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DEBORAH K. NICHOLS OFFICE OF THE DISTRICT OF COLUMBIA AUDITOR June 29, 1998 SUMMARY OF ANC 4D FINANCIAL AUDITThis is the District of Columbia Auditor’s report of the financial activities of Advisory Neighborhood Commission (ANC) 4D for the period June 1, 1996 through March 31, 1998. The audit is part of a continuing initiative by the Office of the Auditor to review the financial status of each Advisory Neighborhood Commission. The Auditor’s examination of ANC 4D’s financial operations and activities revealed critical flaws in its internal accounting controls that resulted in approximately $23,000 in improper and questionable expenditures. Approximately $18,900 in ANC 4D funds were improperly diverted to the deceased husband of the former treasurer of ANC 4D. These disbursements were not authorized by a majority of ANC 4D commissioners. The disbursements were made by ANC checks containing the signature of the ANC's former chairperson, Barbara Young, and the former treasurer, Freda Bonner-Lamont. These former officers failed to effectively carry out their fiduciary obligations as public officials and officers of ANC 4D. Under their leadership, the ANC's assets were inadequately safeguarded, improperly diverted, and exposed to abuse. The Auditor’s review indicated that a majority of ANC 4D commissioners abandoned or failed to perform their fiduciary responsibility to comply with applicable District laws and prudent financial management principles. The Commissioners of ANC 4D also failed to establish an effective system of checks and balances to ensure that funds made available to the ANC were safeguarded, used only for authorized purposes permitted by law, and accounted for on a regular basis. As a result of ANC 4D commissioners’ neglect of their official duties and responsibilities, the ANC's assets were improperly diverted, and past and present ANC 4D commissioners cannot, or will not, account for their use. The commission must immediately establish effective accounting controls over its financial operations and assets, and establish an effective system of checks and balances to ensure the integrity of its disbursements, bank reconciliations, financial accounting, and financial reporting. These controls should ensure that no single commission officer establishes complete control over the ANC’s accounting records, or financial assets. ANC 4D’s treasurer and chairperson must comply with statutory reporting requirements and timely file monthly financial reports with the Commission. Further, ANC 4D commissioners must ensure that quarterly financial reports, supported by appropriate documentation, are filed with the Office of the District of Columbia Auditor. OFFICE OF THE DISTRICT OF COLUMBIA AUDITOR Deborah K. Nichols Audrey E. Thompson, Chairperson Dear Commission Chairperson:
Pursuant to D.C. Code, Section 1-264(d), the Office of the District of Columbia Auditor conducted an audit of the financial operations and accounts of Advisory Neighborhood Commission (ANC) 4D for the period June l, 1996 through March 31, 1998. Initially, the time period selected for audit covered fiscal years 1994 through 1998, as of March 31, 1998. However, due to the absence and unavailability of bank statements, canceled checks, minutes of Commission meetings, grant request letters, and related documentation for the original audit period, the Auditor narrowed the audit period to June 1, 1996 through March 31, 1998. The period was narrowed to conform to copies of canceled checks, bank statements, and minutes of ANC 4D's meetings that were accessible for audit purposes. At such time as all records necessary to conduct the audit for the original audit period are available, the Auditor will complete the audit for the period of October l, 1993 through May 1996. The objectives of the audit were to:
BACKGROUNDOn April 10, 1998, the Auditor initiated an audit of ANC 4D for the period October 1, 1993 through March 31, 1998. The Auditor specifically requested ANC 4D’s then-treasurer to deliver the Commission's financial records to the Office of the Auditor not later than Monday, April 20, 1998. These records were to include, but were not limited to, ANC 4D's checkbook, canceled checks, bank statements, invoices, receipts, grant request letters, and other related financial records. The former treasurer failed, or refused, to provide the records by the close of business Monday, April 20, 1998. For at least two months prior to the initiation of a formal audit and during the entire period after the inception of the audit, the former ANC 4D treasurer continuously failed, or refused, to provide the original financial records requested by the Auditor. Upon the treasurer's persistent failure to produce the requested financial records, the Auditor