B-226214 B-226216, B-226217, B-226682, JUN 18, 1987, OFF. OF GEN. COUNSEL

B-226214,B-226682,B-226216,B-226217: Jun 18, 1987

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APPROPRIATIONS/FINANCIAL MANAGEMENT - ACCOUNTABLE OFFICERS - RELIEF - PHYSICAL LOSSES - EMBEZZLEMENT DIGEST: FOUR INTERNAL REVENUE SERVICE CENTER DIRECTORS ARE RELIEVED FROM LIABILITY UNDER 31 U.S.C. EACH DIRECTOR WAS FOUND TO HAVE AN ADEQUATE SYSTEM OF PROCEDURES AND CONTROLS THAT DEMONSTRATED THE LOSS WAS NOT THE RESULT OF DIRECTOR'S NEGLIGENCE. RELIEF IS REQUESTED UNDER 31 U.S.C. SEC. 3527(A) WHICH AUTHORIZES THE GENERAL ACCOUNTING OFFICE TO RELIEVE AN ACCOUNTABLE OFFICER OF LIABILITY FOR A PHYSICAL LOSS OR DEFICIENCY WHERE THE HEAD OF THE AGENCY RECOMMENDS RELIEF UPON A DETERMINATION THAT (1) THE LOSS OR DEFICIENCY OCCURRED WHILE THE OFFICER WAS ACTING IN THE DISCHARGE OF OFFICIAL DUTIES AND (2) THE LOSS OR DEFICIENCY OCCURRED WITHOUT FAULT OR NEGLIGENCE ON THE PART OF THE OFFICER.

B-226214 B-226216, B-226217, B-226682, JUN 18, 1987, OFF. OF GEN. COUNSEL

APPROPRIATIONS/FINANCIAL MANAGEMENT - ACCOUNTABLE OFFICERS - RELIEF - PHYSICAL LOSSES - EMBEZZLEMENT DIGEST: FOUR INTERNAL REVENUE SERVICE CENTER DIRECTORS ARE RELIEVED FROM LIABILITY UNDER 31 U.S.C. SEC. 3527(A) FOR LOSSES THAT RESULTED FROM EMBEZZLEMENT BY SUBORDINATES. EACH DIRECTOR WAS FOUND TO HAVE AN ADEQUATE SYSTEM OF PROCEDURES AND CONTROLS THAT DEMONSTRATED THE LOSS WAS NOT THE RESULT OF DIRECTOR'S NEGLIGENCE.

MR. GERALD MURPHY:

THIS RESPONDS TO 4 SEPARATE REQUESTS FOR RELIEF FROM LIABILITY FOR LOSSES INCURRED IN THE ACCOUNTS OF FOUR SERVICE CENTER DIRECTORS FOR THE INTERNAL REVENUE SERVICE (IRS). ALL FOUR OF THESE LOSSES RESULTED FROM ACTS OF EMBEZZLEMENT BY FORMER IRS EMPLOYEES WHILE ENGAGED IN THEIR RESPECTIVE TAX COLLECTION ROLES. WE GRANT RELIEF FOR THE REASONS GIVEN BELOW.

RELIEF IS REQUESTED UNDER 31 U.S.C. SEC. 3527(A) WHICH AUTHORIZES THE GENERAL ACCOUNTING OFFICE TO RELIEVE AN ACCOUNTABLE OFFICER OF LIABILITY FOR A PHYSICAL LOSS OR DEFICIENCY WHERE THE HEAD OF THE AGENCY RECOMMENDS RELIEF UPON A DETERMINATION THAT (1) THE LOSS OR DEFICIENCY OCCURRED WHILE THE OFFICER WAS ACTING IN THE DISCHARGE OF OFFICIAL DUTIES AND (2) THE LOSS OR DEFICIENCY OCCURRED WITHOUT FAULT OR NEGLIGENCE ON THE PART OF THE OFFICER. LOSSES DUE TO EMBEZZLEMENT BY OTHER FINANCIAL PERSONNEL ARE TREATED AS PHYSICAL LOSSES, AND RELIEF WILL BE GRANTED IF THE STATUTORY CONDITIONS ARE MET. B-211763, JULY 8, 1983. WE HAVE CONSIDERED SERVICE CENTER DIRECTORS FREE OF NEGLIGENCE WHERE IT CAN BE DEMONSTRATED THAT AN ADEQUATE IRS SYSTEM OF PROCEDURES AND CONTROL EXIST AND ARE FOLLOWED. B-215501, NOVEMBER 5, 1984, AND B-185040, FEBRUARY 27, 1976.

