CITY OF HARTFORD

INTERDEPARTMENTAL MEMORANDUM
Date: February 14, 2006
To: Thomas Morrison III, Finance Director

From: H. Patrick Campbell, Chief Auditor

Telephone: 543-8568

Subject: Cash Processing Issues Involving a Finance Department Tax Division Employee

On Friday, December 9 we were informed about a situation involving a taxpayer and a Tax
Division employee. According to the taxpayer he had made two payments in cash to a Tax
Division employee on his delinquent Real Estate tax account. After making each of the two
payments the Tax Division employee noted the date and the dollar amount paid on a copy of the
taxpayer's bill. According to notations on the taxpayer's bill the Tax Division employee
indicated that the taxpayer had made a payment of $600 on July 31, 2005 and a payment of $500
on August 31, 2005. When the taxpayer returned to the Tax Collector's Office on December 8,
2005 to review and discuss his account it was found, by another Tax Division employee, that the
two payments noted above had not been applied to the taxpayer's account. Because the Tax
Division employee in question was out of work on Friday December 9, a meeting was scheduled
for Monday December 12 to discuss this matter with the employee. On December 12 at 3:00
p.m. I attended a meeting with D. Lefevre, L. Labarbera, the employee and J. Baker a union
representative to discuss this matter.

During the meeting the employee indicated that the reason she did not process these payments in
accordance with Tax Division practices, and in the same manner that she had processed virtually
all other standard payments in the past, was because in both instances it was at the end of very
busy days. Instead, as previously noted, in each instance she manually signed a copy of the
taxpayer's bill in place of a receipt, put the cash in envelopes and put them in a folder in one of
her file cabinets. She also indicated that she did not go back and properly process these
payments at a later date because she had forgotten about them. After the meeting the employee
produced two envelopes containing $500 and $600 respectively, from an otherwise empty folder,
from a file cabinet in her workspace.

It should also be noted that during the meeting, D. Lefevre raised the matter of another incident
discovered in November 2005 involving this employee and almost identical circumstances. In
this case, the employee accepted $1,110 in cash from another taxpayer for the payment of Motor
Vehicle taxes. According to the employee this money was also placed in an envelope in her desk
drawer and forgotten until the taxpayer complained to another Tax Division employee that the
Department of Motor Vehicles would not let her register her vehicle because she had unpaid
taxes. When confronted with this, the employee produced an envelope with $1,110 in cash from
her desk drawer.
 Background

According to Finance Department Tax Division management whenever a taxpayer makes a

payment on an account the amount paid should be immediately recorded in the Tax System and
the payee should receive a system-generated receipt. All cash receipts should then be processed
for deposit to a designated bank account. There is no precedent, either in documented procedures
or past practice, for employees to either provide taxpayer's with anything other than a receipt
generated from Tax system or maintain funds, either cash or checks, at employee workstations.
With the exception of a payment that is specifically identified as problematic, all daily cash
receipts should be processed in the Tax system and accounted for with all other cash and checks
by the end of that same business day.

General

In general, we found that the employee in question has shown a pattern of not properly
accounting for or processing cash receipts. In three separate instances, taxpayers paid this
employee a total of $2,210 in cash for outstanding Motor Vehicle and Real Estate taxes. In each
of these cases, according to the employee, she placed the cash in envelopes in either her desk
drawer or file cabinet in her workspace rather than recording the receipts in the Tax system and
processing them for deposit. These funds supposedly remained in her workspace for at leasdffour
months until the respective taxpayers inquired about these payments and their account balances.
According to the employee she did not deposit or record these payments in the Tax system
because she was very busy at the time and then subsequently forgot about them. After
performing Tax Division employee desk audits and an audit of the contents of the Tax
Collector's vault we also found that the employee in question also had 23 unprocessed checks
totaling more than $25,000 on file in her work space. We found no reason why this individual
had not processed a majority of these checks the oldest of which was dated January 14, 2005.
During the desk audits we also found an additional 344 checks totaling more than $68,000, the
oldest of which was dated prior to December 31, 2003, in five other locations. One of these
locations was a file associated with a former employee who recently left on short notice. Finance
Department management indicated that this is a very small portion of the total number of checks
received and processed by the Tax Division annually. While we agree in principal, it is still
readily apparent from this that cash receipts are not always being processed as required by Tax
Division employees. In addition, although our review did not disclose any misappropriated
funds, we do not believe that current policies, procedures and controls are adequate to ensure that
funds are not misappropriated, misplaced or inappropriately used in some other manner, such as
unaccounted for employee loans. As a result of the above we recommend that Tax Division
management take immediate action to more clearly define and document cash receipt processing
policies, procedures and controls. We also recommend that Tax Division management train
employees to ensure that they are knowledgeable of, and process cash receipts in accordance
with, related policies, procedures and controls. Finance Department management informed us
that the employee in question is no longer responsible for handling or processing cash receipts.
Review Results

