Ore. Revenue Dept. disciplines 4 in tax fraud case

PORTLAND, Ore. (AP) — The Oregon Revenue Department said Wednesday it has taken action against four employees who failed to catch a fraudulent tax return that resulted in a $2.1 million refund.

Two employees have been reassigned to jobs in which they will no longer have the authority to approve cash refunds. Two others received disciplinary action, but can stay in their current positions.

The personnel moves followed an internal investigation into a bogus return submitted by 25-year-old Krystle Reyes of Salem.

Reyes received the refund on a debit card and spent about $150,000 before twice reporting the card lost or stolen. At that point the ruse was discovered. The state has recovered about $1.9 million of the money.

Reyes pleaded guilty Tuesday to tax evasion and fraud and was sentenced to 5 years in prison.

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Oregon Dept. of Revenue news release:

http://www.flashalertnewswire.net/images/news/2012-07/861/56294/Suspense_IA_recommendations.pdf (internal audit report)

SALEM– The Oregon Department of Revenue said today it has demoted one employee and taken formal disciplinary action against three others based on the findings of an internal investigation into a fraudulent return that resulted in an erroneous $2.1 million tax refund.

Revenue Director Jim Bucholz said the department will promptly respond to the investigation’s audit recommendations and alter its procedures to prevent such a mistake from occurring in the future.

“Several internal controls weren’t working as they should. We’re making immediate changes to our processes so we can be confident this won’t happen again,” Department of Revenue Director Jim Bucholz said.

The error occurred in the Suspense Unit of the department’s Personal Tax & Compliance Division. The unit is charged with manually reviewing tax returns that have been “suspended” by Revenue’s automated processing systems because they appear to contain errors or fraud.

Revenue has reassigned two Personal Tax & Compliance Division employees to other positions in which they will no longer have the authority to approve cash refunds. Two other employees in the unit received disciplinary action but were not removed from their current positions.

The audit found these employees did not follow departmental policy and procedure during the initial processing and subsequent review of the fraudulent return, which was filed by a Salem woman who claimed that she earned $3 million in 2011 and was due a $2.1 million refund.
Of the four employees disciplined, two are line staff and two are managers.

“It’s imperative we hold our organization and staff accountable to the procedures and values necessary for us to administer Oregon’s tax laws,” Bucholz said. “We must be good stewards of the public’s money and trust.”

Auditors found no evidence that employees engaged in criminal activity or colluded with the fraudulent filer, who pleaded guilty to tax evasion Tuesday in Marion County Circuit Court.

Revenue already has modified its computer system so only high-level officials can sign off on tax refunds that appear to be too large. The system also now creates an audit trail to verify the manager who has conducted the final review of such a refund.

In the wake of the audit, Revenue will further alter its procedures to prevent future errors. Steps to be taken include:

— Improving the written guidelines for the Suspense Unit.

— Assigning higher-level technical staff to double-check the initial review performed by front-line staff.

— Revamping the paper-based processes that control the release of refund cash by Revenue.

As part of its internal investigation, Revenue went back and reviewed all refund claims of more than $50,000 received for the last three years. The department has concluded that no other large cash refunds were inappropriately approved.