B-226214

RELIEF FROM LIABILITY IS REQUESTED FOR MR. THERON C. POLIVKA, DIRECTOR FRESNO SERVICE CENTER FOR A $2,970.00 LOSS RESULTING FROM THE FRAUDULENT ACTIONS OF A FORMER REVENUE OFFICER. DURING THE PERIOD 1972 THROUGH 1976, A FORMER REVENUE OFFICER AT THE LOS ANGELES DISTRICT OFFICE UNDER THE SUPERVISION OF MR. POLIVKA, ISSUED MEANINGLESS INTERNAL FORMS DESCRIBED AS "RECEIPTS" TO A NUMBER OF TAXPAYERS FOR MONIES HE COLLECTED FROM THEM IN SETTLEMENT OF DELINQUENT TAX ACCOUNTS. THE REVENUE OFFICER THEN CONVERTED THE FUNDS TO HIS OWN USE AND PLACED THE TAXPAYER'S ACCOUNTS IN AN "UNCOLLECTIBLE" STATUS. THE REVENUE OFFICER WAS CONVICTED IN 1979 ON SEVERAL CHARGES OF EMBEZZLEMENT AND RESTITUTION WAS OBTAINED FROM THE EMPLOYEE'S RETIREMENT FUND. THE AMOUNT DISCUSSED IN THIS REQUEST IS FROM AN ADDITIONAL LOSS DISCOVERED IN 1980 AND 1981 WHEN TWO OTHER TAXPAYERS CAME FORTH PROTESTING TAX DEMANDS THEY CLAIMED THEY HAD PAID. ALTHOUGH PROSECUTION FOR THE NEWLY DISCOVERED ACTS OF EMBEZZLEMENT WAS DECLINED, A THOROUGH INVESTIGATION BY IRS'S INSPECTION OFFICE ESTABLISHED THAT THE LOSSES RESULTED FROM THE FRAUDULENT ACTS OF THE FORMER REVENUE OFFICER AND FURTHERMORE, NO EVIDENCE OF WRONGDOING ON THE PART OF MR. POLIVKA WAS FOUND.

THE INSPECTION REPORT DISCLOSES NO EVIDENCE IMPLICATING MR. POLIVKA AND THE FORMER EMPLOYEE WAS CONVICTED ON SEVERAL CHARGES OF EMBEZZLEMENT. THE REPORT CONTAINS SUPPORT THAT ADEQUATE IRS MANAGEMENT PROCEDURES AND CONTROLS EXISTED AT THE TIME OF THE LOSS AND WERE ENFORCED TO PREVENT FRAUDULENT ACTIVITIES, INCLUDING ACCOUNTABILITY AND CONTROL OVER RECEIPTS FOR PAYMENT OF TAXES, AND PERIODIC ROTATION OF REVENUE OFFICER CASE LOADS TO ELIMINATE EXCLUSIVE CONTROL OF TAXPAYER ACCOUNTS. THE REPORT CONCLUDES THAT NO CHARGES ARE RECOMMENDED IN THE CURRENT MANAGEMENT CONTROL SYSTEM.

