies until
     January 22, 1996, and the last of the agency approvals was received
     by the Division on March 1, 1996. However, the license was not issued
     until August 7, 1996, or about 100 workdays later. The total time
     from submission of the application to issuance of the license was 198
     workdays. There was no documentation in the license files to indicate
     the reasons for the processing delays.
  
     On both islands, processing delays occurred because requests for
     agency approvals were not always submitted timely by the Division to
     the approving agencies and the approving agencies did not always
     return the completed documents in a timely manner. For example, on
     St. Croix, it took up to 4 months from the date of receipt of
     business license applications for the Division to request the
     necessary approvals from the various approving agencies and up to 3
     additional months for those agencies to submit the approvals back to
     the Division. A factor contributing to the processing delays within
     the Division's office on St. Croix was that the position of Assistant
     Director was vacant from June 1995 through March 1996, resulting in
     inadequate supervisory oversight of office operations. We could not
     identify other specific reasons for the delays. On St. Thomas, delays
     occurred primarily because the Division's enforcement officers did
     not always submit their approvals in a timely manner, in one case
     taking up to 45 days from receipt of the business application,
     because they had primary duties related to collection enforcement and
     did not have adequate supervisory oversight (as discussed in Finding
     C). The delays in the issuance of business licenses caused concurrent
     delays in the start-up of new businesses, resulting in the loss of
     tax revenues to the Government, and far exceeded the Division's own
     7-day processing goal. Therefore, we believe that the Division should
     seek to the greatest extent possible to improve the timeliness of its
     operations and establish processing time frames that it can more
     realistically meet.
  
     Application Review and Approval
  
     Although required by Title 27, Section 303, of the Virgin Islands Code
     and the Department's Standard Operating Procedures for Processing
     Business Licenses, the Division of Licensing did not always obtain
     all necessary agency approvals before it approved business license
     applications. Before business licenses are issued, all applications
     are to be checked to ensure that requirements related to applicants'
     criminal records, location and zoning, physical condition of the
     business facilities, and tax compliance were met. In addition,
     restaurant owners are required to obtain Department of Health
     approval that their establishments meet health and sanitation
     standards.
  
     We found that 50 of the 150 new business applications in our sample
     had not been approved by at least one of the required agencies or
     signed by the appropriate official. Specifically, 11 applications
     were not approved by the Police Department, 36 were not approved by
     the Division of Licensing's Enforcement Unit, and 3 were not approved
     by the Director of Licensing.  These deficiencies occurred because
     Division personnel did not enforce the approval requirements and the
     Division did not maintain adequate supervisory oversight of its
     enforcement officers (as discussed in Finding C). For example, on
     June 3, 1996, an applicant was issued licenses to operate a wholesale
     store and to import items for resale. However, the Division's
     Enforcement Unit had not approved the business's proposed location,
     although it had reviewed the facilities, and the Director of
     Licensing had not signed the application.
  
     Because the approval requirements were not always complied with, there
     was a reduced level of assurance that: (1) businesses were in
     suitable locations, based on zoning requirements, and met fire safety
     requirements; (2) business owners did not have criminal records that
     would have affected their suitability for the particular type of
     business; (3) businesses had fulfilled their income and gross
     receipts tax obligations; and (4) food service businesses and
     employees complied with public health requirements.
  
     Recommendations
  
     We recommend that the Governor of the Virgin Islands direct the
     Commissioner of Licensing and Consumer Affairs to:
  
     1. Review and make necessary revisions to, in coordination with the
     other approving Governmental agencies, the procedures for obtaining
     approvals for such aspects of business licensing as tax compliance,
     zoning requirements, fire safety, criminal record checks, and health
     standards to ensure that such approvals are obtained within
     reasonable, mutually established time frames.
  
     2. Review internal licensing procedures and make necessary revisions
     to ensure that the Division of Licensing, once agency approvals are
     received, can complete the processing of applications and issue the
     business licenses within reasonable established time frames. The
     internal procedures should be standardized throughout the Virgin
     Islands, require the use of the Applicant's Acknowledgment Form to
     ensure that business license applicants understand the licensing
     requirements, include controls to ensure that business licenses are
     not issued without all the necessary agency approvals, and provide
     for prompt notification to applicants of any problems or delays
     related to their applications.
  
     3. Ensure that the Division of Licensing provides an adequate level
     of supervisory oversight so that established procedures are complied
     with and established processing time frames are met.
  
     Governor of the Virgin Islands Response and Office of Inspector
     General Reply
  
     The January 26, 1998, response (Appendix 2) to the draft report from
     the Governor of the Virgin Islands generally concurred with the three
     recommendations and indicated that corrective actions had been or
     were being taken. Based on the response, we consider the three
     recommendations resolved and implemented (see Appendix 3).
  
     General Comments on Finding
  
     The Governor's January 26, 1998, response also provided comments that
     disagreed with certain aspects of the overall finding. The Governor's
     comments and our replies are as follows:
  
     Governor of the Virgin Islands Response. The response stated that
     although the Department of Licensing concurs that it did not always
     process license applications in a timely manner, "most of the delays
     resulted from problems associated with coordinating the many reviews
     over which the Department [of Licensing] has little or no direct
     control." The response further stated that "some delays are the
     result of the fact that some licenses require Board approval prior to
     issuance," that other delays "are directly attributed to the
     applicants," and that "[s]ome applicants continue to submit applications
     although their facilities are not ready for inspection."
  
     Office of Inspector General Reply. We acknowledged in the report that
     some processing delays resulted from factors outside the Department.
     For example, we stated (page 4) that "on both islands, processing
     delays occurred because requests for agency approvals were not always
     submitted timely by the Division [of Licensing] to the approving
     agencies and the approving agencies did not always return the
     completed documents in a timely manner." (Emphasis added.)
     Additionally, the examples presented in the finding took into
     consideration, to the extent that the information was available,
     delays attributable to obtaining outside agency approvals. However,
     we found significant delays that could not be attributed to factors
     outside of the Department's control. We further believe, as stated in
     the report (page 5), that "the Division should seek to the greatest
     extent possible to improve the timeliness of its operations and
     establish processing time frames that it can more realistically
     meet." (Emphasis added.)
  
