Audit of the Office of the State Treasurer and Receiver General Overview of Audited Entity

This section describes the makeup and responsibilities of the Office of the State Treasurer and Receiver General.

Overview

The State Treasurer and Receiver General is an independently elected constitutional officer of the Commonwealth. The Office of the State Treasurer and Receiver General (OST) is responsible for a variety of important financial functions, as established by Chapter 10 of the Massachusetts General Laws, including receiving, managing, and investing all funds paid to the Commonwealth.

According to OST’s website,

The Massachusetts State Treasurer and Receiver General . . . is responsible for the state’s cash and debt management [and receiving, safeguarding, and disposing of] unclaimed property, and chairs state boards and commissions, including the Massachusetts School Building Authority, the Pension Reserves Investment Management Board, the State Board of Retirement, Massachusetts State Lottery Commission, and the Massachusetts Clean Water Trust.

OST is located at 1 Ashburton Place in Boston. Its operating budget was $9,614,105 for fiscal year 2019, $10,242,986 for fiscal year 2020, and $11,197,324 for fiscal year 2021.

OST’s Cash Management Department is responsible for managing the Commonwealth’s daily cash flows and banking needs, distribution of local aid payments to municipalities, short-term investments, and reconciliation of state agency bank accounts.

1. Qualified Bank List

To ensure that only qualified banks are used by state officers, departments, institutions, and other agencies, OST’s Cash Management Department generates and maintains a list of qualified banks that are approved for use. According to Section 34(a) of Chapter 29 of the General Laws, this list must be published by the State Treasurer and Receiver General and transmitted to the Governor at least once every six months. Each quarter, VERIBANC Inc. (a company that provides bank ratings of all federally insured financial institutions) transmits its Quarterly Service Rating Report to OST’s first deputy treasurer, who distributes it to the OST director of investments and an OST special assistant. The special assistant sends the quarterly report to an OST Investment Unit staff member who is responsible for reviewing it and updating OST’s list of qualified banks.

According to the director of investments, this Investment Unit staff member performs a quarterly internal check to ensure that the banks are still qualified. This staff member uses the Quarterly Service Rating Report to determine whether the banks are well capitalized¹ or adequately capitalized² according to the Federal Deposit Insurance Corporation Improvement Act of 1991. The staff member also reviews the state Division of Banks’ (DOB’s) Community Reinvestment Act³ (CRA) ratings for state-chartered banks and credit unions. (DOB assesses state-chartered banks’ and credit unions’ compliance with the Massachusetts CRA⁴ and assigns a rating: “outstanding,” “high satisfactory,” “satisfactory,” “needs to improve,” or “substantial noncompliance.” To remain on the list of qualified banks, a bank must maintain a CRA rating of “satisfactory” or higher.) Finally, the staff member provides the list to DOB to confirm the information and/or update or add any information that is not yet public or that the staff member missed.

Once the Investment Unit staff member completes the internal check, s/he returns the spreadsheet to the special assistant. The special assistant reviews the result of the internal check, makes adjustments to the list of qualified bank/s if necessary, and returns the list to the Investment Unit staff member for final review and approval of its contents. On receiving final approval, the special assistant generates a final list and presents it to the OST director of investments and first deputy treasurer for an informal review. Twice a year, upon approval by the first deputy treasurer, the special assistant submits the list, along with a letter addressed to the Governor, to the State Treasurer and Receiver General to be signed. When it is signed, the special assistant sends the letter and list of qualified banks to the Governor’s office and an OST Information Technology Department staff member posts the letter and the list on mass.gov.

2. Agencies’ Use of Qualified Banks

OST is responsible for ensuring that state agencies use only qualified banks it has approved. State agencies seeking to open an account to deposit state revenue (a depository sweep account⁵) must download a New Account Request Form from the OST website, complete it, and mail it to OST’s Cash Management Department. The form includes the agency name and address, the account’s purpose, and the agency chief financial officer’s signature. According to OST’s “Bank Account Maintenance Policy,”

• The properly completed [New Account Request] form is initialed by the Assistant Director [of] Cash Management Operations and signed by the Cash Management Department Head.
• The Assistant Director of Cash Management Operations emails the corresponding bank the completed and signed form. (The corresponding bank has no statutory timeframe to return the documentation to the Assistant Director of Cash Management . . . Operations.) The bank notifies the Assistant Director of Cash Management Operations with the new account documentation (i.e., signature cards, online banking access, or/and other necessary documentation).