Various tests and reviews of the incident noted above and other related Tax Division accounts
and operations disclosed the following.
1. A closer review of the incident discovered on December 9 involving the two payments of
$600 and $500 disclosed the following:
a. We found that the $600 payment the employee indicated was received on July 31, 2005
was questionable for a number of reasons. To begin with, July 31, 2005 was a Sunday.
In addition, the employee used a tax bill that she generated from the Tax system on July
31, 2005, as a receipt. This would indicate that the employee somehow processed this
transaction outside of normal working hours, which is highly unlikely. In addition this
would contradict the employee's statement that she had processed the transaction at the
end of a busy working day, put the cash in an envelope in her file cabinet and forgot about
it.
b. The subsequent payment of $500 made on August 31, 2005 also raises a number of issues
and concerns. In particular, the circumstances surrounding this second cash payment
apparently were exactly the same as those encountered by the employee during the first
cash payment of $600. That is, according to the employee, both took place at the very
end of busy working days after which the cash was placed in envelopes in the same folder
of the employee's file cabinet and forgotten. When processing this second payment the
employee noted "Amt Paid 8/31/05 $500" on the July 31, 2005 bill that already contained
the notation "Amt Paid 7/31/2005 $600" made by the employee at the time of the first
payment. She then placed the second envelope containing the $500 in cash in the same
folder, which included nothing else but the envelope with the $600 in cash. This is
questionable because the employee apparently did not recall and fix her prior oversight of
not depositing the $600 when handing a processing the subsequent $500 payment from
the same taxpayer.
c. When the employee produced the two envelopes with cash from the folder in her file
cabinet, one of the envelopes was found to contain a tax bill for the taxpayer's account
dated October 11, 2005. This raises even more significant concerns regarding these
transactions because it indicates that for some reason the employee was looking into this
account on October 11, 2005 and placed a bill generated on this date in one of the two
envelopes containing cash that she had previously received on July 31, 2005 and August
31, 2005. Again, this was yet another chance for this employee to recall and fix her two
prior oversights. With all this information the employee still failed to process these cash
receipts.
d. In addition to the above, and as previously noted, this employee was also involved in
another incident discovered in November 2005 with almost identical circumstances. In
this case, the employee accepted $1,110 in cash from another taxpayer to pay for Motor
Vehicle taxes. According to the employee this money was also placed in an envelope in
her drawer and forgotten until the taxpayer complained to another Tax Division employee
that the Department of Motor Vehicles would not let her register her vehicle because she
had unpaid taxes. When confronted with this, the employee produced an envelope with
$1,110 in cash from her drawer. This shows a pattern by this employee of improperly
 processing tax payments, in these cases, all of which happened to have been made in
cash. This incident also gave this employee yet another opportunity to recall and properly
process the other two cash payments totaling $600 and $500 that remained in the file
cabinet unprocessed.
2. Because of the pattern noted above it was determined that it would be appropriate to do a
complete desk audit of all Tax Division employees who have responsibility for handling and
processing cash receipts. In addition, we performed a complete audit of the vault used by the
Tax Division to store cash receipts awaiting deposit. Representatives from the Internal Audit
Department and the Tax Division performed the audits on December 13, 2005. These audits
disclosed the following:
a. Twenty-three (23) checks totaling more than $25,000 were found at the workstation of the
employee in question. The oldest of these checks was dated January 14, 2005. No
additional cash was found during this audit. Finance Department management informed
us that 11 of the 23 checks totaling about $3,200 were fees paid by property owners for
trash collection services provided by the City. We found no reason why the employee did
not either process the 23 checks or notify her supervisor as to why she was unable to
process them. These instances show a clear pattern of not properly handling and/or
processing cash receipts.
b. Two hundred two (202) checks totaling more than $37,000 were found in a box in the
vault. The oldest of these checks was dated prior to December 31, 2004.
