An audit of the V.I. Labor Department's Unemployment Insurance Division has uncovered more than $7 million in improper—and in some cases, illegal—unemployment tax refunds and credits issued to employers. It also found a $49 million surplus in the unemployment insurance fund maintained by the U.S. Treasury that could be used by the V.I. government for other purposes, if authorized by the U.S. Congress.
The audit, released by the V.I. Office of the Inspector General on Thursday, also disclosed "the appearance of significant misuse and abuse of government funds through a former Labor official" and that those findings were referred to the Fraud and Corruption Task Force for investigation and possible prosecution.
A letter included with the audit findings, from V.I. Inspector General Steven van Beverhoudt to Gov. Charles W. Turnbull and Senate President Almando "Rocky" Liburd, did not name the official, but did say "the former Labor official was terminated from employment because of her refusal to cooperate with the ongoing investigation of these irregularities."
Records from the period Jan. 1, 1996, through Dec. 31, 1999, were examined. Like most such audits, it included evaluations of internal controls and management oversight—"inadeqaute" in Labor's case—and specifically sought to determine "the legality, propriety and accuracy of employer unemployment tax refunds/credits, and to evaluate the Labor's [sic] overall compliance with the unemployment insurance sections of the Virgin Islands Code."
According to the audit, at least $1.5 million in tax credits was granted illegally to certain employers who were advised by Labor officials, after the employers had received notice of tax rate increases, to make a "voluntary contribution" to the unemployment insurance system.
"Employers who paid the amount requested by Labor officials were rewarded with a revised rate analysis and a lower tax rate for the new year," normally from 9.5 percent and 5.4 percent to 0.1 percent, the audit said.
Those contributions were retroactively posted into the automated employer record, the audit reported, "thus falsifying the employer's account history in order to reduce future unemployment insurance tax rates."
Some 38 such instances were found. "We estimate that there may be many more cases among the more than 3,000 employers who are part of the unemployment insurance tax system, where millions of unemployment insurance tax dollars were virtually 'wiped out' of Labor's accounting system," the audit said.
Only some employers picked by Labor officials got the benefit of this treatment, it said, and concluded that "this practice was not only illegal but inequitable as well."
The report also found that $625,429 in unemployment insurance taxes was improperly refunded to other selected employers without the knowledge or approval of the department's commissioner or assistant commissioners, and these same employers were given $5.1 million in improper tax credits.
In addition, the audit discovered that the unemployment insurance trust fund, maintained by the U.S. Treasury, had an unreserved surplus of $49 million. That figure is based on federal recommendations that the fund reserve 1-1/2 times the amount of average annual benefits paid—the average was $4.4 million—out of the fund's total balance of $57 million.
"The current tax rate structure continues to create staggering surpluses in the unemployment insurance fund," the audit stated.
"We feel that the Virgin Islands Government should lobby Congress for the authorization to use excess funds for capital and infrastructure projects only, thus greatly benefiting the majority of Virgin Islands residents."
It recommended that the funds be controlled by the U.S. Interior Department.
Acting Commissioner of Labor John Sheen agreed with most of the its recommendations, some of which have already been implemented, the audit stated.
