Bureau of Criminal Investigation
Misused Federal Funds
Academy PX Lacks
Statutory Authority

Issue Area 1: The Bureau of Criminal Investigation (BCI) Misused Federal Funds which were Set Aside for Cash Purchases of Illegal Contraband by Deducting Contributions Used for Payments to a Voluntary Retirement Plan and for Other Personal Uses.

The Bureau of Criminal Investigation is granted federally-funded monies jointly by the U.S. Department of Justice (DOJ) and the U.S. Department of the Treasury (DOT). These monies are to be utilized according to the criteria set forth in the manuals distributed by each department: A Guide to Equitable Sharing of Federally Forfeited Property for State and Local Law Enforcement Agencies (DOJ) and Guide to Equitable Sharing for Foreign Countries and Federal, State, and Local Law Enforcement Agencies (DOT).

Prior to April 1, 2000, these federal funds were distributed to each of the four (4) regional BCI Offices in the form of a check and then deposited into the separate checking accounts maintained by each respective region. Each BCI region then wrote a check for cash as needed to maintain an on-hand cash box (much like a Petty Cash box) for the purpose of providing "BUY MONEY." This cash was taken out as needed by each officer and reported on a running ledger which accounts for all transactions. It was also possible for each officer to deposit cash back into the cash box. Once the cash on-hand became insufficient to provide the required money, another check was written from the checking account and cashed in order to provide additional funds.

Misuse of Funds
During the Legislative Auditor's Office review of the State Police's Pledge and Contribution Funds (see Legislative Auditor's April 2000 report), the Legislative Auditor's Office discovered that BCI officers were having cash deducted on their behalf for reasons other than the purpose specifically prescribed for this funding. At BCI's Fairmont and Martinsburg detachments, officers who contributed to the voluntary retirement Pledge Fund and the voluntary death benefit Contribution Fund have had their contributions taken out of BCI's cash box and added to their outstanding balance for that month. Furthermore, amounts for specific causes have been taken out of the undercover cash boxes for numerous officers for miscellaneous gifts and flowers. Even though the cash may be eventually repaid, it is not the purpose for these federal funds to be used as an auxiliary fund for personal contributions.

One State Police employee informed the Legislative Auditor's Office that:

For several years, money from the BCI. has been used to pay the State Police Contribution Fund, Pledge Fund, and other office related funds, including purchase of flowers related to deaths or hospitalizations in officers' families. . . This practice was started due to the availability of the officers, when collecting money for these expenditures. I am not sure when this practice began, but know it to have been done for several years. . . Although I am now advised that this practice is not acceptable, it did happen on several occasions, I would point out that on each occasion, it was recorded and logged accordingly. . . In closing, the situation with these fund withdrawals did happen. The money was accounted for and is still reflected in our accounting. Further, this practice will cease on the date of this memorandum (March 24, 2000).
The Legislative Auditor's Office attempted to reconcile BCI's cash fund ledgers, from 1994 to October 1999, to determine if the inappropriate expenditures were reimbursed by BCI.'s officers. It is the opinion of the Legislative Auditor's Office that when BCI officers settled up their accounts in October 1999 all expenditures for contributions to the Pledge and Contribution Funds and for gifts were repaid.(1)

Specific Criteria for Funding Usage
Since these federal funds are distributed jointly by two separate federal departments, each department has a separate guide for usage with specific criteria which must be met in order to receive these funds and/or any additional funds. As was previously mentioned, the Department of Justice publishes A Guide to Equitable Sharing of Federally Forfeited Property for State and Local Law Enforcement Agencies, which states in Section X, A, 2, f, that "any use that creates the appearance that shared funds are being used for political or personal purposes is not permitted." This publication also states in Section X, A, 2, g, that "receiving agencies should use federal sharing monies prudently and in such a manner as to avoid any appearance of extravagance, waste, or impropriety."

The Department of the Treasury's publication, Guide to Equitable Sharing for Foreign Countries and Federal, State, and Local Law Enforcement Agencies, mirrors the criteria for usage set forth by the DOJ by stating in Section X, B, 2, f, that "federal agencies should use federal sharing monies prudently and in such a manner as to avoid any appearance of extravagance, waste, or impropriety. The payment of personal credit cards, the purchase of meals..., alcoholic beverages and other such expenditures are impermissible." Additionally, Section X, B, 2, d, states that "shared funds may not be used for any purpose that would constitute an improper use of state or local law enforcement funds under the laws, rules, regulations, and orders of the state...of which the agency is a part.."