After these steps are completed, OST notifies the agency that it is authorized to use the bank account.

3. Banks Doing Business with the Commonwealth

Section 10B of Chapter 10 of the General Laws states,

The state treasurer shall semi-annually report to the house and senate committees on ways and means and the joint committee on revenue the lending and banking institutions into which the cash deposits of the commonwealth are being deposited.

The OST special assistant maintains a list of all banks doing business with the Commonwealth and updates it semiannually, in February and August. According to OST’s “Bank Account Maintenance Policy,” the director of investments and the assistant director of cash management operations review and approve the list before OST publishes it on the agency website and mails it to the chairs of the House and Senate Ways and Means Committees and the Joint Committee on Revenue in February and August.

OST uses three different types of bank accounts: operational (i.e., investments / certificates of deposit), Small Business Banking Partnership (SBBP), and agency depository sweep.

a. Operational Accounts

These are OST accounts used for various investments. OST reconciles these accounts, which have separate balances, each month. OST maintains a list of the accounts, called the Treasurer’s List.

b. SBBP Accounts

OST opens and funds these accounts at banks with an agreement that the banks will use the funds to provide loans to small businesses. OST earns interest on these accounts. OST also includes the accounts, which have separate balances, on the Treasurer’s List and reconciles each of them every month.

c. Agency Depository Sweep Accounts

OST opens these accounts for state agencies using the Commonwealth’s tax identification number (TIN) (see “Agencies' Use of Qualified Banks”). The OST special assistant maintains a list of these sweep accounts, called the TIN list. According to OST management, as banks are added to or removed from the TIN list, OST notifies the Office of the Comptroller of the Commonwealth (CTR) so CTR can update the corresponding accounts it maintains in the Massachusetts Management Accounting and Reporting System (MMARS) to reflect the changes.

4. Civil Process Fee Transmittals

Civil process fees and amounts that sheriffs’ departments are authorized to collect are codified in Section 8 of Chapter 262 of the General Laws.

All 14 sheriffs’ departments (Barnstable, Berkshire, Bristol, Dukes, Essex, Franklin, Hampden, Hampshire, Middlesex, Nantucket, Norfolk, Plymouth, Suffolk, and Worcester) are required to transmit a portion of the civil process fees they collect to OST; then it is allocated to the Commonwealth’s General Fund.

Sheriffs’ departments typically transmit civil process fees to OST’s Cash Management Department quarterly by mailing a check along with a letter that documents the amount of the civil process fees being transmitted and the period when they were collected. Civil process fees collected during the audit period and transmitted by sheriffs’ departments to OST for deposit totaled $997,298.60.

An OST Cash Management Department staff member deposits the checks and enters a manual transaction in MMARS to credit the General Fund. The origin of the credit is not indicated in MMARS, and there is no process in place to monitor whether each sheriff’s department transmits its portion of civil process fees to OST.

1.    Section 38(b) of the Federal Deposit Insurance Act states that a bank is “well capitalized” if it has significantly more funds than “the required minimum level for each relevant capital measure.”

2.    Section 38(b) of the Federal Deposit Insurance Act states that a bank is “adequately capitalized” if it has enough funds to meet “the required minimum level for each relevant capital measure.”

3.    The Federal Reserve’s website states, “The Community Reinvestment Act (CRA), enacted in 1977, requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods. . . . Three federal banking agencies, or regulators, are responsible for the CRA. Banks that have CRA obligations are supervised by one of these three regulators. Each regulator has a dedicated CRA site that provides information about the banks they oversee and those banks’ CRA ratings and Performance Evaluations.” CRA ratings are based on these performance evaluations, which are performed by the regulators.

4.    According to DOB’s website, “Massachusetts is one of several states which has its own CRA statute and regulation. The CRA ensures that financial institutions are meeting the credit needs of the communities which they serve. This includes low-and-moderate income areas, consistent with safe and sound banking practices.”

5.    According to the OST “Bank Account Maintenance Policy,” a depository sweep account is “a bank account that automatically transfers monies, at the close of each day [to a designated account].”

Date published:	February 28, 2022