A new audit shows there may be more than meets the eye to the story of Alric Simmonds, the deputy chief of staff to former Gov. Charles W. Turnbull who was sentenced last year to eight years in prison for siphoning off more than $1 million from a Bureau of Economic Research bank account set up to hold funds designated for the government’s universal health care program.
A local inspector general’s audit released Thursday states that BER head Lauritz Mills knew about Simmonds’ transactions but didn’t report them and only asked him to stop writing checks from the account once it was overdrawn.
In a letter sent to Simmonds in July 2003, Mills said her "fear is that an audit will find that there were commingling of funds, inadequate financial controls and inappropriate use of funds," according to the audit.
In the memo, Mills also lays out her concerns over the way the funds in the account were being used and anxiety over the "potential fallout" that would occur once the grant funds were audited.
"I have indicated to you on a number of occasions that there were no funds available to cover non-BER related activities," Mills wrote in the memo to Simmonds. "However, checks are still being cashed against the account, even though there are no funds to cover those checks. The result is that the Bureau’s account is overdrawn and we are unable to meet obligations."
Mills also asked Simmonds in the memo to tell certain government officials that the money can’t be used for non-grant related activities and requested that whatever money was taken out be re-deposited.
But the point made in the audit report is that these concerns were never directed to anyone other than Simmonds.
"As such, the former deputy chief of staff’s actions were allowed to continue," according to the audit.
The report, which Inspector General Steven van Beverhoudt said took about a year to complete, also looked at certain BER transactions to determine whether they were allowable and done in accordance with local and federal laws. The end result was a 43-page document that highlighted what was called "inadequacies" in the management and accounting of BER funds, the processing of transactions and the awarding of professional services contracts.
"This audit of select transactions of Economic Research was initiated based on the investigation and conviction of the former deputy chief of staff (Simmonds)," the report says. "The former deputy chief of staff opened an account in Economic Research’s name and embezzled government funds that had been deposited into this account. Based on the results of the investigation, we determined that funds under the control of Economic Research were at high risk and further review of select transactions was necessary."
Investigators found that BER had "unchecked access" to $2.7 million in federal and local funds in its checking accounts, which – because of a lack of proper monitoring by the Finance Department – were "put at risk" and left open for Simmonds to embezzle.
The audit also says BER "inappropriately" paid its employees for work done after regular business hours, failed to negotiate contractual services from certain vendors and didn’t put services valued at more than $5,000 out for bid, as required by local procurement laws.
The office also entered into transactions that "created a conflict of interest" for Mills, and gave employees unauthorized pay advances, the audit states.
As a result, BER had $528,831 in unallowable expenses claimed for work performed outside business hours, did not make sure it received the "best quality and price" for vendor services, violated local conflict of interest laws by engaging in transactions with Mills and "misused" $15,337 on unapproved expenses, according to the audit.
Along with Finance not monitoring the accounts, the Governor’s Office didn’t establish controls that would have kept BER in compliance with local laws, while Property and Procurement continued to approve BER contracts that didn’t meet the "competitive negotiation" requirements set out in the code. Meanwhile, BER failed to "comply with payroll, procurement and conflict of interest laws and sound business practices," van Beverhoudt wrote in a recent letter sent along with the audit to Gov. John deJongh Jr. and Senate President Louis P. Hill.
Mills countered the allegations Thursday and in a phone interview with the Source, described the audit as "unfair and incorrect." In many instances, the auditors never sat down with BER employees to discuss their findings, and if they had, they would have been provided with documentation that disputes their claims, she said.
Those documents are available at BER’s office and can be reviewed, Mills added.
"I think this whole thing is unfortunate, because enormous damage has been done to people’s reputations without all the information being collected," she said Thursday. "In fact, the first time I even heard of some of these things is when I read it in the report. But anyone’s free to come and look at the documents we have — they’re all right here."
Cash Money
BER gets both local and federal grant money for its various research projects, and from fiscal years 2001 through 2007 it received $390,560 from the Economic Development Authority to help put together strategic economic development plans for the territory. The U.S. Health Department’s Health Resources and Services Administration provided almost $1.4 million to study the local health care system.
Meanwhile, Finance authorized BER to open two checking accounts to manage the grant funds. One account opened by Simmonds in November 2002 was started with a $30,500 check issued by the Anti-Litter and Beautification Commission and intended for the government’s abandoned vehicle program, according to the audit.
