By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Auditor-General has slammed the Department of Social Services for “gross negligence” in allowing $4.237 million to be paid to suppliers without proper authorisation, exposing it to potential fraud and corruption.

A two-year review of the Department’s accounts found that seven payments, ranging in size from $365,212 to $909,810, lacked the necessary sign-offs from senior executives, leading the Auditor-General to criticise management for a “lack of accountability”.

Terrance Bastian and his team, in a report tabled in the House of Assembly yesterday, said all vendor requests and payments were supposed to be signed-off by both the Department’s finance officer and executive management.

Yet senior management was found to have approved none of the seven vendor payments flagged by the Auditor-General, and one - worth $554,200 - also lacked the finance officer’s sign-off, too.

The latter payment was approved by an accounts officer, who then delivered it to a food store vendor - which was not named - personally.

“During our audit we observed that internal control weaknesses existed in the vendor payment process,” the report said.

“However, there was no evidence of executive management’s review on vendor payment request forms examined.

“Excessive payments made to a particular vendor on numerous occasions, with no director approval and no reconciliation of the vendor statement, showed a total lack of accountability and responsibility by the Department of Social Services.”

Turning to the payment where there was no evidence of any sign-off, the Auditor-General added: “A payment requisition and the processing of a cheque request, for a food store in June 2015, in the amount of $554,200, was authorised by an accounts officer void of the finance officer’s and executive management’s signature.

“The cheque was subsequently delivered to the food store’s accounting department without any supporting documentation by the same accounts officer.”

Detailing the consequences, Mr Bastian and his team said reviewing all vendor payment requests before they were approved was vital to internal financial controls for any organisation.

Suggesting that these may have broken down at the Department of Social Services, the Auditor-General’s report found: “Based on the dollar value of the payment requests noted above, these payments should have been reviewed by members of executive management and the finance officer.

“Allowing this to occur indicates a lack of accountability on the part of executive management. Failure to perform the necessary reviews of payment requests may increase the risk of loss due to errors, irregularities and circumvention of the payment processes and procedures.

“It could also result in persons being able to perpetrate fraud, which would produce inaccurate financial results..... Allowing payments of this magnitude to be disbursed without proper scrutiny from the appropriate levels of management may be tantamount to gross negligence.”

The Auditor General urged the director of social services, and the permanent secretary at the Ministry of Social Services and community development, to regularly review the Department’s payments as a means “to detect any unusual or questionable transactions”.

“This would ensure transparency in the payment process, and assist in deterring persons from committing questionable acts around disbursing payments,” the report added.

The audit, which covered the 24 months to end-July 2015, found that the Department of Social Services was wide-open to fraud, corruption and multiple forms of financial abuse, due to an almost-total lack of internal controls and management oversight.

The Auditor-General’s report again highlights how the Bahamian people, especially taxpayers, are denied ‘value for money’ and strong public services at numerous government agencies, due to fraud, inefficiency and wasteful spending.

This, in turn, results in the Government demanding ever-increasing revenues, helping to drive initiatives such as Value-Added Tax’s (VAT) implementation.

When it came to the Department of Social Services’ accounting department, the Auditor General described the situation as ‘allowing the fox to guard the chicken coop’.

“We observed during our audit that improper segregation of duties existed in the Department of Social Services’ accounts department,” the report said.

“There were numerous cases where incompatible duties were discovered, leading to certain questionable acts being perpetrated by several employees.

“As noted in this report, persons were allowed to remove medical batch files, destroy [food] coupons and related information, utilise unauthorised coupons, and process large payments without approval, due to a lack of segregated duties.

“A lack of segregation of duties resulted in fraud being committed not only by external parties to the Government but also the staff of the Department of Social Services.”

The Auditor General’s team found that one accounting department employee was responsible for both issuing and authenticating food coupons, and processing payments to food stores once these were redeemed.

They were also responsible for handling food coupon and school uniform assistance queries, and uploading funds to the pre-paid debit cards used to provide financial assistance to poor Bahamians.

The report warned this situation could “escalate”, leading to “erroneous and inappropriate” actions if an employee was placed in charge of the “entire processing cycle” - including all ‘checks and balances’ supposed to oversee their actions.

“A fundamental element of a strong system of internal control is the segregation of duties, with the underlying idea that no employee should be in a position both to perpetrate and to conceal errors, or commit fraudulent acts, in the normal course of their duties,” the Auditor-General warned.

“Incompatible duties to be segregated are custody of assets, authorisation or approval of related transactions affecting those assets, and recording or reporting related transactions.”

In response to the findings, the Department of Social Services director and executive management pleaded ‘guilty’ and accepted “the majority of the recommendations” from the Auditor-General.

They pledged to create a Compliance Unit, and explore the appointment of an internal auditor and new electronic information management systems with the Ministry of Finance.

Surprise inspections of all the Department’s divisions will now take place, while the Ministry of Finance’s assistance in strengthening the accounts department is also being sought.