Retirement Bonus and Death
Benefit Accounts May Cause
Liability for State
OFFICE OF LEGISLATIVE AUDITOR
Performance Evaluation and Research Division
Building 1, Room W-314
State Capitol Complex
CHARLESTON, WEST VIRGINIA 25305
The Troopers of the West Virginia State Police voluntarily participate in two different programs administered by the State Police accounting section. The two programs are known as the "Voluntary Contribution Fund" (Contribution Fund) and "Voluntary Pledge Fund" (Pledge Fund).
The Pledge Fund was developed in 1963. It was designed to provide a participating member a sum of money upon retirement at $5 per member. The amount was changed to $10 per member in 1986. Those who did not wish to increase their contributions were allowed to stay in the $5 Pledge Fund. The retirement payment is dependent on the number of participants at the time of retirement. If there are 400 members at the time of retirement, the retiree would receive $4,000. There are currently 384 active participants and 49 non active, retiree, participants for a total of 433.
In 1994 and 1995 there was an increase in the amount of retirees due to changes in retirement benefits and retirement eligibility requirements. This put the payments to retirees in arrears. The State Police began deducting the Pledge Fund contributions from the participants paychecks on July 1, 1994. Retirees are billed each month for their contribution amounts.
The Contribution Fund provides a payment to the beneficiary of participating members upon their death. The required payment is $5 per member. Unlike the Pledge Fund, the Contribution Fund does not make payroll deductions for contributions. The accounting section mails the notices to the retirees and faxes notices to the active members at each Troop upon the death of a participating member. There are currently 825 participants.
ISSUE AREA 1: Special Bank Accounts for Retirement Bonus And Death Benefits May Create Potential Liability for State and for Recipients.
The West Virginia State Police has operated a retirement bonus for its members, since before 1963, and a death benefit fund both based on voluntary membership of troopers. The bank accounts known as Department of Public Safety Voluntary Pledge Fund (Appendix A) is for the retirement bonus and the Department of Public Safety Contribution Fund is for death benefits.
These accounts were discovered by legislative auditors as questionable when a claim was filed by a current state trooper for wrongful or erroneous deductions from his paycheck. The Voluntary Pledge and the Contribution Funds are managed by the State Police Chief Financial Officer through One Valley Bank and lists their address at the State Police Headquarters, 725 Jefferson Road, South Charleston, West Virginia 25301. A designated employee in the benefits section of the Personnel Division within the West Virginia State Police is responsible for billing, collecting and recording all transactions for these two funds. It takes approximately four hours of this employee's time per week to process these transactions. The records are maintained at the State Police Headquarters in South Charleston.
The Legislative Auditor's Office reviewed the West Virginia Code and could find no legal authorization for either the Contribution Fund or the Pledge Fund. Therefore, the Legislative Auditor concludes that the the Contribution Fund and the Pledge Fund are not authorized state operations, but instead are private endeavors ran by state employees on state time. The use of a state facility or services provided to either fund by state employees during hours of employment may violate the constitution as well as W. Va. Code §6B-2-5 (b) which prohibits an employee's use of public office for private gain. Payment of employees for performing unauthorized work violates §12-3-13 providing that salaries are not paid until services are rendered. Although the original goal of the Pledge Fund and Contribution fund, to provide a gift to retiring troopers and the family of troopers upon their death, may be laudable, the programs have not been legally established by the Legislature.
State Police Refused To Refund Trooper For His Claim of Unauthorized Deductions
Periodically, state troopers receive a list of deductions from their paychecks for review and consent. A Trooper who either failed to notice his deductions included the special retirement fund, or the state police payroll office erred in transmitting his deductions to the State Auditor of $10 per payroll. Sixteen months later, the trooper discovered what he thought was an unauthorized payroll deduction. The State Police's Chief Financial Officer refused to refund the $320 to the trooper. Subsequently, the trooper filed a case with the Court of Claims.