     Governor of the Virgin Islands Response. The response said that the
     Department did not always obtain all necessary approvals before
     issuing a license but that the Department "must point out that it is
     not always necessary to secure an approval in accordance with
     established Department Policy." The response further stated,
     "Therefore, unless the Audit Report allowed for this factor, the
     magnitude of non-compliance will be overstated."
  
     Office of Inspector General Reply. In presenting the finding that
     related to obtaining outside agency approvals, we took into
     consideration those cases in which certain types of approvals were
     not necessary. Therefore, we believe that the report accurately
     presents the extent of noncompliance for the period covered in the
     scope of our audit (fiscal years 1995 and 1996).
 

     B. COLLECTION PRACTICES
  
     The Department of Licensing and Consumer Affairs did not maintain
     effective control over its daily collections of license fees.
     Specifically, daily collections were not adequately safeguarded or
     reconciled and deposited daily, and unauthorized personnel were
     allowed to collect fees.  In addition, licenses were issued to
     businesses whose payment checks had not been honored by the banks
     because of insufficient funds. The basic requirements for controls
     over collections are contained in Section 310 of the Government
     Financial Manual and the Department's Standard Operating Procedures
     for the Processing of Business Licenses. The deficiencies existed
     because the Department's collectors were unaware of the procedures
     outlined in the Government Financial Manual, which they did not have,
     and they did not comply with the Department's internal operating
     procedures. Additionally, the Department of Finance did not notify
     the Department of Licensing and Consumer Affairs when checks issued
     by licensees were returned unpaid. As a result of the control
     weaknesses, collection shortages of at least $2,820 and $1,026
     occurred in fiscal years 1995 and 1996, respectively. In addition,
     the Department did not receive revenues totaling $25,676 and $14,948
     in fiscal years 1995 and 1996, respectively, because of checks that
     were returned unpaid by banks.
  
     Controls Over Daily Collections
  
     The Department's collectors and assistant collectors are responsible
     for receiving business license and other fees ranging from $1 to
     $2,000.  License fees are collected after a licensee completes the
     license application or renewal processes.
  
     Physical Safeguards. Section 310 of the Government Financial Manual
     requires that each collector be provided with a vault or a safe to
     secure funds in his or her custody. However, on St. Croix, the
     collections were stored in a nonlocking desk drawer. A change fund of
     $154, which was not always used by the collector, was kept in an
     unlocked cash box in the same desk drawer. At the time of our initial
     review on St. Thomas, daily cash collections were kept in an unlocked
     container in an unlocked filing cabinet, and a change fund of $100
     was kept in an unsecured plastic container. In addition, the
     collector and the assistant collector on St. Thomas often left the
     cashier's office unlocked and unattended for periods of up to several
     minutes. In August 1996, during our audit, the Department of
     Licensing and Consumer Affairs reconstructed the cashier's office on
     St. Thomas and installed separate locking drawers for the desks of
     the collector and the assistant collector. However, deficient
     safeguards had not been corrected on St. Croix, which resulted in the
     potential for funds to be misappropriated.
  
     We also observed that funds were sometimes collected by unauthorized
     personnel.  The Government Financial Manual states that cash
     collections should be accepted only by the collectors and the
     assistant collectors, who are bonded to safeguard the interests of
     the Government if the funds collected are lost. However, on December
     3, 1996, an employee from another division within the Department
     received a cash payment of $265 from a licensee for the renewal of a
     business license. The collection was made after the cashier's office
     had been closed for the day. The employee who received the payment
     did not issue a receipt to the payee, and the funds were not given to
     the collector until December 5, 1996. The collection of funds by
     unauthorized personnel creates the potential for differences between
     the licensees and the Department over the timely payment of licensing
     fees and for the funds to be misappropriated by unauthorized
     employees who make such collections.
  
     Accounting Safeguards. Section 310 of the Government Financial Manual
     requires that collectors deposit all collections daily and that
     collections be deposited without deductions. Before each daily
     deposit is made, the collector is required to total all collections,
     prepare a daily summary, assemble and account for all receipts, and
     prepare a certificate of deposit (deposit slip). The collector is
     also required to segregate the funds received for license fees from
     those received for penalties, which are deposited into separate
     accounts. To test compliance with these requirements, we reviewed the
     collection records for 6 months in fiscal year 1995 and 5 months in
     fiscal year 1996 on St. Thomas and for 4 months in fiscal year 1995
     and 2 months in fiscal year 1996 on St. Croix. During our review of
     the St. Croix office, we found net collection shortages of $91 for
     fiscal year 1996. In the St. Thomas office, we found net collection
     shortages of $2,820 for fiscal year 1995 (including $2,315 in March
     1995) and $935 for fiscal year 1996.  For example, on St. Thomas:
  
     - On March 7, 1995, receipts totaled $17,875, but only $17,675 was
     deposited, which resulted in a cash shortage of $200.
  
     - On March 14, 1995, receipts totaled $14,152.34, but only $12,852.34
     was deposited, which resulted in a shortage of $1,300.   - On March
     15, 1995, receipts totaled $20,825, but only $19,725 was deposited,
     which resulted in a shortage of $1,100.
  
     Section 310 of the Government Financial Manual requires that a
     prenumbered Government receipt be issued for every collection and
     that information on the receipts not be erased or altered. If a
     receipt is altered, it should be canceled by writing "void" across
     the face of the receipt. However, we found several instances in which
     information on the receipts was erased and/or altered. For example,
     on St. Thomas, Receipt No. 126519, dated January 9, 1996, was issued
     with another amount written over the original amount. Additionally,
     although receipts should be issued in numerical sequence, we found
     that this was not always done. For example, on St. Croix, Receipt No.
     222951 was issued on May 8, 1996, whereas Receipt No. 222651 was not
     issued until May 21, 1996.
  
     We also found that, although the Department's Standard Operating
     Procedures for the Processing of Business Licenses require that the
     collections supervisor review and initial each day's collection
     summary before the collection is deposited into bank accounts, this
     procedure was not always complied with. Further, when the collector
     went to lunch, the assistant collector did not record the collections
     on hand and the receipts used up to that time so that individual
     accountability could be ensured. During our review, we informed the
     Director of Licensing of this matter, and the Director established a
     reconciliation form to be used by collectors before and after they
     fill in for each other and at the end of the day.
  
