IG Report Finds Sloppy Practices Marred Property Tax Auction Payments

Office of the Lieutenant Governor

From 2015 through 2017, officials at the Lt. Governor’s Office paid what the Inspector General concludes are incorrect amounts to reconcile accounts after a series of disastrously mishandled property auctions held several years earlier.

All told, out of more than $4 million in payments, the IG determined officials made five overpayments totaling $19,484 and 37 underpayments totaling $91,048. The report also determines officials cut some nearly inexplicable checks to incorrect owners or in wildly incorrect amounts that were never cashed.

The report, signed by Inspector General Steven van Beverhoudt, indicates the accounting and procedural issues are resolved and does not indicate fraud or theft.

It finds inaccurate payments were “the direct result of Lieutenant Governor’s Office officials’ decision to include added expenses not previously included in the opening bids (cost) of the properties sold,” including wrong interest rates, penalties that were not included in the opening bid and other property tax obligations that had not been billed at the time of redemption. The Lt. Governor’s Office also did not accurately account for taxes and public sewer fees out of the proceeds.

The whole mess stems from a series of auctions marred by fraudulent scheming among buyers that had to be voided and reversed. Four people were convicted of various criminal charges in the scheme.

Between Jan. 25, 2012, and June 26, 2013, the Lt. Governor’s Office held 12 auctions and sold a total of 153 properties.

Auditors found no problems with the first auction. But after that the rules changed and problems began. Auditors identified 15 properties in the St. Thomas district that were not awarded to the highest bidder but rather to the second or third recorded highest bidder. There was just one instance of that occurring on St. Croix.

What had changed was the policy of what to do if the highest bidder failed to post 10 percent of his bid on the day of the sale, as required by law. Rather than invalidating the auction in such a circumstance, the purchase was awarded to the next highest bidder. This allowed several people, including Edward McKenzie, Paul Sabers, Sylvester Warner and Calford Charleswell all to plead guilty to conspiracy for their roles in the scheme to defraud the V.I. government and homeowners.

After the auction transactions were voided in 2015, some $4.2 million was collected and put into escrow. As of August, 2017, nearly all of that money had been disbursed. But, the report finds, some of the amounts were incorrect and some checks were erroneous.

The Inspector General’s Office made six recommendations:

— Ensure that all applicable costs are included in the price of properties offered for auction,

— Obtain a legal opinion from the Attorney General of the Virgin Islands on including in the opening bid all anticipated property tax expense that will become billable within one year from the date of an auction,

— Cease offering properties at auction for a lesser amount than the taxes, penalties, costs, and other fees owed on the real property,

— Stop increasing the costs of a sold real property, after the completion of a sale,

— Flag sold properties in the computerized property tax management system to alleviate any potential inappropriate transactions occurring during the years’ redemption period,

— And ensure that all staff members responsible for auctioning real property for delinquent taxes are appropriately trained and educated on all applicable federal and local laws, rules and regulations governing the process.

The Office of the Lt. Governor reportedly instituted a new manual implementing the measures, and the IG report concludes the issues are resolved.