requested copies of bank statements, canceled checks, and signature cards for the period June 1, 1996 through March 31,1998 directly from the bank at which ANC 4D maintained its checking account. Copies of these records were obtained with a release authorization signed by three ANC 4D officers. On April 21, 1998, the commissioners of ANC 4D removed the treasurer from office and elected a new treasurer. At the time this action was taken, the ANC had $77.39 in its bank account. Subsequent to the initiation of the audit, the audit team visited ANC 4D’s office to review records pertaining to the period under audit. However, records required for the audit, such as minutes, grant proposals, receipts, invoices, bank statements, canceled checks, and similar records, were not found in the ANC’s office files. It appeared that records had been intentionally removed from the ANC office. During the same period of time, the Auditor learned that the ANC’s checkbook was maintained by the treasurer at her residence, and that, for a prolonged period of time., the ANC’s bank statements and canceled checks were also sent by its bank to the ANC treasurer's home. For these reasons, all relevant financial records necessary for the audit of ANC 4D were unavailable for the Auditor’s review. During early May 1998, after numerous phone messages were left at the former treasurer’s District of Columbia residence, the Auditor learned that the former treasurer was in South Carolina. The Auditor was ultimately able to contact her in that jurisdiction concerning the audit and to reiterate the need for access to the ANC’s checkbook, original bank statements, and original canceled checks. The former treasurer indicated, at that time, that the ANC’s checkbook was at her residence in the District of Columbia but could not be made available for the audit until she or a relative returned to the District of Columbia. With regard to bank statements and canceled checks, the former treasurer indicated that these documents could be found in the files at the ANC’s office. However, as noted earlier in this report, the audit team, after a thorough search of the ANC’s files, could not locate canceled checks and bank statements, minutes, grant proposals, grant request letters, or other records relevant to the audit in the files at the ANC’s office. Subsequent to the conversation with the former treasurer, the Auditor received the Commission’s checkbook by U.S. Postal Service Priority Mail. All check stubs had been expunged and only unwritten checks were left in the checkbook. In the absence of check stubs, the checkbook was of no value to the Auditor’s review of ANC 4D’s banking activity. Nevertheless, the Auditor conducted the audit utilizing copies of bank statements, canceled checks, and signature cards obtained directly from the bank at which the ANC maintained its checking account. District of Columbia Code, Section 1-264(e) states:
FINDINGSThe Auditor’s review of the copies of ANC 4D's bank statements, canceled checks, signature cards, available minutes of ANC 4D meetings, and discussions with present and former ANC 4D commissioners led to the following findings. $18,935 IN ANC 4D FUNDS WERE IMPROPERLY DIVERTED TO ANC 4D 0146S FORMER TREASURER BY WAY OF ANC 4D CHECKS MADE PAYABLE TO HER DECEASED HUSBANDDistrict of Columbia Code, Section 1-264(f) states:
Between August 1996 and November 1997, ANC 4D checks totaling approximately $18,935 were issued to a Henry A. Lamont, without the Commission's approval, in violation of D.C. Code, Section 1-264(f). Notations made on the checks indicated that the disbursements were made for a variety of reasons including beautification and enhancement, trash hauling and removal, alley cleanup, flyer distribution, newsletter distribution, health fair equipment, leaf raking for senior citizens, snow removal for senior citizens, transportation for senior citizen Xmas shopping, and various other purposes. With the exception of one check signed only by ANC 4D’s former chairperson, all other checks written to Henry A. Lamont appeared to have been signed by Freda J. Bonner, the former treasurer of ANC 4D, and Barbara A. Young, the former chairperson of ANC 4D. The Auditor was initially unable to locate Henry A. Lamont, but was later advised that Henry Lamont was deceased. Further research of this matter indicated that Henry A. Lamont died on April 6, 1995. The death of Mr. Lamont occurred approximately sixteen months before the first checks disbursing ANC 4D funds were made payable in his name for services he allegedly provided after his demise. The Auditor’s review of public records revealed that, at the time of his death, Mr. Lamont was married to Freda J. Bonner — the former treasurer of ANC 4D. This matter has been referred to appropriate investigative authorities for further review. The improper disbursements in the name of Henry A. Lamont are listed in Table I. TABLE I