     Daily Deposits. Section 310 of the Government Financial Manual
     requires that collections be deposited daily. However, we found that
     this was not always accomplished. For example:
  
     - On St. Croix, collections for December 1, 1995, totaling $550, were
     not deposited until December 11, 1995.
  
     - On St. Thomas, collections for March 17, 1995, totaled $43,415
     (including $14,150 in cash). However, only $3,675 was deposited on
     that day.  The remaining $39,740 was not deposited until March 20,
     1995.
  
     At the conclusion of our audit, the cash shortages that were disclosed
     by our review had not been addressed. Although Departmental officials
     told us that they were unaware of the requirements of the Government
     Financial Manual, we believe that the shortages and other
     deficiencies, such as the delayed deposit of collections, the altered
     receipts, and the issuance of receipts out of numerical sequence,
     could be indicators of improper actions. Therefore, we believe that
     the Department, in coordination with the Office of the Virgin Islands
     Attorney General, should review collection records to determine
     whether improper actions did in fact occur and, if so, to take
     appropriate action
  
     Checks Not Honored
  
     Title 27, Section 302, of the Virgin Islands Code lists the annual
     fees to be paid by individuals who conduct business in the Virgin
     Islands. License applications are processed and licenses are issued
     upon payment of the appropriate fees. However, we determined, based
     on information received from the Department of Finance, that 85
     checks for fiscal year 1995 and 63 checks for fiscal year 1996 were
     returned unpaid by the banks because of insufficient funds or other
     problems such as closed accounts, stop payments placed on checks,
     uncollected funds, and unauthorized signatures. Although the
     Department of Finance was responsible for following up with the
     payees and collecting the amounts of the checks that were not
     honored, the Department had not established guidelines to collect the
     amounts due and did not have a computer program to assist in tracking
     these returned unpaid checks. Additionally, the Department of
     Licensing and Consumer Affairs was not notified by the Department of
     Finance of the returned checks. Therefore, the licensees continued to
     operate their businesses without having paid the required licensing
     fees, and the Government had not realized the related revenues, which
     totaled $25,676 and $14,948 during fiscal years 1995 and 1996,
     respectively. In November 1994, the Virgin Islands Bureau of Audit
     and Control issued the audit report "The Procedures for the
     Collection of Dishonored Checks" (No. AC-01-30-94), which addressed
     this matter on a Governmentwide basis. At the time of our review, the
     Bureau of Audit and Control said that many of the report's
     recommendations were still unresolved.
  
     Recommendations
  
     We recommend that the Governor of the Virgin Islands direct the
     Commissioner of Licensing and Consumer Affairs to:
  
     1. Obtain copies of and enforce compliance with the Virgin Islands
     Government Financial Manual, particularly with regard to the physical
     and accounting controls over daily collections.
  
     2. Perform a detailed review, in coordination with the Virgin Islands
     Attorney General's Office, of the cash shortages and all collection
     -related discrepancies cited in this report to determine whether
     improper activities occurred that warrant further action.
  
     3. Establish and implement procedures to ensure that licensees who
     paid licensing fees with checks which were not honored by the banks
     are notified and are required to pay the outstanding amounts.
  
     We recommend that the Governor of the Virgin Islands direct the
     Commissioner of Finance to:
  
     4. Establish and implement procedures, consistent with the
     recommendations contained in the November 1994 audit report by the
     Virgin Islands Bureau of Audit and Control, to account for and pursue
     the collection of amounts owed the Government as a result of checks
     that were not honored by the banks. These procedures should include
     providing the Department of Licensing and Consumer Affairs with a
     monthly listing of checks issued to that Department that were not
     honored by the banks.
  
     Governor of the Virgin Islands Response and Office of Inspector
     General Reply
  
     The January 26, 1998, response (Appendix 2) to the draft report from
     the Governor of the Virgin Islands generally concurred with
     Recommendations 1, 2, and 3 and indicated that corrective actions had
     been or were being taken. However, the response did not address
     Recommendation 4. Based on the response, we consider Recommendation 3
     resolved and implemented. Also based on the response, we request
     additional information for Recommendations 1 and 2 and also request
     that the Governor provide a response to Recommendation 4, which is
     unresolved (see Appendix 3).
  
     General Comments on Finding
  
     The Governor's January 26, 1998, response provided comments that
     disagreed with certain aspects of the overall finding. The Governor's
     comments and our reply are as follows:
  
     Governor of the Virgin Islands Response. The response stated: "We
     disagree that the Department did not maintain effective control over
     its daily collection of license fees. We accept that some adjustments
     are necessary; but overall, we believe the Agency has effective
     control over its collections." Regarding the example cited in our
     report of an employee who was not a cashier accepting cash from a
     licensee, the response stated that it was "incorrect to describe the
     incident . . . as an authorized collection of funds" and that the
     licensee was a "friend of the employee" and had asked the employee to
     make payment on his behalf to the Department's cashier.
  
     Office of Inspector General Reply. The example did not provide the
     sole basis for our conclusion on collections, but as the finding
     shows, the Department did not have physical and accounting
     safeguards. Specifically, cash shortages of almost $4,000 had not
     been explained during or subsequent to our audit, and the Department
     did not receive revenues of about $40,000 because checks issued by
     licensees in payment of license fees were returned unpaid by the
     banks. We believe that these deficiencies, which were acknowledged in
     the Governor's response, support our finding regarding the lack of
     effective control over collections.
  
     Regarding the example, we believe that even one instance of an
     employee who was not a cashier accepting a collection puts the
     Department at risk because the potential exists for a licensee to
     claim that he had made payment to a representative of the Department
     if a question later arises as to whether such payment was made. Based
     on the requirements of the Government Financial Manual, employees who
     are not specifically designated as cashiers should not accept
     payments from the Department's clients.
  