"The Commissioner of Finance broke from the normal government accounting system and gave Economic Research written permission to open two checking accounts (Account I and II) for the purpose of managing federal grant funds," the audit report says. "Finance did not place any restrictions on the accounts or monitor their transactions. When asked for records on Economic Research’s checking accounts, Finance was unable to provide any records on Account I or II."
Both accounts were opened after BER was transferred in 2000 from the Government Development Bank to the Office of the Governor. When he opened the second account, however, Simmonds told then Commissioner of Finance Bernice Turnbull that the account would be monitored by the bank. And while both he and Mills were signatories on the account, Simmonds conducted his transactions without notifying Mills about them or telling her what they were for.
Mills said Thursday that the initial draft of the audit stated that no documentation exists to prove that Simmonds had a "supervisory role" over the office. But auditors were told otherwise, she said.
"They were told that he supervised us," Mills explained. "We didn’t get a letter, but I don’t have a letter designating the governor as my supervisor and I still report to him. You are told who to report to. In the interest of fairness, they should say what the facts are. To make the accusation that we put $2.7 million into the account — when we never had $2.7 million — which we put at risk is unfair. Mr. Simmonds was putting money into the account for the Bureau and we had no control over what he was doing. We didn’t see the checks he was depositing — we didn’t see anything."
The first account was opened in July 2001. At the time, BER and Government Development Bank officials allegedly changed the required signatories on the account, replacing two bank board members with the assistant to the governor and the BER director.
"Economic Research bypassed Finance and submitted the application for the change of signatories without notifying Finance," according to the audit. "Since there is no evidence that the assistant to the governor, responsible for oversight, ever monitored the activities of the account, changing the signatories on the account in essence put Account I under the total control of the director."
But Mills said Thursday that bank documents will indicate the change in signatories was made by Government Development Bank officials and not employees at BER.
According to a provision enacted by the Government Development bank, two signatories were required for checks totaling more than $3,000. The provision remained in place after the signatories changed, but between July 2003 and September 2007, Mills violated that provision 89 times, the audit said.
Her signature was the only one on all the more than $3,000 checks written after December 2000. The checks totaled $534,050 and included 24 checks written to Mills, adding up to $127,834.
"There was insufficient segregation of duties to ensure the prevention of fraud and errors over Economic Research’s checking accounts," according to the audit. "The director had custody of both check books, authorized payments and signed checks. In addition, there were no reconciliations performed on either account after October 2002. An Economic Research employee, who reported directly to the director, performed reconciliations for Account I from December 2000 to October 2002, and then stopped. No reconciliations were ever performed for Account II."
If someone other than Mills or Simmonds had monitored the account transactions, Simmonds’ embezzlement scheme might have been thwarted, the audit said.
Under the Table
Employees were "inappropriately" paid more than $500,000 from both local and federal funds for work performed "after regular hours," even though it was against the law, the audit revealed. Exacerbated by BER’s failure to follow the various payroll regulations, the funds were allegedly "misappropriated" through the doling out of added compensation to exempt and classified employees doing work on BER projects.
Out of the $528,831 in extra money paid to employees, only $1,000 was processed through the government’s payroll system at Finance, while the remaining amount was paid through BER checking accounts. BER officials also didn’t provide supporting documentation citing the hours for which the work was performed.
"We found unallowable payments to six Economic Research employees: five of whom were exempt employees and not entitled to compensation for work after regular hours and one classified employee for whom proper authorization was lacking," according to the audit, which turned up employee payments ranging from $2,500 to $250,829.
The audit also alleges that the salaries of BER and EDA employees were padded for work done on other local and federally funded projects – some paid even before the job was finished, the audit said.
"Economic Research employees also received added compensation totaling $22,994 from fiscal years 2001 to 2007 that we were unable to identify the purpose and source," according to the audit.
The audit also found that $10,337 was given as advances to BER employees, while one contractor — referenced in the report as "Vendor H" — was given a $5,000 loan. The employee payments were made in advance of Notices of Personnel Action (NOPAs) being issued, according to the report.
The loan and advances were repaid, the report said.
Mills also challenged this claim Thursday, explaining that three of the Bureau’s employees are paid through a federal grant, as is the case in several other government departments and agencies.
"Often times the grant is late and often times the staff is paid through other General Funds," she said. This practice is not new to the government and the money is repaid once the grant comes in, she said. A few years ago, for example, the Education Department borrowed millions from the local government while awaiting the release of its annual grant award.
Meanwhile, the contractor referenced in the report as "Vendor H" did receive money, but it was for work already completed on the universal health care project that she never got paid for, Mills added.