*FB are the initials for Freda Bonner and BAY are the initials for Barbara A. Young. ANC 4D Commissioners Did Not Authorize Expenditure of ANC Funds for Bulk Trash Removal and Other Services Noted on Checks Made Payable to Henry A. LamontCommissioners interviewed by the Auditor indicated they did not know Henry Lamont, and further indicated that the Commission did not approve the services Mr. Lamont allegedly provided or the disbursements made to him. This view was confirmed by the Auditor's review of available minutes of ANC 4D meetings, which indicate that ANC 4D commissioners did not authorize payments to, or the services allegedly provided by, Mr. Henry Lamont. However, during ANC 4D’s May 1996 meeting, the commissioners appear to have informally agreed to explore the possibility of undertaking a bulk trash removal project. The then-chairperson, Barbara A. Young, and then-treasurer, Freda J. Bonner-Lamont, volunteered to perform this task. The May, June, and September 1996 minutes do not reflect that the bulk trash pick-up and removal project was ever presented to ANC 4D commissioners for their consideration and vote. The ANC’s former chairperson indicated that, while she was advised by the former treasurer that Mr. Lamont was hauling bulk trash within the Commission’s boundary, she failed to realize the magnitude of the disbursements in his name. Nevertheless, the former chairperson signed or counter-signed every check written to Henry Lamont. During ANC 4D’s June 1996 meeting, the minutes indicated that former commissioners Young and Bonner-Lamont reported their findings concerning the bulk trash removal problem in Ward 4D. The minutes indicate the following discussion by these two former commissioners:
As noted above, the minutes indicate that the question of whether the commissioners would actually undertake the bulk trash pick-up and removal project in ANC 4D was not presented to the commissioners of ANC 4D for their consideration and vote. Neither was the purchase and distribution of brooms. With regard to bulk trash pick-up, former commissioners Young and Bonner-Lamont suggested that they hire someone to do an initial pick-up in all alleys of bulk trash already out. However, the minutes do not indicate, unequivocally, that a motion was made and approved by the ANC 4D commissioners authorizing commissioners Young and Bonner-Lamont to expend ANC 4D funds for bulk trash pick-up and removal. The minutes of the Commission’s meeting on September 17, 1996 indicated the following with regard to bulk trash pick-up in ANC 4D:
Minutes for October through December 1996 were unavailable for the audit. The September 1996 minutes were the last available minutes that referenced the bulk trash pick-up activities of former Commissioners Bonner-Lamont and Young. In light of the unauthorized nature of the bulk trash pick-up and removal project, it appeared that ANC 4D commissioners did not seek to play a significant role, if any, in the project contemplated by former Commissioners Young and Bonner-Lamont. Also, available documentation indicated that ANC 4D commissioners did not further address this project in any discernible manner, especially from a financial management and accountability perspective, in subsequent ANC 4D meetings. The Auditor’s review raised additional concerns regarding the adequacy of financial reports provided by the former treasurer to ANC 4D commissioners. Periodic financial reports were made by the former treasurer, however, the ANC's minutes failed to reflect the substance of the treasurer’s reports. Further, over the sixteen months between August 1996 and November 1997, a treasurer’s report was not provided for 12 of the 16 months. Former Chairperson Signed Blank ANC 4D ChecksThe Auditor’s review further indicated that, contrary to prudent and sound financial management principles, the former chairperson signed blank ANC checks which exposed ANC 4D’s funds to an unreasonably high risk of loss. According to the former chairperson, she frequently signed blank checks to cover financial obligations incurred during her absences from the city. By doing so, the former chairperson violated D.C. Code, Section 1-264(f) as well as her fiduciary responsibility to safeguard ANC 4D assets. D.C. Code, Section 1-264(f) states in relevant part the following:
Further, D. C. Code, Section 1-264(g) states:
RECOMMENDATIONS