     C. ENFORCEMENT ACTIVITIES
  
     The Department of Licensing and Consumer Affairs was not effective in
     enforcing the licensing laws. Specifically, enforcement officers did
     not notify licensees of their delinquent status until 1 to 3 years
     after their licenses had expired and did not follow up with
     delinquent licensees after the initial notifications. Although the
     Department's Standard Operating Procedures for the Processing of
     Business Licenses state that licensee files should be reviewed daily
     to identify delinquent licensees, the procedures did not specify a
     time frame in which licensees should be notified of their delinquent
     status. The Standard Operating Procedures also state that if a
     licensee does not respond within 10 days of the initial notification
     of delinquency, the case should be forwarded to the Department's
     Legal Unit for a hearing for revocation of the business license.
     However, these files were not referred by the enforcement officers on
     a consistent basis. These deficiencies occurred because internal
     procedures and transportation resources were inadequate and file
     management systems were ineffective. As a result of these
     deficiencies, the Department's records indicated that more than 6,000
     business licensees were delinquent and that the associated
     outstanding fees and penalties totaled more than $3 million. We also
     found that an amnesty program for delinquent licensees, which was
     instituted during February and March 1995, was ineffective, resulting
     in the loss of about $694,000 in potential revenues from penalties.
  
     Delinquent Licensees
  
     The Department did not take timely action to identify delinquent
     business licensees and notify them of their delinquent status and did
     not follow up to ensure that these licensees complied with the
     licensing requirements, including payment of penalties provided for
     in Title 27, Section 307(d), of the Virgin Islands Code. To test the
     level and timeliness of enforcement activities, we reviewed a random
     sample of 74 delinquent licensees: 50 on St. Thomas and 24 on St.
     Croix. Based on our review, we found that on St. Thomas, the
     licensees had been delinquent for periods of as many as 99 months,
     with an average delinquency of about 3 years. On St. Croix, the
     licensees had been delinquent for periods of as many as 35 months,
     with an average delinquency of about 1 year. Although the
     delinquencies were significant, enforcement officers were not
     consistent in contacting the delinquent licensees.
  
     We also found that in those instances where followup action was
     initiated, it took the enforcement officers an average of 136 days on
     St. Thomas and 160 days on St. Croix to complete the steps specified
     in the Department's Standard Operating Procedures. These steps
     included making an initial telephone contact with the licensee,
     performing an on-site inspection to determine whether the licensee
     was still in business, and either issuing a formal notice of
     delinquency or deleting closed businesses from the licensing files.
     Although Departmental procedures did not state a time frame for the
     followup actions, we believe that the average 4- to 5-month period
     used by enforcement officers was inconsistent with good business
     practices.
  
     Further, Departmental personnel did not follow internal procedures for
     referring delinquent licensees to the Department's Legal Unit. The
     internal procedures provide that if a licensee does not respond
     within 10 days to a notice of delinquency, the case should be
     referred to the Department's Legal Unit for scheduling of a hearing
     for revocation of the business license. However, we found that on St.
     Thomas, referrals were not made and that on St. Croix, hearings were
     not scheduled, although referrals had been made by the enforcement
     officers. No revocation hearings were held on either island during
     fiscal years 1995 and 1996.
  
     We found that the effectiveness of enforcement activities was impacted
     by the following:
  
     - The enforcement officers on both islands were not informed by their
     chief when delinquency notification letters were returned by the post
     office as undelivered so that they could take other actions to follow
     up with the delinquent licensees.
  
     - The enforcement officers on St. Thomas were assigned duties related
     to the processing of new license applications, such as locating
     overdue agency approvals and conducting on-site inspections of new
     business facilities. Therefore, the enforcement officers had less
     time to conduct followup actions with delinquent licensees.
  
     - Each island had only one vehicle available for the enforcement
     officers to use to conduct on-site inspections and followup contacts
     with delinquent licensees and on-site inspections of new businesses.
     Therefore, only a small number of inspections and followup contacts
     could be performed because of the limited transportation resources.
     Departmental personnel also stated that the available vehicles were
     not suited for the rough terrain often traveled by the enforcement
     officers.
  
     File Management. Another factor that significantly impacted the
     Department's enforcement activities was its file management systems.
     The Department maintained two types of filing systems on each island:
     (1) a hard copy filing system, which had initial applications, tax
     reference letters, and copies of correspondence, and (2) a computer
     database system. However, neither system was current, complete, or
     accurate.
  
     At the time of our review, the Department's St. Thomas office had
     approximately 1,000 hard copy files for businesses that needed to be
     deleted from the computer data files. Additionally, we found that
     because of inadequate storage capacity on the computer, about 740
     businesses were lost from a computer data file of active licensed
     businesses for fiscal year 1995.
  
     To test the accuracy of the computerized systems, we reviewed a total
     of 161 active and delinquent licensee files on both St. Thomas and
     St. Croix. On St. Thomas, 3 of 50 licensees shown as "renewals" were
     new business applicants, and 8 of 40 licensees shown as "delinquent"
     were not delinquent. On St. Croix, all 31 licensees shown as
     "current" were delinquent, and, conversely, 27 of 40 licensees shown
     as "delinquent" were not delinquent.
  
     The hard copy filing systems were also incomplete. During our audit,
     Departmental employees frequently could not locate requested files,
     primarily because sign-out cards were not used for files that had
     been removed. In other instances, the application forms were missing
     certain information, or other documents were missing from the files.
     We also found that some Departmental employees made temporary files
     for businesses when the original files could not be located. For
     example, one original file contained information that an enforcement
     officer had written to a licensee concerning a delinquency for 1994.
     During an on-site visit to the business, the business owner showed
     the enforcement officer a current business license that was to expire
     in 1997. Upon returning to the office, the enforcement officer
     located a second, temporary file for this business that included
     copies of licenses issued for 1995 through 1997.
  
     Amnesty Program
  
     Title 27, Section 304(j), of the Virgin Islands Code states that the
     Commissioner of Licensing and Consumer Affairs may not renew a
     license without a signed affidavit (commonly referred to as a "tax
     clearance letter") from the Virgin Islands Bureau of Internal Revenue
     indicating that the licensee has met all tax-related obligations.
     This law was based on a Stop Tax Evasion Program, which was developed
     jointly by the Department and the Bureau of Internal Revenue.
     However, contrary to the provisions of Section 304(j), the
     Department's internal rules and regulations allow licenses to be
     renewed without a tax clearance letter, provided that the licensee
     obtains a tax clearance letter within 30 days.
  
