City audit finds use of undercover funds in compliance

A recent city audit found that the Chattanooga Police Department’s use of funds for undercover investigations “substantially” complies with state regulations, but there can be stronger record keeping.

The audit looks at the department’s cash expenditures for undercover investigations, including narcotics and “Part I” crimes, meaning prostitution, burglary, homicide and organized crime.

WHAT ARE CONFIDENTIAL FUNDS?

Tennessee law requires that half of all money collected from criminal court fines for narcotic drug offenses be used in a special revenue fund called the “drug fund.”

The drug fund is separate from the city’s general fund, and is mostly used for drug enforcement, treatment and educational programs. But it also covers the department’s “confidential funds,” which is the money — typically cash — used in undercover investigations.

The money is kept in two separate checking accounts — one for narcotics and one for Part I crimes. The department uses that money to pay confidential informants and independent undercover agents, make undercover drug purchases and maintain undercover vehicles.

Something to note is that, over the past three fiscal years, the fund’s revenue has fluctuated greatly, from $390,000 in 2016 to $552,000 in 2017 and back to $389,000.

City Auditor Stan Sewell said there are a number of reasons for the fluctuations.

“Maybe they had a lot of cases, you know, it’s going to be driven by that,” he said. “You could even have timing. If the court is forwarding those funds, and they do it quarterly, and they send them on July 1 and the next year they send it on June 30. You have two batches of quarterly amounts of funds.”

But that wasn’t what auditors were looking into. Movement of that money is well documented via electronic transfers or checks. But cash, which is how confidential funds are spent, that is what auditors were checking, because there is a higher risk for misuse since cash can be untraceable.

“It’s extremely rare in the city that we have people dealing with cash,” Sewell said. “… It may be the only area in the city where we actually pay for stuff with cash.”

WHAT DID AUDITORS FIND?

Overall, auditors did not find any misuse of funds in fiscal year 2018. However, “certain requirements mandated by the Tennessee Comptroller are not explicitly addressed in the CPD Policy Manual,” the report reads.

For example, there is no policy for the purchase of equipment and supplies using confidential funds.

While auditors found that all confidential fund expenditures were justified, they noted some expenditures where normal purchasing processes should have been used.

If confidentiality is necessary when purchasing equipment or supplies, there should be documented reasons for why confidentiality is needed, the report states. Invoices and price quotes should also be recorded.

“Steps are already being taken to eliminate the use of confidential funds for … general drug enforcement activities,” police spokesman Trevor Tomas said in a statement.

A policy for reporting misuse of funds should also be created.

Auditors did not find any missing or unaccounted-for funds in 2018. But they did find some in 2017 after reviewing allegations of misconduct by officers with access to confidential funds.

“We noted some funds were not properly accounted for in FY2017,” and the comptroller’s office wasn’t notified of the issue, something that is required by law, the report states.

Another policy recommendation was to maintain documentation of confidential funds training.

Some officers who handle confidential funds had not received training, auditors noted, meaning they weren’t familiar with the comptroller’s guidelines.

Auditors also suggested some areas in which the police department could strengthen existing policies for confidential funds.

› Implement a centralized case management system: Different units use different systems, creating inefficiencies in the data archive and retrieval process. That makes it difficult to audit that information.

“The centralized case management system used in Narcotics/Vice will be expanded to include all non-federal cases,” Tomas said.

› Create a policy for use of money by officers without access to confidential funds: Investigators often “loan” funds to other officers without access to confidential funds, the report states. Auditors suggested implementing procedures to be followed when officers outside the narcotics, vice or intelligence units are provided with confidential funds.

“Procedures will be strengthened to further guide the use of confidential funds when needed by officers who don’t have accounts,” Tomas said.

› Informant payments: Currently, there are only informal guidelines for drug informants and it’s all based on performance. Auditors recommended creating established guidelines for those payments.

“A recommended payment schedule is being incorporated into the policy manual,” Tomas said.

Overall, Tomas said the department is pleased with the report.

“We have actually been working on consolidating and clarifying the related department policies and procedures for the past year, even before the audit began,” he said.

Historically, the audit has been conducted infrequently. The last audit was completed in 2014. But going forward, Sewell said his office will conduct audits or post-audit reviews annually, which was something the police department requested, he said.