New BCI Procedures Should Reduce the Risk of Future Misallocations
On April 1, 2000, the State Police instituted a new policies and procedures manual covering the handling of BCI's cash funds. These procedures, if properly implemented and enforced, should significantly reduce the risk of future misallocations. BCI officers are no longer able to indefinitely hold cash balances and balances must be reasonable. (Previously, a few officers carried average monthly balances of over $1,000 during the mid 1990s.) In addition, the State Police's new policies and procedures require random cash counts of officers outstanding balances. The State Police has also eliminated the local bank accounts that BCI regional offices previously had. There is now onlyone statewide checking account for BCI's cash funds.

The absence of internal controls for cash used in undercover police operations allowed the some State Police employees to misuse cash provided by the federal government. However, the State Police has stated they ended the practice of using BCI cash boxes to purchase gifts and make donations to State Police employees retirement and death benefit funds. In addition, new internal control policies and procedures, if properly implemented and enforced, should significantly reduce the risk of any future misallocations of BCI's cash funds.

Recommendation 1:
The Legislature should consider a compliance follow-up review BCI's accounts by placing the State Police BCI unit under the compliance section of the sunset law §4-10-5a.

Issue Area 2: The State Police Academy PX Is an Unauthorized Revenue Source, Has Been Used for Private Gain by Public Officials, and Has Failed to Collect and Remit Over $23,000 in Sales Tax Due the State.

Unauthorized State Activity
The West Virginia State Police Training Academy has operated a post exchange (PX) that sells State Police insignia products and personal products to cadets, in service troopers and the public for over 30 years. However, during the course of this audit, the State Police Superintendent temporary closed the PX effective March 29, 2000.

West Virginia Code Chapter 15, Article 2, Section 3 states in part:
The Superintendent shall provide adequate facilities for the training of all members of the State Police and shall prescribe basic training requirements for newly enlisted members.

The Legislative Auditor was unable to find authorization for the collection of revenues from the sale of products beyond necessity items for the cadets. In comparison, the Legislature has legally established the state's college bookstores (see §18B-10-14 of the West Virginia Code) and a PX at Camp Dawson in Preston County (see §15-1H-1 of the West Virginia Code). West Virginia Code Chapter 18B, Article 10, Section 14 states in part:
The appropriate governing board of each state institution of higher education shall have the authority to establish and operate a bookstore at the institution.

In legally establishing these endeavors, the Legislature also specified how profits from these activities could be spent. For example, West Virginia Code Chapter 15, Article 1H, Section 4 states:

All proceeds derived from the operation of the morale, welfare and recreation facilities on Camp Dawson shall, after the payment of operating expenses, notwithstanding any provision of this code to the contrary, be used exclusively for the improvement of Camp Dawson. (Emphasis added.)

State Police Academy PX Has Sold Approximately $380,000 Worth of Items Over the Past 10 Years

The PX has generated thousands of dollars per year on State property by State employees without authorization from the Legislature. Table 1 below shows the deposits made to the PX/Vending Account for the past 10 fiscal years. PX records show that from July 1, 1990 through February 29, 2000, $383,118 was deposited in the PX's bank account. This amount has ranged from a low of $16,626 in FY1991 to a high of $63,370 in FY1995.

Table 1 

Deposits Made to PX/Vending Account

Fiscal Year Coin Cash/Check Total
2000 (as of 02/00) $1,705 $29,852 $31,557
1999 3,683 49,478 53,161
1998 3,228 34,857 38,085
1997 2,633 39,848 42,481
1996 2,580 49,254 51,834
1995 6,585 56,785 63,370
1994 4,634 28,510 33,144
1993 4,793 30,149 34,942
1992 4,441 13,477 17,918
1991 2,590 14,036 16,626
Total $36,872 $346,246 $383,118

Failure to Remit Revenue to State Treasurer
The State Police may have violated WV Code Chapter 12, Article 2, Section 2(a) since this revenue was not deposited with the State Treasurer. The Code Section states:

All officials and employees of the State authorized by statute to accept moneys due the State of West Virginia shall keep a daily itemized record of money so received for deposit in the State Treasury and shall deposit within twenty-four hours with the State Treasurer all moneys received or collected by them for or on behalf of the State for any purpose whatsoever.

The revenue from the State Police Academy PX was administered by a state employees on state property. Directors of the Academy have used the State Police's Tax Identification Number (TIN), 55-6000772, to register the account as a lodge, association or other similar organization with the bank. The State Police's TIN was also used on an IRS form W-9 for purposes of identifying the recipient of any income derived from the account. In the event the PX were to be sued, or if embezzlement were to occur by a State employee, the State could be held liable.

Private Gain from Public Office
The review of disbursements from the PX/Vending Machines account revealed money was used for private gain. Over 20 years worth of disbursements were reviewed by the Legislative Auditor's Office. During this period there were numerous transactions that were not in the interest of the State Police or the Training Academy. These include:

Appendix A details all disbursements which the Legislative Auditor's Office found to be questionable.

