OIG Bulletin, June 2021: Oversight of Deputy Tax Collectors

It is essential that municipalities closely oversee any deputy tax collectors they hire when outsourcing tax collection.

Legal Requirements for Deputy Tax Collectors

Municipal tax collectors have an important role in ensuring that a municipality’s finances are balanced. Failure to collect taxes can severely hamper a municipality’s ability to provide services to its residents. Municipal treasurers and collectors can perform this vital function in-house, or they can deputize a private individual or company to collect taxes. See M.G.L. c. 60, § 92. If municipalities choose to outsource tax collection, however, it is essential that they maintain oversight of deputy tax collectors and ensure compliance with all statutory requirements.

Massachusetts law allows municipal tax collectors to appoint deputy tax collectors as needed. Id.

State law requires that all deputy tax collectors do the following:

1. Keep a cash book recording the details of all sums collected;
2. Prepare a report at least once a month of all uncollected warrants;
3. Obtain a surety bond; and
4. Turn over to the municipality or deposit all sums collected at least weekly.

Id. In addition, deputy tax collectors can withdraw only their fees from the municipality’s designated deputy deposit accounts; they cannot withdraw any other money from these accounts. Id.

Even with these statutory safeguards in place, municipalities still must maintain oversight of deputy tax collectors in order to protect their jurisdictions - and taxpayers - from fraud and mismanagement. The consequences of lack of oversight became apparent during an OIG investigation into a company that performed tax collection for Massachusetts municipalities. Municipal officials had become lax in their oversight of the company because they had long done business with it. Because officials did not have appropriate controls in place, the deputy tax collector failed to follow state law requirements regarding weekly deposits, surety bonds and recordkeeping, which ultimately cost the municipality significant sums in uncollected tax revenue.

For example, for close to ten years, the deputy tax collector failed to deposit collections at least weekly with the municipality. Over time, the deputy collector’s erratic voluntary deposits became nonexistent, and they turned over receipts only in response to phone calls from the municipality. Ultimately, they stopped making deposits to the municipality altogether. During this period, the deputy tax collector continued to send collection notices to taxpayers, and taxpayers continued to submit checks. Yet the deputy tax collector failed to negotiate many of the checks, neither depositing them into the bank nor turning them over to the municipality.

Eventually, the municipality fired the deputy tax collector. However, municipal officials then discovered that the deputy tax collector’s bond had lapsed years before. Without a bond, the municipality could not collect the disputed amounts from an insurance company, nor could they collect this money from the deputy tax collector, who by that time was out of business.

The municipality attempted its own collection process after terminating the deputy tax collector. However, the deputy collector’s years of poor recordkeeping made collecting overdue taxes nearly impossible. When the municipality started a new collection process based on their own unreconciled internal records, numerous taxpayers stated they had already paid the deputy collector. Because the municipality did not have documentation from the terminated deputy collector to dispute taxpayers’ claims, it had to write off a significant amount of uncollected tax bills.

Other municipalities can avoid a similar situation by maintaining strict oversight of deputy tax collectors and ensuring they abide by state law requirements.

The OIG recommends that the governing bodies of local jurisdictions review their policies regarding their deputy tax collectors to make sure they are comprehensive.

Municipalities should keep updated internal excise tax records, reconcile internal records with deputy collector records at least monthly, confirm annually that the deputy has an appropriate surety bond and attend trainings on the municipal oversight of deputy collectors. These actions will help municipalities maintain the finances necessary to provide essential services to their residents.

Date published:	June 9, 2021