     The Commissioner of Licensing and Consumer Affairs instituted an
     amnesty program, from February to March 1995, under which delinquent
     licensees and those awaiting tax clearance letters were allowed to
     pay their license fees without any accompanying penalties. During the
     amnesty period, 855 licensees paid their renewal fees without having
     to obtain tax clearance letters. Although the Department collected
     $343,000 in license fees, the Department excused an additional
     $694,000 in potential revenues from the related penalties.
     Additionally, we found that of the 855 licensees who were allowed to
     pay license renewal fees without paying penalties and without
     obtaining a tax clearance letter, 635 licensees (475 on St. Thomas
     and 160 on St. Croix) had outstanding tax obligations at the time of
     our review and were unable to obtain tax clearance letters. The
     Department had sent letters to these licensees requesting compliance
     within 30 days, but the licensees had not paid the delinquent taxes
     or made arrangements to pay the taxes. However, during the amnesty
     period, they were able to continue to operate their businesses.
     Although Title 27, Section 304(k), of the Virgin Islands Code allows
     the Commissioner of Licensing and Consumer Affairs to revoke the
     licenses of persons who do not pay their tax obligations within 10
     days of notification, none of these businesses had their licenses
     revoked as of the date of completion of our audit (December 1996), or
     21 months after the end of the amnesty period.
  
  
     Recommendations
  
     We recommend that the Governor of the Virgin Islands direct the
     Commissioner of Licensing and Consumer Affairs to:
  
     1. Establish and implement procedures that require the Department's
     Enforcement Unit to contact delinquent licensees by telephone or in
     writing within 30 days of the expiration of their licenses and to
     refer licensees to the Legal Unit if the licensees do not respond
     within 10 working days of notification of their delinquency.
  
     2. Establish and implement procedures to ensure that the assigned
     enforcement officers are notified by the chief officer if
     notification letters sent to delinquent licensees are returned as
     undeliverable so that other methods can be used to contact the
     licensees.
  
     3. Provide the Enforcement Unit with an adequate number and type of
     vehicles to allow the enforcement officers to perform on-site
     inspections and followup contacts with delinquent licensees
     throughout the islands.
  
     4. Develop a comprehensive file management system that consolidates
     key information on licensees into a single computer database, with
     critical information and case history documentation being maintained
     in permanent case files. The file management system should be
     standardized on both St. Thomas and St. Croix and include procedures
     for signing out case files from permanent storage cabinets.
  
     5. Coordinate with the Bureau of Internal Revenue to resolve the
     issue of businesses that were issued license renewals during the 1995
     amnesty program without obtaining tax clearance letters.  Procedures
     should be implemented to revoke licenses of delinquent businesses if
     they do not fulfill their tax obligations.
  
     6. Perform a thorough review of all pertinent factors, including the
     potential lost tax and penalty revenues and the likelihood of repeat
     offenders continuing to be delinquent, before implementing any future
     amnesty programs. Any future amnesty programs should also be
     coordinated with the Bureau of Internal Revenue regarding the
     issuance of tax clearance letters to delinquent licensees.
  
     Governor of the Virgin Islands Response and Office of Inspector
     General Reply
  
     The January 26, 1998, response (Appendix 2) to the draft report from
     the Governor of the Virgin Islands generally concurred with the six
     recommendations and indicated that corrective actions had been or
     were being taken. Based on the response, we revised Recommendation 6,
     and we consider Recommendations 2, 5, and 6 resolved and implemented
     and request additional information for Recommendations 1, 3, and 4
     (see Appendix 3).
  
     Recommendation 6. Partial concurrence.
  
     Governor of the Virgin Islands Response. Although the response stated
     that any future amnesty program should be "coordinated" with the
     Bureau of Internal Revenue, the response did not agree that the
     "concurrence" of the Bureau should also be obtained before the
     Department of Licensing implemented any future amnesty program
     because, according to the response, such concurrence "would be
     tantamount to granting the Bureau veto powers over the internal
     affairs of the Department."
  
     Office of Inspector General Reply. Based on the concerns expressed in
     the response, we have revised the recommendation from requiring the
     Bureau's concurrence to coordinating with the Bureau on any future
     amnesty program.
  
     General Comments on Finding
  
     The Governor's January 26, 1998, response provided comments that
     disagreed with certain aspects of the overall finding. The Governor's
     comments and our replies are as follows:
  
     Governor of the Virgin Islands Response. The response stated that the
     Department "disagrees with the characterization of the hard [copy]
     files as being incomplete simply because at the time a file was
     requested it was not in the cabinet." The response further stated:
     "There are a number of valid reasons why the file of a particular
     business may be in the possession of another agency official at the
     time it was requested. These files are always returned to the cabinet
     when the reasons for their removal are complete."
  
     Office of Inspector General Reply. We based our conclusion that the
     Department's hard copy filing system was incomplete not on the single
     instance cited in the report of a file not being available to the
     auditors but on the fact that 6 of 40 files we selected for review
     could not be located by Department personnel. Additionally, we found
     that 30 of 50 licensee files selected for another phase of our review
     did not contain one or more required documents.
  
     Governor of the Virgin Islands Response. The response stated, "[W]e
     strongly disagree with the finding that more than six thousand
     (6,000) businesses were delinquent and that more than three million
     dollars ($3,000,000) in fees and penalties were outstanding." The
     response also stated that the Division of Licensing's computer
     software program "contained a flaw that resulted in businesses which
     were closed being erroneously carried as active." The response
     provided updated information showing that there were 2,169 delinquent
     businesses with outstanding fees totaling $436,131 and penalties
     totaling $1,751,313. The response further stated: "[W]hile these
     delinquencies have the potential for yielding approximately 1.7
     million dollars in penalties, this figure was determined by utilizing
     the maximum amount penalty applicable under the law. The Department
     rarely applies the maximum penalty in these cases, as applicants
     routinely request hardship waivers or reductions. Therefore, in
     actuality, collections would be much less than the maximum potential
     yield."
  