B-226216

RELIEF FROM LIABILITY IS REQUESTED FOR MR. JOSEPH CLOONAN, FORMER DIRECTOR OF THE ANDOVER MASSACHUSETTS SERVICE CENTER FOR AN $818.56 LOSS RESULTING FROM THE FRAUDULENT ACTIONS A FORMER EMPLOYEE AT THE CENTER'S RECEIPT AND CONTROL BRANCH. THE CLERK WAS AN INTERMITTENT IRS EMPLOYEE WHO WAS RESPONSIBLE FOR PROCESSING PAYMENTS SUBMITTED BY TAXPAYERS THROUGH THE MAIL.

DURING THE EARLY PART OF MAY 1981, AN IRS CLERK RETAINED CHECKS RECEIVED FROM TWO TAXPAYERS WHO HAD NEGLECTED TO MAKE THE CHECKS PAYABLE TO THE IRS. THE CLERK MADE THE CHECKS PAYABLE TO HER BOYFRIEND, WHO THEN CASHED THEM. THE IRS BECAME AWARE OF THE LOSSES DURING THE LATTER PART OF JUNE 1981 WHEN TWO TAXPAYERS CAME FORTH TO REPORT THAT SOME INDIVIDUAL HAD NEGOTIATED THEIR TAX PAYMENT CHECKS. AN IRS INVESTIGATION COMMENCED AND BY JULY 1981 THE CLERK WAS SUSPECTED OF BEING INVOLVED. INSPECTION ATTEMPTED TO CATCH THE CLERK IN THE ACT OF EMBEZZLING BY SENDING THROUGH A NUMBER OF TEST PAYMENTS. HOWEVER, ALL FOUR WERE PROPERLY PROCESSED. JULY 17, 1981, THE CLERK RESIGNED AND COLLECTED HER RETIREMENT FUNDS. SUBSEQUENTLY THE CLERK CAME FORTH AND ADMITTED TO STEALING THE TWO CHECKS. IN DECEMBER OF 1982 THE FORMER CLERK WAS CONVICTED OF EMBEZZLEMENT.

THE REPORT INDICATES THAT ADEQUATE IRS PROCEDURES FOR PROCESSING TAX PAYMENTS EXISTED AND WERE ENFORCED AT THE TIME OF THE LOSS. CONTROLS INCLUDE MONITORING THE INTEGRITY OF CLERKS ON A REGULAR BASIS BY THE INSPECTION DIVISION PROCESSING "TEST PAYMENTS" THROUGH THE RECEIPT AND CONTROL BRANCH. IN ADDITION, INCOME TAX FORMS CONTAIN CLEAR INSTRUCTION TO INDIVIDUALS SUBMITTING PAYMENTS, TO MAKE THEIR CHECKS PAYABLE TO THE "INTERNAL REVENUE SERVICE."

B-226217

RELIEF FROM LIABILITY IS REQUESTED FOR MR. WILLIAM B. HARTLAGE, FORMER DIRECTOR OF THE ATLANTA SERVICE CENTER FOR A LOSS OF $1,667.65 RESULTING FROM THE FRAUDULENT ACTIONS OF A FORMER REVENUE OFFICER FROM THE JACKSONVILLE DISTRICT OFFICE UNDER THE SUPERVISION OF MR. HARTLAGE. DECEMBER OF 1978, A TAXPAYER NOTIFIED THE IRS THAT HE HAD NOT RECEIVED CREDIT FOR THREE TAX PAYMENTS. AN INVESTIGATION, WHICH IS CONTINUING IN LIGHT OF EVIDENCE OF ADDITIONAL FRAUD BY THE FORMER REVENUE OFFICER, REVEALED THAT THIS LOSS WAS PART OF A COMPLICATED SCHEME OF EMBEZZLEMENT CARRIED FORTH BY THE REVENUE OFFICER DURING JUNE OF 1978. APPARENTLY THIS SCHEME INCLUDED MANIPULATING TAX PAYMENTS FROM ACCOUNTS PREVIOUSLY DEEMED UNCOLLECTIBLE AND ISSUING RECEIPTS WHICH WERE NOT TRACEABLE SINCE THEY WERE FROM A RECEIPT BOOK WHICH ANOTHER OFFICER HAD REPORTED STOLEN. PRIOR TO THE DISCOVERY OF ANY IMPROPRIETIES, THE EMPLOYEE WAS DISCHARGED FOR FAILURE TO FILE BALANCE DUE RETURNS. IN APRIL OF 1980, THE FORMER REVENUE OFFICER WAS INDICTED AND CONVICTED BY A FEDERAL GRAND JURY ON TWO COUNTS OF EMBEZZLEMENT.

