$450,000 allegedly defrauded from government, auditors found
NASSAU, BAHAMAS – As part of an internal review of the Department of Education, which uncovered alleged collusion by employees to defraud the government of nearly $450,000, auditors also found virement of funds in the department totalling $3.36 million in the fiscal years 2016 and 2017.
The audit, completed by Auditor General Terrance Bastian, covered the period July 1, 2014, to February 28, 2018.
The report was tabled in the House of Assembly yesterday, more than three months after it was completed and delivered to Parliament.
“Virements are an indicator that a ministry or department has either over or underestimated its budgetary requirements,” the report read.
“These virements should be scrutinized and explanations provided and documented as to the need for the virement.
“Financial analysts assigned to a ministry or department should also be performing monthly monitoring of line items to ensure that persons are held accountable for not adhering to budgetary restrictions.
According to the report, the head of the department authorized virements amounting to $1.34 million while the then finance officer authorized $2.025 million.
These virements were largely for monthly salary contract workers over a two-year period for services including “special employment projects, coaching allowance, exam supervision and marketing fees, and honoraria”.
A special investigation, which resulted from complaints of suspicious payroll transactions, inappropriate vendor payments and misconduct of accounting of accounting officers during the period, revealed several irregularities “perpetrated by staff members” using specific line item codes.
While payment evidenced were approved by the director, formal approvals by the ministries of education, finance or public service were not affixed on the majority of requisitions provided, the report noted.
A honoraria payment may be granted to an officer who is required to perform an extra duty in addition to their normal duties for a specified period.
A request for such payment should be submitted to the permanent secretary in the Ministry of Public Service for approval and should include specifics such as the scope of work, timeframes, hours worked, proposed payment and the level of responsibility.
The Department of Education’s honoraria was allocated $4,000 per year, while the Ministry Education’s honoraria budget was $15,000 per year; totalling $19,000.
In the fiscal year 2016/2017 alone, the Ministry of Education’s honoraria payments were $55,000.
The Department of Education’s honoraria payments that year was $64,650, more than 15 times the budgeted amount.
One department officer, denoted as ‘Officer J’, an assistant accountant, received 43 honoraria payments between March 2014 and November 2017 totalling $125,505.82.
Another accountant, referred to as ‘Officer G’ received $61,113.18 in honoraria payments for the period February 2016 and October 2017.
Honoraria payments for the 12 listed officers who received payments over $10,000 totalled $451,286.61.
“Based on the information derived from this special investigation, there appeared to be a systematic avoidance of proper financial controls and circumvention of the policies and procedures established around honoraria type payments by certain staff members in an effort to defraud the government,” the report read.
“Through a combination of collusion, limited oversight and lack of adequate financial monitoring, staff members were able to process cheques that may or may not have been for legitimate services or to legitimate vendors.
A further analysis of 77 payments that three accounting staff members were able to process payments — request, approve, receive custody — to themselves by their vendor identification; the payments were made through “collusion and schemes to receive funds (extra overtime or projects and inappropriate ledger account)”.
The list of payments was attached to the audit report.
The auditor general also noted that controls over cash disbursements and payroll payments were inadequate to prevent loss of funds from collusion schemes due to “no budgetary control being in place”.
According to the report, there was no clear guidelines, written policies and procedures about proper segregation of duties, conflict of interest and payments to account officers, as well as a lack of independent monitoring by the head department of payments for honoraria.
No monthly or annual honoraria reports were prepared, reviewed or signed off on, according to the report.
It continued, “The Ministry of Public Service/Finance Ministry approach was not sought nor were there properly authorized time sheets with descriptions of work performed after hours.
“The officers used vendor id’s to receive payment for honoraria/stipend items over the system in large amounts for distribution to other staff and themselves.”
According to the audit, the financial officer, for example, had three vendors id’s and another senior clerk had two id’s.
The auditor general recommended the ministry strengthen internal controls over honoraria payments; conduct an independent review monthly; develop written policies; put in place proper segregation of duties.
It was also recommended that the ministry take disciplinary action against officers mentioned in the report as the “fiduciary duty of care and financial procedures/regulations were violated by the accounting officers”.
“They should be moved out of performing any accounting functions related to accounts payable and cash disbursements until proper training is received and controls strengthened,” the report noted.
A review of three vouchers for the vendor, ‘Smart Kids Bahamas’, found that they did not have proper quotations attached.
The auditor general said the only supporting document attached to the voucher was a performance invoice dated, January 6, 2017, which showed the U.S. price of the more than $21,000 freight, customs brokerage and taxes for books and education supplies.
Inclusive of a delivery charge of over $15,000 and a preferred customer discount of nearly $3,000, the total cost of the goods was more than $34,000.
The auditor determined the proforma invoice was not a “legitimate quotation” as the items were not in stock and suggested the supplier was paid in advance to order the items.
A requisition letter by the assistant director of labour attached to the voucher and signed by the director of education did not indicate the “reason for the purchase of books except on the request form”.
“A reason noted was to support implementation of health and family life education in primary schools,” the report read.
“On the form, it was not noted how many schools were estimated, and the quantity of books/supplies ordered ranged from 50 to 300 items.
“A receiving advice or receiving invoice was not found by auditors.”
Based on the review, the auditor said no proper financial procedures were followed and the payment made was “inappropriate and improperly vouched/authorized”.
Two more payments to the vendor that were scrutinized — $54,553.40, dated September 15, 2017, and $16,266.04, dated September 15, 2017, were not processed by the new financial officer, according to the report.
The report said there was no realization of value for money spent as quotes were not obtained.
The auditor recommended that the officers, including accounts and management officers involved, be removed from the purchasing process until they are properly trained, due to the magnitude of the purchases reviewed and control issues.