     Office of Inspector General Reply. Our report (page 13) states that
     "the Department's records indicated that more than 6,000 business
     licensees were delinquent and that the associated outstanding fees
     and penalties totaled more than $3 million." (Emphasis added.) This
     statement was based on the Department's records at the time of the
     audit. Our report states (section "Delinquent Licensees" in Finding
     C) that the Department's records were inaccurate and incomplete.
     Specifically, the report states that "the Department's St. Thomas
     office had approximately 1,000 hard copy files for businesses that
     needed to be deleted from the computer data files," that "8 of 40
     licensees [sampled on St. Thomas] shown as 'delinquent' were not
     delinquent," and that "27 of 40 licensees [sampled on St. Croix]
     shown as 'delinquent' were not delinquent." However, we believe that
     the Department's updated records, which, according to the response,
     show that there were 2,169 delinquent licensees, with outstanding
     fees totaling $436,131 and potential penalties totaling $1.7 million,
     should be a matter of concern. A detailed list of delinquent
     businesses included with the Governor's response show that many of
     the businesses had been delinquent for up to 2 years, which we
     believe supports our overall conclusion that "the Department was not
     effective in enforcing the licensing laws." Additionally, we believe
     that the statement in the response that "the Department rarely
     applies the maximum penalties" implies a level of leniency on the
     part of the Department that could undermine the deterrent effect of
     applying penalties uniformly against delinquent licensees.
  
     Governor of the Virgin Islands Response. The response stated, "The
     Department strongly disagrees with the finding that licensees were
     allowed to renew their licenses without tax clearance letters during
     the Amnesty Program." The response further stated, "While licensees
     were allowed to pay license fees and were excused from penalties,
     under the program no license was renewed until a tax clearance letter
     was presented."
  
     Office of Inspector General Reply. Based on a reevaluation of our
     audit results, we changed the statement in the section "Amnesty
     Program" in Finding C from "licensees were allowed to renew their
     licenses" to "licensees were allowed to pay license renewal fees."
     This revised statement acknowledges that, although the licensees paid
     the renewal fees, the Department did not issue license renewal
     certificates. However, the Department's acceptance of license renewal
     fees without imposing late penalties and without following up to
     ensure that delinquent licensees received tax clearance letters, in
     effect, gave the licensees approval to continue to operate their
     businesses without penalty or obligation to pay their outstanding tax
     liabilities. Therefore, the amnesty program aided the delinquent
     licensees at the expense of Government revenues and provided an
     opportunity that was not afforded other businesses that complied with
     the licensing laws.
  

     D. PROFESSIONAL LICENSING PRACTICES
  
     All professional licenses except those for draftsmen and building
     contractors are approved by the Department's Office of Boards and
     Commissions. The Department of Public Works is responsible for
     testing applicants for licenses as draftsmen and building
     contractors.  According to Department of Public Works policies,
     applicants for a draftsman license are required to pass an 8-hour
     test that includes both written and practical "hands-on" sections. In
     contrast, applicants for a building contractor license are required
     to pass only a 1-hour test that consists of multiple choice and
     true/false questions.  The latter test is based on the study of three
     manuals and other documents on a list issued by Public Works.
     However, we believe that, because of the oversight responsibilities
     of a building contractor, applicants for a building contractor
     license should be required to demonstrate a basic knowledge of a
     variety of disciplines, including carpentry, masonry, plumbing,
     electricity, and the ability to supervise a multidisciplinary work
     force. Before the current draftsman and building contractor tests
     were instituted in 1989 and 1985, respectively, licenses for these
     two professions were based only on interviews conducted with the
     applicants by Public Works officials.
  
     Our review at Public Works disclosed that there were no written rules
     and regulations or formal policies and procedures for administering
     the draftsman and the building contractor tests. We requested the
     files of 25 building contractors and 25 draftsmen to determine the
     bases for the issuance of their licenses. However, Public Works
     officials could not locate the files of 8 of the 25 building
     contractors and 4 of the 25 draftsmen. Of the 17 building contractors
     whose files were located, we found that 7 had taken and passed the
     written test and that the other 10 building contractors had been
     issued their licenses before 1985 on the basis of interviews. Of the
     21 draftsmen files located, 13 files of persons who received licenses
     between 1969 to 1990 did not contain sufficient information to
     determine the basis for the issuance of the licenses, and the
     remaining 8 files indicated that the licensees had taken and passed
     the draftsman test. We also found that the Department of Licensing
     and Consumer Affairs had issued a license to a draftsman who was not
     recommended for a license by Public Works.
  
     One licensed building contractor, together with one or more unlicensed
     building contractors, can register as a company. Our review also
     disclosed that licenses for such companies were renewed annually
     without verification by the Department of Licensing that each company
     had at least one licensed contractor.
  
     As a result of the deficiencies related to the licensing of draftsmen,
     individual building contractors, and building contractor companies,
     there was little assurance that licensed individuals and companies
     had the skills necessary to ensure the quality of structures they
     designed and/or constructed. In our opinion, a Draftsman and Building
     Contractor Licensing Board should be established under the Office of
     Boards and Commissions of the Department of Licensing and Consumer
     Affairs to administer the testing and licensing of draftsmen and
     building contractors.
  
     Recommendations
  
     We recommend that the Governor of the Virgin Islands:
  
     1. Establish a Draftsman and Building Contractor Licensing Board,
     under the Office of Boards and Commissions of the Department of
     Licensing and Consumer Affairs, which would be responsible for
     administering tests for the licensing of draftsmen and building
     contractors.
  
     2. Require that the recommended Licensing Board and the Department of
     Public Works jointly develop a more comprehensive licensing test for
     building contractors.
  
     3. Require the Department of Licensing and Consumer Affairs, as part
     of the license renewal process, to ensure that all building
     contracting firms have at least one licensed building contractor as a
     member of the firm.
  
     Governor of the Virgin Islands Response and Office of Inspector
     General Reply
  
     The January 26, 1998, response (Appendix 2) to the draft report from
     the Governor of the Virgin Islands generally concurred with the three
     recommendations and indicated that corrective actions had been or
     were being taken. Based on the response, we consider Recommendation 3
     resolved and implemented and request additional information for
     Recommendations 1 and 2 (see Appendix 3).
  