AUDITOR’S ANALYSIS OF ANC 4D’S FINANCIAL ACTIVITYThe Auditor’s analysis of ANC 4D’s bank records and related documents indicated that, as of June 1996, it had approximately $25,116.96 in its bank account. Between July 1596 and December 1997, a total of $19, 938.02 in District allotments were added to the $25,116.96 for a total of $45,054.98 in funds available to the ANC. During the same period, a total of $44,803.29 was disbursed from the ANC’s account. Nearly half of the disbursements ($18,935) were made to Henry A. Lamont. Specifically, the ANC received four quarterly allotments during the period in which checks were written to Henry A. Lamont. However, the quarterly financial reports that generated these payments did not cover the period during which cheeks were written to Henry Lamont. ANC 4D’s former treasurer did not submit quarterly financial reports to the Office of the Auditor covering the period during which cheeks were made payable in the name of Mr. Lamont. Table II presents amounts disbursed in the name of Henry Lamont on a monthly basis from ANC 4D's checking account, and the bank account balance at the end of each month. TABLE II
1. ANC 4D made disbursements to other vendors, not related to
Henry A. Lamont, which were also deducted from the bank balance each month. During the entire period that checks were disbursed to Henry A. Lamont, the ANC's checkbook was in the possession of the ANC's former treasurer and maintained at her residence. The ANC's bank statements and canceled checks were also sent directly to the former treasurer's residence and were not accessible for review by other commissioners of ANC 4D. As noted earlier in this report, it also appears that the former treasurer did not provide ANC 4D commissioners with access to the ANC's financial records and she did not provide them with accurate and complete financial reports during most of the time period reviewed by the Auditor. RECOMMENDATIONANC 4D's treasurer must prepare a quarterly financial report and present it to the Commission for review and approval within 30 days of the end of each quarter. The report must be filed with the Office of the Auditor within 7 days of approval. ADDITIONAL $1,000 IN DISBURSEMENTS FOR BULK TRASH PICK-UP AND REMOVAL WERE MADE WITHOUT ANC 4D COMMISSIONERS’ APPROVALThe Auditor noted $1,000 in checks made payable to a Nathaniel Jack and Michael Jack for bulk trash pick up and removal. These personal services disbursements, per notations on the canceled checks, were made for bulk trash pick-up and removal without the specific approval of commissioners as required by D.C. Code, Section 1-264(g). Checks made payable to these individuals also were signed by ANC 4D’s former treasurer and former chairperson. The disbursements are presented in Table III. TABLE III
RECOMMENDATIONAll expenditures in Table III that exceed $50 for personal services and were not specifically approved by the Commission at a public meeting prior to the disbursement must be repaid to the Commission by the officers at that time—— specifically the former chairman and former treasurer - who authorized the payment, unless the Commission approves the expenditures after the fact. TREASURER’S RELATIVE WAS PAID $825 IN ANC 4D FUNDS TO PREPARE QUARTERLY FINANCIAL REPORTS AND DISTRIBUTE FLIERS WITHOUT THE COMMISSION’S APPROVALDistrict of Columbia Code, Section 1-264(j) requires an ANC treasurer to prepare an ANC’s quarterly financial report on a form provided by the Auditor within 30 days of the end of the quarter. The law further requires the treasurer to present the financial report to the Commission for its consideration at a public meeting of the Commission. A copy of the approved financial report, signed by the Chairman, secretary, and the treasurer, must be filed with the District of Columbia Auditor, within 7 days of approval, for the Auditor's review and recommendation to release the appropriate quarterly funding allotment to the ANC. The Auditor’s quarterly financial report form is a simplified data collection and reporting instrument. Completion of the quarterly report form is uncomplicated, provided the ANC’s treasurer has adhered to the law and maintained the ANC’s financial records in a complete and orderly manner during the preceding quarter. Despite the ease with which the form may be completed by the ANC’s treasurer, the Auditor noted that ANC 4D’s former treasurer and former chairperson disbursed checks totaling $825 to D. Doreion Colter, an apparent relative of the former treasurer, to prepare ANC 4D’s quarterly financial report and to distribute flyers. Again, D.C. Code, Section 1-264(g) states:
Table IV presents the unauthorized disbursements to the former treasurer's relative. TABLE IV
The Auditor’s analysis further indicated that the disbursements to the individual noted above appear to have violated the District's conflict of interest law. D.C. Code, Section 11461(a), (b) and (g) state the following:
Further, D.C. Code, Section 1-1462(i)(2) states:
By signing checks making unauthorized payments to a relative, it appears that the former treasurer used her official position as treasurer of ANC 4D to obtain financial gain for herself and/or a member of her household while holding a public office for which she was not entitled to be compensated. In other words, the former treasurer engaged in a series of financial transactions involving unauthorized payments to a relative, or member of her household, from which the former treasurer may have derived a direct financial benefit related to statutorily prescribed duties and responsibilities of her elected position. RECOMMENDATIONS
$2,420 FOR OFFICE SUPPLIES AND EQUIPMENT WERE DISBURSED BY THE FORMER CHAIRPERSON AND FORMER TREASURERThe Auditor’s examination of copies of ANC 4D’s canceled checks revealed that over an eight month period, between November 24, 1996 and July 31, 1997, the former treasurer and former chairperson purchased office supplies and equipment totaling approximately $2,420. These purchases consisted primarily of copier paper, pens, Post it notes, staple machines, a cassette recorder, fax machine, paper clips, binders, and other supplies. These purchases were made during a period when attendance at ANC 4D meetings was not sufficient to establish a quorum for the purpose of conducting official business. During a recent visit to the ANC’s office the Auditor did not observe any lingering evidence of the numerous supplies purchased with ANC funds. All of the checks used to make these purchases were signed by the former chairperson and the former treasurer. Receipts and invoices to support these purchases could not be found in the ANC’s office files. The Auditor’s evaluation of these purchases, during a period in which the ANC was more inactive than active, raised concerns as to whether the purchases were used solely for purposes related to the operation of the ANC’s unstaffed office or in support of public purpose activities approved by a majority of the ANC’s commissioners that benefited the ANC 4D community. Minutes reviewed by the Auditor, as well as allegations received from several ANC 4D commissioners, indicated a longstanding concern regarding the unexplained depletion of these and other supplies purchased with ANC funds that were apparently diverted to support non-ANC activities. RECOMMENDATIONANC 4D commissioners establish adequate procedures to safeguard assets purchased with public funds. The ANC should also establish an effective system of purchasing, storing, and distributing office supplies and equipment and documenting the same. DISBURSEMENT TO TOYS R US WAS NOT AUTHORIZED BY ANC 4D COMMISSIONERSWith regard to other questionable expenditures of ANC funds, the Auditor noted a disbursement on a check, signed by the former chairperson and former treasurer of ANC 4D, made payable to Toys R Us in the amount of $191 dated December 12, 1997. The Auditor could not find any reference in the minutes of ANC 4D meetings indicating that ANC 4D commissioners authorized this disbursement. This expenditure was not for a public purpose and did not benefit the ANC 4D community. RECOMMENDATIONThe former treasurer and former chairperson make restitution of $191 to ANC 4D for this improper and unauthorized disbursement. INADEQUATE SEPARATION OF DUTIES AND LAX OVERSIGHT BY ANC 4D COMMISSIONERS CREATED THE OPPORTUNITY FOR FRAUD AND ABUSE OF ANC 4D FUNDS AND FACILITATED THE CONCEALMENT OF THESE IMPROPER ACTIVITIESThe Auditor’s examination of ANC 4D’s financial operations and internal control environment indicated that ANC 4D commissioners failed to discharge their fiduciary responsibility to safeguard ANC 4D assets. The ANC’s financial assets, financial books and records were completely controlled by the former treasurer which facilitated her concealment of numerous unauthorized and improper financial transactions. The Auditor’s review indicated that lax attendance by commissioners at the ANC’s meetings and lax oversight promoted lax accountability with regard to the ANC’s financial assets. Further, the commissioners failed, over a significant period of time, to regularly obtain complete and accurate financial reports from the ANC’s former treasurer. Table V presents, by month, the period of time in which checks were written to Mr. Henry Lamont, the total monthly amount of funds disbursed to Mr. Lamont, and whether ANC 4D conducted a meeting during which the former treasurer provided a report of the ANC’s financial activity. TABLE V
