Department of the State Treasurer and Receiver - General
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“Our follow-up review indicated that, although the DST has taken steps to address these prior issues, further improvements were necessary, as discussed below:”
Read the plain-English breakdown
This is an independent audit of certain work done by the Massachusetts Department of the State Treasurer, the office that handles major state financial duties.
“The Treasurer and Receiver-General, an elected constitutional officer of the Commonwealth, has jurisdiction over the Department of the State Treasurer (DST) and the State Board of Retirement.”
The Auditor reviewed whether earlier problems were fixed and also looked into banking fees, abandoned property claims, payroll tax underpayments, and year-end cash procedures.
“Our audit was conducted in accordance with applicable generally accepted government auditing standards for performance audits.”
Weak controls can put people’s unclaimed property, state money, and public trust at risk.
“As a result, the rights of property owners were not adequately protected against loss or misappropriation.”
If you are a taxpayer or someone who may have unclaimed property, this matters because poor tracking can delay or misdirect money, and poor cash management can waste public funds.
“The current DST administration estimated that it could earn approximately $400,000 in the first year and $600,000 in future years by restructuring its banking relationships and improving the efficiency of cash-flow management.”
The Treasury needed stronger written controls, better records, regular reconciliations, and clearer procedures for handling public money and abandoned property.
“The DST should continue to develop and complete its internal control plan in compliance with Chapter 647 of the Acts of 1989 and implement the guidelines established by the Office of the State Comptroller’s Internal Control Guide to create proper accountability and safeguard the Commonwealth’s assets.”
The report recommends that the Treasury stop accepting incomplete abandoned-property deposits, finish its internal control plan, reconcile accounts more often, and improve written procedures.
“The DST should inform all holders of abandoned property that the Abandoned Property Division will no longer accept aggregate single-dollar-amount deposits that are inconsistent in form and content with the mandated requirements of the Massachusetts General Laws, Chapter 200A, Section 7(a).”
The findings involved very large amounts of money, including more than $7 million in alleged fraudulent abandoned-property claims and about $35 million in underpaid federal payroll tax obligations.
“These subpoenas requested documents, records, and related information on DST’s payment of more than $7 million for these alleged fraudulent abandoned property claims during the period January – April 1999.”
The “Float Fund” is basically the state’s central checking account for paying many kinds of bills, including debt, local aid, payroll taxes, vendors, and tax refunds.
“The DST maintains a cash suspense fund (Float Fund), that functions as the Commonwealth’s central disbursement account for the payment of its obligations for debt service, local aid, warranted and non-warranted payments, federal and state payroll tax obligations, vendor invoices, and Department of Revenue state tax refund payments.”
14 figure(s) pending source verification - not shown
What the Auditor checked
- Partially Determine the extent to which DST had implemented prior recommendations or developed a plan for implementing them with regard to abandoned property and internal control plan.
- Did not comply Review the Commonwealth practice and method for paying for banking services.
- Did not comply Conduct a Chapter 647 review regarding alleged fraudulent abandoned property claims filed by or on behalf of G.E. Investments or General Electric.
- Did not comply Review an underpayment of Commonwealth federal payroll tax obligations of approximately $35 million.
What the Auditor found
Why it matters: Property owners' rights were not adequately protected against loss or misappropriation.
Standard: Chapter 200A, Section 9, of the General Laws; Chapter 647 of the Acts of 1989 ( Chapter 200A, Section 9, of the General Laws; Chapter 647 of the Acts of 1989 )
2 recommendations
- Continue to develop and document an internal control system as required by Chapter 647 of the Acts of 1989.
- Make timely bank deposits of inventoried tangible property.
Agency response & Auditor reply
Agency: "The Assistant Treasurer for Abandoned Property indicated that a comprehensive Internal Control Plan is being developed by the DST’s new staff auditor."
Why it matters: Owners could be unaware of abandoned property held by the Commonwealth and holder reports could not be tracked timely.
Standard: Chapter 200A, Sections 7(b), 8(a), and 8(e), of the General Laws ( Chapter 200A, Section 7(b)(3), of the General Laws; Chapter 200A, Section 8(a), of the General Laws )
1 recommendation
- Continue efforts to inform noncompliant holders of Chapter 200A reporting requirements and publish required owner names.
Agency response & Auditor reply
Agency: "The Division’s Director of Report Processing stated that the division did not have enough help to enter these reports into the computer when they are received and that some of the holder reports are not in a form that is compatible for entry into the division’s computer."
Why it matters: The prior contracting approach was not prudent or cost-effective and lacked clear performance requirements.
1 recommendation
- Continue proposed auditing service Request for Responses requirements and execute new contracts.
Agency response & Auditor reply
Agency: "The Assistant Treasurer further stated that the prior administration’s goal in using private accounting firms was to increase the dollar amount of abandoned property transferred to the Commonwealth’s General Fund, whereas the objective of the current administration will be to focus its auditing programs on educating abandoned property holders on the reporting requirements of Chapter 200A of the General Laws."
Why it matters: The Commonwealth could not fully account for custodial assets and missed opportunities to liquidate assets into the General Fund.