Equipment And Training Courses Purchases
The Px fund did provide funding for purchases of equipment and training courses used at the academy that otherwise would have been purchased with state funding. Purchases of $10,562 during the past 3 years provided the academy with a new over head projector with writing tablet and a cart. Televisions and VCRs used in training courses were also purchased. Repairs to equipment were made in 1999. The fund does provide a funding source for the repairs and alterations and equipment.

Floating Of Checks Cashed At The Academy
The practice of cashing and holding personal checks for deposit into the Px account for uniform and civilian employees was a common practice. There were also numerous checks being deposited into the account by the employee who kept the books for the PX. This employee routinely deposited personal checks into the account. The employee was responsible for making PX deposits and therefore was in control as to when her checks clear her account. In such an environment, there is a risk for the "floating" of checks. It was noted that when this employee was relieved of her duties involving the PX, her checks stopped showing up on deposit slips. From July 1994 through August 1999, this State Police employee appears to have cashed over $11,000 in personal checks using the State Police Academy PX account.

The secretary responsible for the fund stated in a letter, "This is to certify that on occasion checks were held for a short period of time until State employees received their pay checks for purchases made in the PX at the State Police Academy." Appendix B shows the number and amount of checks by the employee, her business or relatives, that were deposited into this account.

Cost To The State of Operation
The PX was open approximately 15-20 minutes per day and, prior to its temporary closure, was staffed by two cadets. There is also an administrative employee that placed orders, wrote checks, handled the bank reconciliations and deposits. The administrative employee averaged four hours per week to handle her duties involving the PX. Financially this costs the state approximately $3,364 per year from the employee's involvement. This figure is based on the salary of the individual with State benefits prorated to the 10% of time spent per week on the PX account. This amount does not include the salary of the cadets which are charged with staffing the PX everyday.

State Police Px Failed to Collect and Remit Approximately $23,000 in Consumer Sales Tax to the WV Tax Department During the Past 10 Years
The State Police has never collected and remitted consumer sales tax for revenues generated by the Px operations. This is in violation of Chapter 11, Article 15, Section 3(a) of the West Virginia Code. This Code Section requires the sale of or rendering of services to be taxed at a rate of 6%. It states:

For the privilege of selling tangible personal property and of dispensing certain selected services defined in sections two and eight of this article, the vendor shall collect from the purchaser the tax as provided under this article, and shall pay the amount of tax to the tax commissioner in accordance with the provisions of this article.

Further, Section 3(b) of this article states:
Beginning on the first day of March, one thousand nine hundred eighty nine, the general consumer sales and service tax imposed by this article shall be at the rate of six cents on the dollar of sales or services, excluding gasoline and special fuel sales, which remain taxable at the rate of five cents on the dollar of sales.

Based on the deposits made over the past 10 fiscal years, the State Police failed collect and remit approximately $22,987 (2) of PX and vending machine revenue for consumer sales tax. The State Police could be liable for this amount per Chapter 11, Article 15, Section 4a of the WV Code which states, "If any vendor fails to collect the tax imposed by section three of this article, he shall be personally liable for such amount as he failed to collect."

Based on the information reviewed, the Legislative Auditor does not believe the State Police has the authority to collect such revenues from a PX. The lack of authority has also resulted in a lack of guidelines as to how these revenues should be disbursed and the failure to collect and remit sales tax due the state. Although the majority of revenues were invested in products for resale, the profit is substantial enough to warrant oversight.

Recommendation 2:
The Legislature should consider amending the Code to authorize the Px operation and specify the use of revenue derived from its operation.

Recommendation 3:
In the event the Legislature chooses not to authorize the PX fund by Law, the State Police should either close the PX or allow the PX to only sell items of necessity to cadets at cost.

Recommendation 4:
If the Legislature authorizes the PX fund as a state activity, the State Police should begin collecting sales tax on all non-exempt items sold.

Recommendation 5:
If the Legislature authorizes the PX fund as a state activity, the State Police should develop policies and procedures for the operation of the PX. Such policies and procedures should detail the frequency of internal audits and cash accounts of the PX.

Recommendation 6:
With the remaining balance in the Px fund, The State Police should remit to the Tax and Revenue Department the appropriate amount of sales tax owed to the State.

1. However, the Legislative Auditor's Office also found that in a single instance on March 15, 1995 beer was purchased for a regional coordinators meeting with federal funds for a regional coordinators meeting. The expenditure was turned in on a voucher and the money was allowed by the supervisor. In a letter dated May 4, 2000, the state police stated that the funds for the purchase of beer would be reimbursed to the appropriate federal funding source (see Appendix F).

2. Sales tax calculated @ 6% on sales of $383,118.