  
  





                                                                           APPENDIX 1  


             CLASSIFICATION OF MONETARY AMOUNTS
  
  
                                              Unrealized       
                           Finding             Revenues*       
  
       B.  Collection Practices
          
           Daily Collections                     $3,846         
           Dishonored Checks                     40,624         
  
       C.  Enforcement Activities
          
           Delinquent Licensees               3,700,000         
           Anesty Program                      694,000         
      
             Total                           $4,438,470        
  
  
  
  __________
  * Amounts represent local funds.                                                      




APPENDIX 2                                                 Page 1 of 7
                                                    
  
  
              GOVERNOR OF THE VIRGIN ISLANDS REPONSE
  
  
                                                           APPENDIX 3
                                                           Page 1 of 2
  
  
              STATUS OF AUDIT REPORT RECOMMENDATIONS
  
  
  
  Finding/Recommendation
              Reference             
  
  A.1-A.3
  
  B.1
  
  
  
  
  
  B.2
  
  
  
  
  
  B.3
  
  B.4
  
  
  
  
  
  
  
  
  
  
  
  
  C.1
  
        Status      
  
  Implemented.
  
  Management
  concurs;
  additional
  information
  needed.
  
  Management
  concurs;
  additional
  information
  needed.
  
  Implemented.
  
  Unresolved.
  
  
  
  
  
  
  
  
  
  
  
  
  Management
  concurs;
  additional
  information
  needed.

  
  
  
  
     Action Required  
  
     No further action is required.
  
     Provide documentation showing that physical safeguards have been
     installed for the cashier's work area on St. Croix.
  
  
     Provide a copy of correspondence to the Virgin Islands Attorney
     General requesting a detailed review of collection-related
     discrepancies discussed in the report.
  
     No further action is required.
  
     Provide a response to the recommendation indicating concurrence or
     nonconcurrence. If concurrence is indicated, provide an action plan
     that includes a target date and title of the official responsible for
     implementation. If nonconcurrence is indicated, provide specific
     reasons for the nonconcurrence and a description of alternative
     actions to be taken to correct deficiencies related to the processing
     of dishonored checks by the Department of Finance.
  
     Provide a target date and title of the official responsible for
     revising the Department's Standard Operating Procedures regarding
     contacting delinquent licensees. When completed, a copy of the
     revised procedures should be provided to our Caribbean Regional
     Office.
  
  
  

                                                             APPENDIX 3
                                                             Page 2 of 2
  
  
  Finding/Recommendation
              Reference             
  
  C.2
  
  C.3
  
  
  
  
  
  C.4
  
  
  
  
  
  C.5 and C.6
  
  D.1
  
  
  
  
  
  D.2
  
  
  
  
  
  
  D.3
  
  
        Status      
  
  Implemented.
  
  Management
  concurs;
  additional
  information
  needed.
  
  Management
  concurs;
  additional
  information
  needed.
  
  Implemented.
  
  Management
  concurs;
  additional
  information
  needed.
  
  Management
  concurs;
  additional
  information
  needed.
  
  
  Implemented.
  




  
  
  
  
     Action Required  
  
     No further action is required.
  
     Provide documentation showing that the new vehicles requested for use
     by the Enforcement Unit have been received.
  
  
     Provide documentation showing that the upgrades to the Department's
     computer file management system have been completed.
  
  
     No further action is required.
  
     Provide a target date for submission to the Legislature of draft
     legislation for the creation of a Contractor's Board. A copy of the
     draft legislation should also be provided to our Caribbean Regional
     Office.
  
     Provide a target date and title of the official responsible for
     developing a comprehensive test for building contractors. When
     completed, documentation to that effect should be provided to our
     Caribbean Regional Office.
  
     No further action is required.
  
  
  
  
  
    MEMORANDUM
  

    TO:             The Secretary
  
    FROM:           Robert J. Williams
                    Acting Inspector General
  
    SUBJECT SUMMARY:  Final Audit Report for Your Information
                      - "Business Licensing Fees, Department of Licensing 
                      and Consumer Affairs, Government of the Virgin Islands"
                      (No. 98-I-


     Attached for your information is a copy of the subject final audit
     report. The objective of the review was to determine whether: (1)
     businesses were obtaining licenses as required; (2) bills for license
     fees were issued timely and accurately; and (3) collection
     enforcement efforts were effective.
  
     We found that, although the Department of Licensing and Consumer
     Affairs was generally effective in its business licensing activities,
     improvements were needed in the areas of licensing procedures,
     collection practices, and enforcement activities. Specifically, we
     found that the Department did not process business license
     applications in a timely manner and did not always require the
     necessary approvals from other reviewing agencies, did not maintain
     effective control over daily collections, and was not effective in
     enforcing the licensing laws. As a result: (1) for a sample of 150
     business license applications, the average processing time was 31
     workdays, with a range of 1 to 198 workdays; (2) there were cash
     shortages of at least $3,846; (3) the Department did not receive
     revenues of $40,624 because checks issued by businesses in payment of
     license fees were not honored by the banks; (4) enforcement officers
     did not notify licensees of their delinquent status until an average
     of 1 to 3 years after the licenses had expired; and (5) the
     Department lost about $694,000 in potential revenues from penalties
     as a result of an amnesty program for delinquent licensees.
     Additionally, we believe that improvements should be made with regard
     to the procedures used for the testing and professional licensing of
     draftsmen and building contractors.
  
     Based on the response from the Governor of the Virgin Islands, we
     considered 8 of the report's 16 recommendations resolved and
     implemented. We requested additional information for the 8 remaining
     recommendations, including one that is considered unresolved.
  
     If you have any questions concerning this report, please contact me at
     (202) 208-5745 or Mr. Ron Stith, Acting Assistant Inspector General
     for Audits, at (202) 208-4252.
  