Standard: Chapter 200A, Section 9(b), of the General Laws; Chapter 647 of the Acts of 1989 ( Chapter 647 of the Acts of 1989; Chapter 200A, Section 9(b), of the General Laws )
1 recommendation
- Establish controls over custodian and mutual fund companies and a recurring liquidation policy for stocks and bonds.
Agency response & Auditor reply
Agency: "Additionally, the Assistant Treasurer stated that the division will review current practices with regard to potential liquidation of stocks and/or bonds remitted in previous years."
Why it matters: The control environment was inadequate to provide the highest level of security over Commonwealth funds and revenues.
Standard: Chapter 647 of the Acts of 1989 ( Chapter 647 of the Acts of 1989 )
1 recommendation
- Continue to develop and complete the internal control plan and document controls for all divisions and units.
Agency response & Auditor reply
Agency: "Our follow-up review of the DST’s internal controls over cash management, deposits-in-trust custodial functions, and abandoned property disclosed that the DST has made the following changes to address weaknesses in the department’s internal controls and processes that were in place in the prior administration:"
Why it matters: DST relied on holder certifications and paid more than $7 million in alleged fraudulent claims.
Standard: Chapter 200A, Section 7(b), of the General Laws ( Chapter 200A, Section 7(a), of the General Laws; Chapter 200A, Section 7(b), of the General Laws )
1 recommendation
- Stop accepting noncompliant aggregate deposits and obtain owner information for past aggregate deposits.
Agency response & Auditor reply
Agency: "The DST’s Deputy Treasurer-General Counsel stated that, because the Commonwealth had accepted these deposits from State Street Bank and Trust and other holders in the aggregate (without knowledge of ownership), it has been the Abandoned Property Division’s practice to rely on holders’ verification in making payments of claims from aggregate deposits."
Why it matters: The Commonwealth had unpaid tax obligations, lost interest income, and had to expend management time and contractor costs to correct tax problems.
Standard: Internal Revenue Service Publication 15 – Circular E, Employer’s Tax Guide ( Internal Revenue Service Publication 15 – Circular E, Employer’s Tax Guide )
1 recommendation
- Establish a separate central tax disbursement account and monthly reconciliation procedures.
Agency response & Auditor reply
Agency: "The DST’s Deputy Treasurer for Cash Management stated that, although the DST had previously not performed reconciliations of federal tax obligation payments and reporting to determine their accuracy and timeliness, the DST plans to develop reconciliation procedures similar to those used to resolve the issues for the tax years 1995-1999."
Why it matters: Large unreconciled variances and unreimbursed payments limited accountability over the Commonwealth’s central disbursement account.
1 recommendation
- Continue monitoring, develop procedures, reconcile more routinely, and consider opening a new Float Fund.
Agency response & Auditor reply
Agency: "The new administration indicated that it has identified and corrected many variances but given the volume of activity in the fund and numerous past problems, it was still in the process of identifying and correcting them."
Why it matters: The Commonwealth lost unused bank credits, understated bank service costs, and lost potential interest income.
Standard: Chapter 647 of the Acts of 1989; Chapter 29, Sections 9E and 12, of the General Laws ( Chapter 29, Section 9E, of the General Laws; Chapter 29, Section 12, of the General Laws )
1 recommendation
- Monitor bank service fees and execute written contracts for all banking services.
Agency response & Auditor reply
Agency: "The DST indicated that it has taken the appropriate steps to monitor bank service fees to prevent a replication of these occurrences."
Why it matters: DST could not reliably identify active and inactive bank accounts, increasing the risk of misdirected payments.
1 recommendation
- Maintain an updated master account report, reconcile subsystems, and improve documentation and approvals for new bank accounts.
Agency response & Auditor reply
Agency: "The Deputy Treasurer for Cash Management Division stated that DST’s current cash management system, which was developed by division staff and consultants in the early 1990s, and modified over the past years is limited, inflexible, and inadequate to meet current needs."
Why it matters: DST could not be assured the account balance was sufficient to fund liabilities to property owners or that interest was calculated correctly.
Standard: Chapter 200A, Section 2; Chapter 79, Section 70; Chapter 647 of the Acts of 1989 ( Chapter 200A, Section 2, of the General Laws; Chapter 647 of the Acts of 1989 )
1 recommendation
- Continue corrective action to ensure accurate data, full investment of balances, abandoned-property transfers, and monthly reconciliation.
Agency response & Auditor reply
Agency: "The DST was in the process of taking corrective action with regard to the Eminent Domain Trust Fund Account."
Why it matters: Approximately $2 billion in custodial assets were exposed to recording, reconciliation, and documentation risks.
Standard: Chapter 152, Sections 61 and 62, and Chapter 175, Sections 151 and 185, of the Massachusetts General Laws ( Chapter 152, Sections 61 and 62, and Chapter 175, Sections 151 and 185, of the Massachusetts General Laws )
1 recommendation
- Promptly record and document all transactions, improve password security and cross-training, use bank trade confirmations, and strengthen reconciliations.
Agency response & Auditor reply
Agency: "The DST’s Deputy Treasurer for Cash Management stated that the prior administration’s practice was to send copies of its monthly Bonds and Trust Report to the custodian banks and that if, the banks agreed to the amounts reported by the DST, it was considered a reconciliation."
Prior findings revisited
"Our follow-up review indicated that, although the DST has taken steps to address these prior issues, further improvements were necessary, as discussed below:"