c. One hundred twenty-three (123) checks totaling more than $22,000 were found in the
desk of a former employee. The oldest of these checks was dated prior to December 31,
2003.
d. Nine (9) checks totaling more than $800 were found in a box that was used by a former
employee whose last day of service with the City was on September 10, 2005.
e. Ten (10) checks totaling more than $7,000 were found in the desks of two other active
employees. The oldest of these checks was dated prior to December 31, 2003. According
to Tax Division management, a majority of these checks should have been returned to the
payee rather than being cashed.
In total 367 unprocessed checks totaling more than $93,000 were found in various locations
throughout the Tax Division offices. As previously noted, Finance Department management
informed us that this is a very small portion of the number of checks typically processed by
the Tax Division annually. In addition, Finance Department management informed us that
taxpayers had already replaced some of these older checks that were previously thought to be
missing. Finally, Finance Department management indicated that all these checks, some of
which required special handling, have since been processed as required. Regardless, it is
apparent from this that Tax Division policies, procedures and controls needed significant
improvement to ensure that all cash receipts are processed as required. The following are our
findings, conclusions and recommendations resulting from our desk audits and reviews of
related operations.
• Tax Division management should take immediate action to more clearly define and
document cash receipt processing policies, procedures and controls.
 • All Tax Division employees should be trained to ensure that they are knowledgeable of,
and process cash receipts in accordance with, related policies, procedures and controls.
• Procedures should state that, without exception, employees should record all cash and
checks received in the Tax system before the end of each working day. Under no
circumstances should employees maintain cash or checks in or around their work areas.
If for some reason an employee is unable to process a check it should be turned over to a
designated employee for safekeeping and subsequent processing.
• A supervisory level employee should be designated as the custodian of checks that are
received and are unable to be processed to the proper account in the Tax system on any
given day. This person should be responsible for maintaining a log of unprocessed
checks. This log should include the date the check was received, the check number,
dollar amount, payee and the date the check was either processed or returned to the
owner. The supervisory level employee would be responsible for ensuring that these
checks are resolved in a timely manner preferably within an established period of time.
9 Under no condition should cash be accepted by anyone other than a cashier or without it
being immediately processed in the Tax system with a system generated receipt going to
the payee as proof of payment.
• Finally, Tax Division management should consider the feasibility of establishing a
suspense account in the Tax system. This account could be used by employees to process
cash receipts that, for what ever reason, cannot be immediately applied to an established
account. This would ensure that all receipts are recorded in the Tax system by the end of
each business day and deposited with all other receipts in the designated bank account.
3. In an attempt to identify any other payments that had not been properly processed by the
employee in question, we performed additional reviews of other accounts assigned to this
employee in the Tax system. When accounts are assigned to employees in the Tax System all
inquiries on the assigned accounts are referred to the employee unless they happen to be
unavailable. The two situations regarding unprocessed cash came to light because in both
instances someone other than the employee in question became involved with inquiries regarding
payments on the accounts. We obtained a report indicating that this employee was assigned to
106 accounts. We then sent tax balance confirmations to the owners of 20 or 19% of the 106
accounts assigned to the employee in question. The intent of the confirmations was to verify the
outstanding balances on each respective account and ensure that payments made by property
owners had been properly applied the accounts. We received three responses to the 20
confirmations none of which expressed issues or concerns with either payments that had been
made or the outstanding balances noted on the confirmations.

copy: City Council Members

Internal Audit Commissioners
L. Erdmann, Chief Operating Officer
S. Malave, Director, Personnel Department
E. Perez, Mayor