Utter chaos in Single Tax Office

People waited a year for an investigation of the Single Tax Office to provide answers about the origin and destination of more than $12.3 million that had accumulated there.

The findings, however, raise even more questions.

The eight-month investigation released March 20 described an office in chaos from lack of training and oversight and failure to monitor cash balances.

The Single Tax Office collects Scranton, Lackawanna County and Scranton School District property taxes, as well as city and school wage taxes. It also collects wage taxes deducted by employers from people who work in the city but live elsewhere.

The independent investigation found the tax office, under previous tax collector Ken McDowell, combined 23 bank accounts into one master bank account, leading to confusion and chaos.

The tax office broke state law when bank accounts were combined and also was in violation as no yearly audits were performed, acknowledged tax office solicitor John McGovern. He was hired in 2008 just as an unexplained $12.3 million was found.

If not for the mismanagement and absence of checks and balances the law required, tax officials said, someone might have noticed $1 million to $2 million go missing through accounting errors.

Nihill & Riedley, which performed the investigation, said it found instances of accounting errors, such as residents receiving duplicate refund checks, or refunds to people who never paid in the first place. The findings also mentioned the Single Tax Office exceeded its budget and used the accumulated tax money to cover its expenses. Mr. McDowell disputes that.

But auditors and tax officials say there is nearly no hope in navigating the mess left over to find that missing money.

City Councilwoman Judy Gatelli said she was disappointed in the investigation and how many questions remain to be answered.

It seems like we know less now than we did before, she said. But trust me. Its not over yet, the story is not over yet.

Disorder remains

The tax office remains in violation of the law today.

Until the Single Tax Office employs its own controller and cleans up the mess from previous years, Mr. McGovern said an audit, though required by law, would be challenging. And the money pooled together in one bank account cannot be separated.

Although public officials and media outlets have been calling this report by Philadelphia-based auditing firm Nihill & Riedley a forensic audit it really was not. The firm spells out clearly that the report is an ... analysis of increases in the balance in a bank account currently maintained by the (tax office) and the nature and sources of funds held within that account. ...The procedures and analyses performed in connection with this engagement do not constitute an audit. ...

In fact, the last audited financial statement was for the offices 2004 books. An independent audit was attempted for 2005, but failed. Others, including the state Treasury Department whose unclaimed property audit began last year and is still under way have also had difficulties.

Were literally incapable of doing it (an audit) at this moment, Mr. McGovern said. Once we get it cleaned up, the next step is to attempt to go back to a situation where there were (separate bank) accounts for the city, county and school district.

He added having an audit of the tax office books as of Dec. 31 would be a waste of time and money. Mr. McGovern said they expect the books to be ready for an audit of 2009.

The office is expecting to start advertising soon for a controller to help sort out the books.

County and city officials have said they want some accounting of the missing $1 million to $2 million. And at least county and city officials have briefly discussed hiring an internal controller to keep the tax office books in order. School officials did not return a call for comment.

No accountability

Despite laws broken, there is no indication any authorities on the local, state or federal level are interested in investigating the office or former collector Mr. McDowell.

Agencies such as the FBI and state Ethics Commission either didnt return calls or would not confirm or deny an investigation.

Nobodys claiming there was anything intentionally done wrong here, said Mr. McGovern, the office solicitor. As the FBI said (last year), you cant arrest incompetence.

The FBI raided the tax office in April. In July, federal officials announced they had completed their investigation of the office and determined the evidence did not warrant criminal charges. A subsequent letter to the tax office revealed the investigation had looked at Mr. McDowell as tax collector.

And were an agency to press charges, Mr. McGovern said he is not sure who would be served by that. Fines for not having an audit or combining accounts, for instance, would be assessed on the Single Tax Office and paid by taxpayers.

District Attorney Andy Jarbola said no one has approached his office on any matters regarding the law being violated. In fact, Mr. Jarbola said he has not even received a copy of the Nihill & Riedley investigation.

Andy, it's called investigating, you go and do it yourself. Oh, sorry, that's your buddy, can't do that.

I told them to keep me in the loop and I havent even received a copy of that audit, or whatever you want to call it, Mr. Jarbola said.

Computer source of confusion

Mr. McDowell said when a new computer system, called Paragon, was installed in the Single Tax Office in 2005, consultants and the software company recommended the bank accounts be merged into one account.

Within the single pool of money, the computerized accounting system was supposed to keep track of collections for the city, county, school district and the operating expenses of the tax offices.

Tax collections and operating funds were not commingled and they did not subsidize one or the other, Mr. McDowell said. Operating funds stayed operating funds. There was never a time operating expenses came out of current tax collection.

Investigators, in their report and during presentations March 20, said otherwise. The new computer accounting system brought only chaos to the tax office, explained Ricardo Zayas, an auditor with Nihill & Riedley.

Somebody needed to step up to the plate at the time and take ownership of the project, Mr. Zayas said. The idea to modernize was good ... but something fell apart.

Yeah, like a totally incompetent and inqualified McDowell was in charge, and out golfing 80% of the time when not sleeping off a four day drinking binge.

Tax Collector Marilyn Vitali-Flynn requested an audit in 2008, when shortly after taking office she found a $12.3 million cash balance that could not be accounted for.

Investigators eventually found about $7.3 million of that $12.3 million was work-in-process funds from 2008, or rather, money that had yet to be distributed to taxing bodies. Such money accumulates every year and is not unusual among tax offices. But another $4.9 million had accumulated, much of which are wages taxes owed to Scranton.

McDowell now watches county

Through the yearlong investigation, Mr. McDowell has remained almost an enigma, ducking media questions and dodging a subpoena from City Council. Others familiar with the tax office operation say he was frequently absent and when he was around, he fought with tax office employees, as indicated by 17 grievances that were filed.

He left the tax office in 2008 to become Lackawanna County controller and officials acknowledge the controllers office is being run in stark contrast to his six-year tenure in the tax office.

Most notably in the last three months, Mr. McDowell has tried to hold accountable the county administration for not providing information on new hybrids it purchased and a contract for its new workers compensation administrator it turned out there was no contract on the latter point and commissioners admitted the slip.

His office also initially refused to reimburse minority Commissioner A.J. Munchak for trip expenses until Mr. Munchak soon after provided adequate receipts.

There has never been more collaboration between our revenue and finance department and the controllers office, outside of a few areas when (Mr. McDowell) reached out to the newspaper before he reached out to us, said majority Commissioner Corey OBrien.

Asked if the majority commissioners were comfortable with Mr. McDowell in the controllers office given the results of the investigation into the tax office, Mr. OBrien carefully said, We believe there is a professional staff in the controllers office that serves the public well.

Mr. Munchak had a similar message.

I believe he has surrounded himself with qualified people and hes making a special effort not to make the same mistake as he did as collector of the Single Tax Office, Mr. Munchak said.

The minority commissioner said, though, that running government efficiently will be difficult if every detail needs to be clarified with the controller.

But well abide by any rules he makes, Mr. Munchak said.

For his part, Mr. McDowell said the controllers office is doing, and will continue to do, its job.

I have the utmost faith with my staff in the controllers office and working in conjunction with the commissioners staff that were accounting for every dollar, Mr. McDowell said.

Contact the writer: cschillinger@timesshamrock.com