As Governor-elect Dan Malloy and his administration prepare to evaluate the state’s budget deficit, an auditors’ report released Nov. 12 outlined 22 recommendations for remedying administrative flaws in the Department of Motor Vehicles, many of which resulted in lost revenue for the state.

The auditors’ report, which was conducted during the 2007 and 2008 fiscal years, identified many instances where a lack of administrative oversight within the department led to loss of state revenue.

In once instance auditors found administrative mistakes that led to unnecessary spending regarding longevity payments given to retiring employees.

The report pointed to six instances where employees were given duplicate longevity payments, an error that resulted in a total of $6,105 of overpayment.

The auditors were unable to explain the duplicate payments and recommended the department exercise greater care when calculating employee retirement benefits.  In response the department said it would require manual reviews of longevity payments independent of the largely automated system that administers payments.

In several cases, the auditors found that a lack of understanding of proper procurement policies on the part of DMV employees resulted in the department spending more money than required on certain services.

For instance, the Department of Administrative Services has in place “emergency” contracts for use by state agencies when trade labor services are required quickly. Generally these emergency contracts have higher rates than contracts for routine, scheduled services. The auditors found that the DMV used emergency contracts for the annual service of its air conditioning units, an expense not approved by the Department of Public Works.

“Approximately $6,000 was expended in this fashion,” the auditors’ report read. “Multiple purchase orders were issued, despite the fact that these services were all part of the same maintenance project.”

In another instance, the department hired a vendor to remove computer equipment from a government building.  Vendor contracts are written with built-in thresholds for discounts, designed to save the state money on larger contracts. So the more items removed by the vendor, the less it would cost the state on a per-item basis. But in this case, the vendor avoided crediting the state for the discount.

“The vendor inexplicably invoiced the department on two separate invoices, avoiding the threshold for the additional discount that should have been obtained since the entire group of items was counted together,” the report said.

While that mix-up only cost the department an additional $350, a similar billing error involving duplicate billings by a snowplowing contractor cost $5,350.

The auditors attributed each of the errors to “administrative oversights” and recommended the department enact procedures to ensure its procurement contracts conform to standards to optimize savings.

A DMV response included in the report indicated that contract requirements, including threshold discounts, have since been reviewed with the staff and future vouchers will be scrutinized for contract requirements.  It also said that the snowplowing vendor has been contacted for billing corrections.

Another problem area the report identified had to do with the collection of sales tax from car dealerships. Under state law, the DMV can collect sales tax from the sale of a vehicle when the car is registered or the Department of Revenue Services can collect it later, through periodic sales tax returns, in effect delaying the payment of the tax.

The report notes that the tax return method increases the risk that sales tax will not be paid to the state on time and leaves the state with no recourse to collect the tax, should it continue to be put off.

“When businesses that depend on a license from the state to operate become indebted to the state for failing to remit taxes that already been collected, the state agency issuing the license should have the ability to suspend the license until the dept to the state is paid off,” the report said.

But despite frequently sharing information with the DRS, the DMV does not have a process to suspend the licenses of delinquent businesses nor can it flag any business’s record to require it pay sales tax at the time of individual sales.

To illustrate the point, the auditors found evidence of a significant amount of late funds by reviewing the DRS’s “Top 100” business tax debtors, where 11 of the indebted businesses were likely to have automotive-related licenses.

“Each of these 11 entities owed sales and use taxes to the state of $140,000 or more, with the total exceeding $3 million,” the report said.

After reviewing the 11 businesses, the DMV reported that none currently held licenses through the department and were therefore some other agency’s problem.

It also said that when people buy cars from dealers, they pay sales tax to the dealer at the time of purchase, leaving it up to the dealer to pay the DRS on time. If that does not happen the DMV said it “cannot punish the purchaser of the vehicle, who has a receipt showing the payment of tax to the dealer, for the failure of the dealer to remit to DRS the taxes collected by it.”

To correct the problem the auditors recommended that the DMV and DRS work together to enhance the state’s ability to collect sales tax at the time of purchase and suspend the licenses of the businesses that owe the state large sums. However, the DMV said it would help the DRS in collecting sales tax, should that agency first request it.

This article addresses just a few of the discrepancies raised in the auditors’ report. Follow this link to read the full 55-page report, which includes other problem areas such as inaccurate employee travel reimbursements and time card records, loss of revenue through inconsistent emissions enforcement, and potentially compromised criminal records due to an insecure chain of custody for fingerprint records.