B-226682

RELIEF FROM LIABILITY IS REQUESTED FOR MR. ROY D. CLARK, FORMER DIRECTOR OF THE KANSAS CITY SERVICE CENTER FOR A $1,108.09 LOSS RESULTING FROM THE FRAUDULENT ACTIONS OF A FORMER REVENUE REPRESENTATIVE AT THE ROCK ISLAND IRS OFFICE, UNDER THE SUPERVISION OF MR. CLARK. DURING JULY AND AUGUST OF 1981, THIS REVENUE REPRESENTATIVE EMBEZZLED THREE TAXPAYERS' PAYMENTS. TWO TAXPAYERS WHO WERE INSTRUCTED TO MAKE PAYMENT WITH POSTAL MONEY ORDERS WERE GIVEN THE POSTAL CASH RECEIPT BY THE REPRESENTATIVE INSTEAD OF IRS RECEIPTS, ENABLING THE REPRESENTATIVE TO AVOID MAKING OFFICIAL RECORD OF THE TAX PAYMENTS. SIMILARLY, THE REPRESENTATIVE AVOIDED MAKING OFFICIAL RECORD OF A THIRD TAXPAYER'S PAYMENT WHO HAD RESIGNED IN SEPTEMBER 1981 DUE TO WORK PERFORMANCE PROBLEMS. SUBSEQUENTLY, TWO OF THE THREE TAXPAYERS CAME FORTH TO PROTEST ABOUT TAX DEMANDS THEY CLAIMED THEY HAD PAID. INSPECTION CONDUCTED A THOROUGH INVESTIGATION RESULTING IN THE PROSECUTION AND CONVICTION OF THE FORMER REPRESENTATIVE.

THE REPORT INDICATES THAT ADEQUATE IRS INTERNAL MANAGEMENT CONTROLS EXISTED AND WERE ENFORCED AT THE TIME OF THE LOSS TO ENSURE CLOSE SUPERVISION OF REPRESENTATIVES. CONTROLS INCLUDE QUALITY REVIEW OF REPRESENTATIVES' CASE LOADS, ROTATION OF CASES AFTER 6 MONTHS, AND REVIEW OF DAILY COLLECTION REPORTS BY THE DISTRICT OFFICE TELLER FUNCTION TO ENSURE ACCOUNTABILITY.

CONCLUSION

RELIEF IS GRANTED IN EACH OF THE FOUR CASES SUBMITTED. THE SUPPORTING DOCUMENTS ESTABLISH THAT ADEQUATE IRS PROCEDURES EXISTED AND WERE ENFORCED TO SAFEGUARD THE FUNDS RECEIVED IN THE COLLECTION PROCESS. CLEARLY, THESE ACTS OF EMBEZZLEMENT WERE CARRIED OUT THROUGH THE CLEVER CRIMINAL SCHEMES OF THE FORMER IRS EMPLOYEES. EVEN THE MOST CAREFULLY ESTABLISHED AND EFFECTIVELY SUPERVISED SYSTEM CANNOT PREVENT EVERY CONCEIVABLE FORM OF CRIMINAL ACTIVITY. CF, B-224689, OCTOBER 31, 1986. WE ALSO NOTE THAT THE IRS HAS, SINCE THE TIME OF THESE DISCUSSED LOSSES, FURTHER STRENGTHENED INTERNAL CONTROLS AND MANAGEMENT PROCEDURES TO AVOID SUCH LOSSES IN THE FUTURE. IRS HAS ALSO DILIGENTLY PURSUED COLLECTION OF THESE LOSSES.