State’s ‘Surplus Property’ Process Unchanged For Three Years After Warning of Fraud Risk

The government body charged with reviewing the accounting practices of state agencies found that the department assigned to catalog and dispose of surplus items had failed to fix accounting shortcomings discovered in a 2014 audit. The failure put the state at risk of embezzlement and accounting fraud.

Despite warnings in December 2014 from the state’s Office of Auditor General, the Department of Technology, Management and Budget, or DTMB, did not fix issues with the way it tracks the sales of surplus state equipment, according to a follow-up audit released in April 2018. The auditor’s office audits the financial transactions of all branches of the state government.

DTMB employees who collect payments for items sold at an auction also had access to records of the items and the ability to change them after a sale. Specifically, the auditor said its 2014 report found that one person with this access was “also responsible for completing the monthly billing reconciliation between items sold on the auction site and payments received for those items.”

This opens the door for employees who might embezzle public funds and then change the accounting records to conceal the theft. To eliminate the possibility, in 2014, the auditing office recommended separating duties, so that the people collecting a sale’s proceeds were not also recording the revenue from it.

But the department did not take separate those duties, according to the 2018 follow-up audit. That report stated that while the department did make changes, it “did not fully mitigate the original risk.” Department officials responded that they did make the recommended change – but just one month before the follow-up, or more than three years after the original finding.

A second major finding of the follow-up audit was that department did not accurately or adequately document how it disposed of surplus items, such as property release receipts, gift cards and electronic devices confiscated by the Michigan State Police. Equipment the State Police does not need also can become surplus, as well as items from the Department of Natural Resources and the Transportation Security Administration.

Without proper accounting procedures, there is a chance that DTMB employees could steal surplus items due to inadequate record-keeping rules and duties not being properly separated.

“Improper accounting opens the door for people to steal from the state,” James Hohman, the assistant director of fiscal policy at the Mackinac Center for Public Policy said. “It doesn’t seem like anyone is holding these people accountable when problems still aren’t fixed after they were identified years ago.”

The DTMB is responsible for handling surplus items from certain government agencies in Michigan. Its website explains that the surplus items are “property seized by police, voluntarily surrendered at airports or no longer needed by government agencies.” The department then takes these items and sells them to the public at an auction.

DTMB said they did agreed with the findings of the Auditor General report and have started making changes to address the concerns raised.