"To this day, no one has ever asked us about this," she said. "The vendor had a contract and she submitted her payments. She was on her way to a meeting in Washington, but she hadn’t been paid yet, so she was given the money, which was authorized and instructed by Mr. Simmonds, who was our supervisor and the person the governor had designated to oversee the project."
Conflict of Interest
Mills’ "independence was compromised" when BER paid what was referenced in the report as "Vendor G" — a company owned by Mills and her husband — $47,985 to do work on behalf of the agency from May 2006 through February 2008. The company also was hired as a subcontractor for another entity brought on by BER for a federal grant project and was paid another $15,000, according to the audit.
"The conflict of interest was further complicated because the other partner of ‘Vendor G’ was the director of the University of the Virgin Islands’ Eastern Caribbean Center, a research division of the University, which was also hired by Economic Research to perform similar services for the same projects for which ‘Vendor G’ was hired," the report said.
BER also didn’t go through the government’s procurement channels when it hired "Vendor G" for three out of five of the agency’s projects. The company was paid $43,432 for services related to the 2005, 2006 and 2008 visitor exit surveys. The conflict of interest would have been identified if a review of the company’s business license was conducted, the report said.
There is a certain window of time in which the exit surveys can be conducted, Mills explained Thursday.
"We’ve had a practice where we have a relationship with the university and Eastern Caribbean Center — we conduct the surveys, but because we’re so short-staffed, we subcontract the data entry portion of the work to them," she said. "There’s no question that my husband is the director there. But these surveys take time , sometimes eight to nine months, and sometimes you can miss the deadline for getting the information. Mr. Simmonds said why not have my husband perform the sampling for us — meanwhile, there was no contract being awarded — so that we can get out in the field and collect the data, or we were going to miss the critical periods and not be able to collect the information."
The couple does have a "consultancy," she said, which is registered in Finance’s system under Mills’ husband’s social security number.
"So that’s why it came up," Lauritz Mills said Thursday. "But as for conflicts of interest, I never got paid for anything at the Bureau other than my salary and extra compensation authorized by the federal government. And again, there are documents to back up what I’m saying."
When the health insurance project was introduced, the federal government awarded the grant to the Office of the Governor instead of the Health Department, citing reporting problems. Economic Research employees were paid extra to shoulder the project and were given the go-ahead by the feds, Mills said.
The Official Response
In a recent letter to the inspector general, Gov. John deJongh Jr. said the government "concurs overall" with the audit’s findings and is working on addressing the recommendations included in the report.
"The audit heightens the need to enhance our internal controls regarding checking accounts, payroll matters, procurement and issues germane to conflicts of interest," he wrote.
The Office of the Governor, along with Finance and Property and Procurement are already working on the recommendations, deJongh added. Property and Procurement has tightened its monitoring and enforcement of sole-source contracts, while Finance has contacted the banks and put a stop on the setting up of government checking accounts without the proper authorization, he explained.
Meanwhile, the Office of the Governor will provide written guidelines for BER and other related agencies, along with departments government-wide if necessary, the governor said.
"Further, the Office of the Governor will endeavor to provide greater oversight of its satellite units and activities through financial system approvals and other mechanisms available to this office," deJongh said.
Recommendations made by the Inspector General’s Office called for: the Governor’s Office to establish written rules and procedures to make sure BER is properly monitored; Finance to ensure that access to all of its funds are controlled, monitored and accounted for; and Property and Procurement to only approve contracts that adhere to local procurement laws, among other things.
A memorandum will be issued to all executive branch departments and agencies reminding them about the V.I. Code’s conflict of interest provisions and the "potential ramifications" if they’re violated, the governor said.
The Bureau also submitted a response letter, but it didn’t make it into the report, Mills said Thursday.
Some of the findings did "correctly" identify operational and management weaknesses within BER, which is working to fix the problems, Mills wrote in a response letter sent back in July.
"Some processes have already been changed to achieve compliance with rules and regulations as outlined in the response to the audit recommendations," she wrote. "However, there are some apparent misstatements of facts … which must be clarified as well as factual omissions and explanations that have been included in this response."
Among other things, Mills said that:
• BER was not told by Government Development Bank officials about the two-signature requirement for checks totaling more than $3,000, and if the provision was in place, then the bank should have dishonored the checks with only one signature;
• She told then Finance Commissioner Bernice Turnbull how Simmonds was using the second BER account;
• BER staff didn’t receive overtime pay and there is no record indicating that any employee submitted a request for or received overtime pay; and
• All professional services contracts were in compliance with local procurement laws.