Currently, the Voluntary Pledge Fund is over obligated to approximately 48 retired troopers who have not received their retirement bonus. Each member is owed approximately $3200 to $3300 for a total of $158,400. A shortage was created in the fund in 1995 and 1996 when large numbers of troopers retired. The balance needed in the account upon the large number of retirements would have required each trooper to contribute a large amount of money. The troopers pay to the Contribution fund only upon the death of a trooper or civilian member that has participated in the fund.
During the 1980's, state agencies maintained local checking accounts to reimburse students for college loans, bookstore operations and other operations requiring cash to be available. The Legislative Auditor discovered that state agencies maintained numerous checking accounts, and the State Treasurer and State Auditor were unaware of these accounts. The accounts were set up in the name of the State of West Virginia (Appendix B) and were managed by state employees. The Legislative Auditor requested the Treasurer's Office to begin requiring state agencies to have these accounts approved by the Treasurer's Office so a list of local checking accounts could be maintained. During this period of time, some checking accounts were approved that were not state moneys; however, these accounts were maintained by state employees.
Following this effort to bring scattered accounts into the accountability of the state system, both the Pledge Fund and Contribution Fund accounts were approved by the Treasurer's Office on May 2, 1989, as State accounts.
Effects On State Government And Recipients
The approval of the account by the State Treasurer and the name of the account "State of West Virginia" creates the possibility the State of West Virginia could be held accountable for these private funds. For example during the 1990s, the State Board of Risk Insurance Management was required to reimburse the WVU Foundation for funds embezzled by a state employee. This cost the State approximately $354,000.
Since the name State of West Virginia was placed on the checking account by the State Treasurer's Office and a public employee manages the account on state time, a judge might rule that it is a state account, even though the account was never approved by the Legislature. If a retired trooper filed a claim for the $3,200 to $3,300 they are owed, it is possible that other retired troopers could also file a claim. If the claims were upheld, the state could be held accountable for the $158,400 shortage.
In addition to the funds not being approved state funds, the funds are also not funds managed by a nonprofit organization in accordance with the Internal Revenue Service Code. Further, the Chief Financial Officer of the State Police told legislative auditors that his office has never issued IRS Form 1099 to recipients of the retirement bonus. Instead, the State Police has considered the payments to troopers as being gifts. However, not all State Troopers nor their families qualify for the retirement payments. Instead, only those State Troopers who choose to participate in the plan are eligible (Appendix C). Thus, the difference between the payment retired troopers or their families receive, and the amount of money each individual trooper contributed to the fund, might be taxable income.
Finally, the State Police employee managing these two accounts makes $31,382 per year, when her benefits are included. Since she spends four hours a week on these accounts, or approximately 10% of her time, management of the accounts is costing the state $3,100 annually.
Similar Problems May Exist In Other State Agencies
In addition to the possible liability of the state for the private funds managed by the State Police, there has been other indications that other private bank accounts had the label of State of West Virginia placed upon them during the late 1980s. Therefore, the State Treasurer's Office may need to examine the local bank accounts approved by the Treasurer's Office in the late 1980 as state accounts, to ensure that all such accounts, with the state's name on them, are authorized by law.
These two funds should be incorporated in accordance with the IRS Code and removed from state properties, since they are not authorized by law. The use of a state employee during state work hours on state property is in direct violation of the state constitution and WV Code §6B-2-5 and WV Code §12-3-13 and should cease immediately.
The State Police should consider transferring the responsibility for the Pledge and Contribution Funds to a private organization such as the State Troopers Association.
If the State Police chooses not to implement Recommendation 1, the State Police should establish an IRS approved non-profit organization, similar to the WVU Foundation, to administer these funds, or request the Legislature to statutorily establish these programs.
The State Police should immediately cease the use of state employees to administer and maintain the records of these funds on state property and state time.
The State Police should immediately eliminate the state's name from the accounts.
The State Treasurer should consider having his office examine the local bank accounts which were established as state accounts in the late 1980s to ensure that the funds in these accounts are state funds as authorized by law.