[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