Waste and Abuse Related to Hurricane Katrina

The Government Accountability Office (GAO) released a short report about the millions of dollars wasted in the government’s award of post-Katrina contracts. Included is at least $3 million spent for 4,000 beds that were never used. ($750 per bed!)

The report also speaks to the non-competitive contracts awarded and how the incompetence of FEMA contributed to waste and abuse.

Surviving a Tax Audit

It’s the time of year when tax audits are being started en masse. The IRS has the ability to put the fear of God into people.

Cooperation and documentation are the key. First, the taxpayer can and should pull together any documentation that proves the numbers on the tax return. But ONLY the numbers that the auditor is questioning. (You never want to produce documentation about other items that aren’t being questioned!)

Second, attitude is everything. Appearing cooperative can help your case quite a bit. Remember, the auditors don’t have the easiest job in the world, and they probably deal with a lot of negative reactions. They want the audit done just as soon as you do. Being cooperative helps the audit go much more smoothly.

Read more about how to get through an audit.

Attorney General Fles Suit Against H&R Block

New York Attorney General Eliot Spitzer has filed suit against H&R Block Inc. for alleged fraudulent marketing of individual retirement accounts (IRAs). It is alleged that over the last four years, H&R Block has opened over 500,000 “Express IRA” accounts for tax clients, but 85% of those customers paid more in fees than they earned in interest.

Spitzer claims that management knew that the Express IRA customers were losing money. The suit includes charges that H&R Block didn’t disclose the fees associated with the accounts or that clients would incur tax penalties if they closed the IRAs early.

IRS Starts Using Private Companies to Collect Taxes

This is a first! The IRS has started using private companies to collect overdue taxes. If the program is successful, it will be expanded next year.

The IRS claims the “tax gap” has grown to $290 billion. The tax gap is the difference between taxes collected versus taxes the IRS believes SHOULD be collected.

Three private companies are expected to collect about $1.4 billion. The cases assigned to them are ones in which the tax bills are not in dispute, but are merely unpaid. The firms will not be allowed to take enforcement actions such as liens, levies, or seizures, and they won’t be able to cut deals to settle the outstanding debts.

The IRS is using the firms so that IRS personnel will be free to pursue more difficult cases. The authority to hire outside firms was granted to the IRS in 2004, but unions slowed the implementation.

Spending limits would have saved Wisconsin taxpayers billions

A study conducted by Wisconsin’s Legislative Fiscal Bureau shows that taxpayers could have saved $1.9 billion over 20 years if the Taxpayer Protection Amendment had been law.

The amendment would force government officials to consolidate or work more efficiently to better utilize taxpayer money.

According to Jim Pugh, a spokesman for business lobby Wisconsin Manufacturers & Commerce, the amendment allows reasonable increases in government wile protecting taxpayers.

The Taxpayer Protection Amendment would limit annual tax increases to inflation or the increase in the state’s personal income. Allowances for population growth and new construction would also be included.

Data Theft From Verizon

Two laptop computers containing personal data on an undisclosed number of Verizon employees, were recently stolen.

The laptops were supposedly part of a “random theft” from a Verizon building, and the data is supposedly password-protected. The affected employees were notified by the company on March 1.

This follows problems at Verizon Wireless, where a software problem allowed millions of customer records to be viewed by other customers.

Read the whole story here.

More internal control problems at Fannie Mae

For the second year in a row, Fannie Mae is postponing the filing of its annual report with the U.S. Securities and Exchange Commission. Fannie Mae is also likely to issue a management report, stating that its internal controls over financial reporting were ineffective as of the end of 2005.

The company is still working on its review of accounting policies, and says that it is has made significant progress toward completing the work. Some accounting errors that weren’t disclosed until recently include accounting for some investments at the incorrect cost basis, accounting for some guaranty fees in connection with some mortgage backed securities trusts, and some loan-related accounting issues.

Alleged Thief of Natural Gas Claims His Confession Was Coerced

A man accused of stealing upwards of $36,000 in natural gas says he broke no laws, and only admitted to wrongdoing after police wore him down. He says the statements given during his confession were false.

Warren J. Krohn of New Berlin allegedly bypassed his gas meter to heat an in-ground swimming pool and two buildings. The police believe the scheme has been ongoing for at least 10 years, if not more.

We Energies received an anonymous letter in the fall, stating that Krohn was bragging about heating his pool and outbuildings at a reduced cost. Krohn was supposedly worried about being caught after he put his house up for sale.

Borrowers with adjustable rates having trouble

In recent years, adjustable rate mortgages (ARMs) have been very popular with home buyers. Low interest rates allowed buyers to purchase larger houses than they might otherwise have been able to afford.

But as the end of those ARMs draws near for many, they are likely looking at significant increases in interest rates. That change in interest rates will cause borrowers to make monthly payments that are 10% to 50% higher than they had in the past.

Many will deal with the interest rate change by refinancing with different lenders. But those who can’t make the higher payments will likely sell or risk foreclosure. Since the housing market is cooling, selling may not be as easy.

The Wall Street Journal tells this story:

One couple that faces a reset this summer is Ruth and Magdi Fadlalla, who two years ago bought a three-bedroom house for about $294,000 in the New York borough of Queens. Their loan carries an interest rate of 7.46% for the first two years. This summer, at the first reset, the rate will jump to 9.46%, they have been advised, and the rate could rise further in the future unless interest rates generally decline. Already, the Fadlallas have fallen behind on their monthly payments of about $1,950 and have been put on notice that their home could soon be lost to foreclosure.

Mrs. Fadlalla, a special-education teacher, says her property taxes have risen sharply and other costs of home ownership proved higher than she expected. “This is killing me,” Mrs. Fadlalla says, though she adds that “I’m going to work it out.”

The biggest risk as ARMs run out, is for those who bought homes recently. They haven’t yet benefited from much price appreciation, their local markets are cooling, and they may owe more than their homes are worth. Also facing problems are those with high credit card debt, as their opportunities to refinance are limited.

Who Wants to Work at Wal-Mart?

This past January, 24,500 people applied for the 325 jobs available at a Wal-Mart just outside Chicago’s city limits. All but approximately 500 of the applicants listed Chicago as their address.

The Wal-Mart was built in Evergreen Park, one block outside the Chicago city limits. Wal-Mart was unable to get approval to build a store within the city limits.

One alderperson says that most businesses in the area haven’t been concerned about competition, and are in fact anticipating many new customers from the Wal-Mart development.

Read the full story here.

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