Former Treasurer and Former Chairperson Failed to File Current Signature Cards With BankThe Auditor also determined that the former chairperson and treasurer violated D.C. Code, Section 1-264(f) by not immediately notifying the bank in which the Commission maintained its checking account concerning changes in Commission officers listed on bank signature cards. For example, the ANC’s depository bank could not produce a signature card listing the former chairperson as an authorized signer of the ANC’s checks during the period under review. The most current signature card on file with the ANC’s bank authorized checks to be signed by at least one individual who was no longer an ANC 4D commissioner. Nevertheless, for at least the period reviewed by the Auditor, the former chairperson improperly signed ANC 4D checks included in this audit without filing a valid signature card with the bank. The negligent manner in which the ANC’s officers performed, or their failure to perform, fundamental procedures adversely affected the security of the ANC’s assets. It further indicated the lack of effective oversight and control exercised by other commissioners with regard to the integrity of the ANC’s financial operations and activities. Financial Accounting and Reporting Duties Should Be SeparatedDuties related to financial accounting and reporting should be assigned to different commissioners. For example, if the treasurer controls the checkbook, a different commissioner, such as a financial secretary, should receive the bank statement and canceled checks, and perform the bank reconciliation. After independent inspection and validation of bank transactions for that month, the bank records should be turned over to the treasurer to prepare the ANC’s quarterly financial report. Separation of duties in this manner provides a more reliable system of checks and balances that should promote integrity in the ANC’s financial operations and facilitate full disclosure of its financial activity. The Commission should not permit, or grant, its treasurer exclusive access and control of its financial assets and should establish an effective system of continuous monitoring of the ANC’s financial operations. Further, ANC 4D Commissioners must ensure complete disclosure of its financial activity. ANCs should never be in the dark about public money entrusted to their management and care. Commissioners who are authorized to sign ANC checks must never sign checks that are blank or not completely filled out as to date, amount, and payee. To do so places the ANC’s funds at risk of loss because of possible exposure to improper purposes or to unintended payees. The ANC should authorize at least two commissioners, in addition to the treasurer and chairperson, to countersign checks if either the chairperson or treasurer is inaccessible. In the absence of both the chairperson and the treasurer, the ANC must not make any disbursements. RECOMMENDATIONS
CONCLUSIONThe Auditor’s examination of ANC 4D’s financial operations and activities revealed critical flaws in its internal accounting controls that resulted in approximately $23,000 in improper and questionable expenditures. Approximately $18,900 in ANC 4D funds were improperly diverted to the deceased husband of the former treasurer of ANC 4D. These disbursements were not authorized by a majority of ANC 4D commissioners. The disbursements were made by ANC checks containing the signature of the ANC’s former chairperson, Barbara Young, and the former treasurer, Freda Bonner-Lamont. These former officers failed to effectively carry out their fiduciary obligations as public officials and officers of ANC 4D. Under their leadership, the ANC’s assets were inadequately safeguarded, improperly diverted, and exposed to abuse. The Auditor’s review indicated that a majority of ANC 4D commissioners abandoned or failed to perform their fiduciary responsibility to comply with applicable District laws and prudent financial management principles. The Commissioners of ANC 4D also failed to establish an effective system of checks and balances to ensure that funds made available to the ANC were safeguarded, used only for authorized purposes permitted by law, and accounted for on a regular basis. As a result of ANC 4D commissioners’ neglect of their official duties and responsibilities, the ANC’s assets were improperly diverted, and past and present ANC 4D commissioners cannot, or will not, account for their use. The commission must immediately establish effective accounting controls over its financial operations and assets, and establish an effective system of checks and balances to ensure the integrity of its disbursements, bank reconciliations, financial accounting, and financial reporting. These controls should ensure that no single commission officer establishes complete control over the ANC’s accounting records, or financial assets. ANC 4D’s treasurer and chairperson must comply with statutory reporting requirements and timely file monthly financial reports with the Commission. Further, ANC 4D commissioners must ensure that quarterly financial reports, supported by appropriate documentation, are filed with the Office of the District of Columbia Auditor. Respectfully submitted, Deborah K. Nichols |
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