     Attachment          Write-up for Semiannual Report
  
     Although the Virgin Islands Department of Licensing and Consumer
     Affairs was generally effective in its business licensing activities,
     improvements were needed in the areas of licensing procedures,
     collection practices, and enforcement activities. Specifically, we
     found that the Department did not process business license
     applications in a timely manner and did not always require the
     necessary approvals from other reviewing agencies, did not maintain
     effective control over daily collections, and was not effective in
     enforcing the licensing laws. As a result: (1) for a sample of 150
     business license applications, the average processing time was 31
     workdays, with a range of 1 to 198 workdays; (2) there were cash
     shortages of at least $3,846; (3) the Department did not receive
     revenues of $40,624 because checks issued by businesses in payment of
     license fees were not honored by the banks; (4) enforcement officers
     did not notify licensees of their delinquent status until an average
     of 1 to 3 years after the licenses had expired; and (5) the
     Department lost about $694,000 in potential revenues from penalties
     as a result of an amnesty program for delinquent licensees.
     Additionally, we believe that improvements should be made with regard
     to the procedures used for the testing and professional licensing of
     draftsmen and building contractors. Based on the response from the
     Governor of the Virgin Islands, we considered 8 of the report's 16
     recommendations resolved and implemented. We requested additional
     information for the 8 remaining recommendations, including one that
     is considered unresolved.
  
  
  
     V-IN-VIS-003-96                                         Page 1 of 3
                      

     BUSINESS LICENSE FEES
     DEPARTMENT OF LICENSING AND CONSUMER AFFAIRS
     FINAL REPORT DISTRIBUTION LIST
  
     Date of issuance:                           No.        Date      
  
     The Honorable Roy L. Schneider
     Governor of the Virgin Islands
     No. 21 Kongens Gade
     Charlotte Amalie, Virgin Islands 00802       2     __________
  
     Mr. Elmo D. Roebuck
     Special Assistant to the Governor
       for Policy and Audit Resolution
     No. 21 Kongens Gade
     Charlotte Amalie, Virgin Islands 00802       1     __________
  
     Mr. Osbert Potter
     Commissioner
     Department of Licensing and Consumer Affairs
     Sub Base Building No. 1 - Room 205
     Charlotte Amalie, Virgin Islands 00802       1     __________
  
     Mr. Juan Centeno
     Commissioner
     Department of Finance
     2314 Kronprindsens Gade
     Charlotte Amalie, Virgin Islands 00802       1     __________
  
     Date of issuance plus 2 days:
  
     Mr. Steven G. van Beverhoudt
     Inspector General
     Virgin Islands Bureau of Audit and Control
     No. 75 Kronprindsens Gade
     Charlotte Amalie, Virgin Islands 00802       1     __________
  
     The Honorable Lorraine L. Berry
     President
     Legislature of the Virgin Islands
     Post Office Box 477
     Charlotte Amalie, Virgin Islands 00804      17     __________
  
     V-IN-VIS-003-96                                        Page 2 of 3
                     

     BUSINESS LICENSE FEES
     DEPARTMENT OF LICENSING AND CONSUMER AFFAIRS
     FINAL REPORT DISTRIBUTION LIST
  
                                              No.        Date      
  
  Mr. Nellon L. Bowry
  Director
  Virgin Islands Office of Management and Budget
  No. 40-41 Norre Gade, 2nd Floor
  Charlotte Amalie, Virgin Islands 00802       1     __________
  
  Mr. Julio A. Brady
  Attorney General
  Virgin Islands Department of Justice
  48B-50C Kronprindsens Gade
  GERS Building, 2nd Floor
  Charlotte Amalie, Virgin Islands 00802       1     __________
  
  Mr. James Hurd
  U.S. Attorney
  U.S. Department of Justice
  Federal Building, Room 260
  Charlotte Amalie, Virgin Islands 00802       1     __________
  
  Mr. Cary Gleicher
  Senior Supervisory Resident Agent
  Federal Bureau of Investigation
  P.O. Box 7018
  St. Thomas, Virgin islands  00801            1     __________
  
  Mr. Peter Scharwark, Jr.
  Senior Auditor-in-Charge
  Office of Inspector General
  North Pacific Regional Office
  238 Archbishop F.C. Flores Street
  Pacific Daily News Building - Suite 807
  Agana, Guam 96910                            1     __________
     


     V-IN-VIS-003-96                                         Page 3 of 3
                      

     BUSINESS LICENSE FEES
     DEPARTMENT OF LICENSING AND CONSUMER AFFAIRS
     FINAL REPORT DISTRIBUTION LIST
  
  
  Date of issuance plus 4 days:               No.        Date      
  
  The V.I. Daily News                          1     __________
  
  The St. Croix Avis                           1     __________
  
  WSTA Radio                                   1     __________
  
  WVWI Radio                                   1     __________
  
  WSTX Radio                                   1     __________
  
  WSVI TV                                      1     __________
  
  Mr. Claude Molloy (per standing FOIA request)1     __________
  
  Mr. Eddie Donahue (per standing FOIA request)1     __________
  
  General Public (per individual FOIA requests)_     __________
  - Also available on the internet at:  www.access.gpo.gov/doi
  
  
  
     
    ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED TO THE OFFICE OF
    INSPECTOR GENERAL BY:

    Sending written documents to:                 



    Within the Continental United States
    
    U.S. Department of the Interior
    Office of Inspector General 
    1849 C Street,N~.W.
    ~Mail Stop 5341
    Washington, D.C. 20240

    Calling:

    Our 24~hour
    Telephone HOTLINE
    1-800-424-5081 or
    (202) 208-5300
    
    TDD for hearing impaired                                                  
    (202) 208-2420 or
    1-800-354-0996



    Outside the Continental United States

    
    Caribbean Region
    
    U.S. Department of the Interior
    Off~ce of Inspector General
    Eastern Division- Investigations
    1550 Wilson Boulevard
    Suite 410
    Arlington, Virginia 22209

    Calling:
    (703) 235-9221


    North Pacific Region

    U.S. Department of the Interior
    Office of Inspector General
    North Pacific Region
    238 Archbishop F.C. F'lores Street
    Suite 807, PDN Building
    Agana, Guam 96910

    
    Calling:
    (700) 550-7428 or 
    COMM 9-011-671-472-7279