Audit Division
Audit Summary

Department of Business and Industry
Consumer Affairs Division
Report LA96-5

Results in Brief

The Consumer Affairs Division has not established the management controls necessary to ensure compliance with deceptive trade statutes, resources are safeguarded, and reliable data is obtained, maintained, and fairly disclosed. The failure to establish management controls has resulted in undocumented hearings with businesses alleged to have violated deceptive trade statutes. Inventory records were not maintained for items purchased through the deceptive trade bank account, for property and goods seized in telemarketing investigations, and for bonds and certificates of deposits held for dance studios, health clubs, and telemarketing companies. Weaknesses in controls over data collection have resulted in inaccurate information being generated and reported. In addition, the Office of Attorney General would not litigate deceptive trade violations because of insufficient evidence and poor investigations by the Consumer Affairs Division.

Principal Findings

1. The Division has the statutory authority to conduct hearings in aid of any investigation or inquiry and adopt such regulations as may be necessary to administer the deceptive trade statutes. However, the Division has not adopted regulations governing the conduct of hearings for deceptive trade violations. (page 8)

2. Written policies and procedures for conducting deceptive trade investigations have not been developed. As a result, the Office of Attorney General would not pursue legal action against businesses that violated deceptive trade statutes because of the Division's insufficient evidence and poor investigations of the deceptive trade complaints. (page 9)

3. Management controls to ensure valid and reliable data is obtained, maintained, and fairly disclosed, were not developed. Division personnel modified computer software to the point where the system is unreliable. (page 10)

4. Controls limiting access to the Division's computer system were not developed. We found 11 of 13 employees in Las Vegas can access deceptive trade files and make modifications to the records. In addition, Division personnel passwords for accessing the system are not changed periodically, or kept confidential. (page 10)

5. The amount of restitution obtained for consumers is significantly overstated. We reviewed 7 weeks of closed cases with recorded restitution of $112,000. Our review revealed documentation to support only $18,000 of the recorded restitution. (page 11)

6. Inventory records were not maintained for items purchased through the deceptive trade bank account, for items seized and held in telemarketing investigations, and for a reported $3.7 million in bonds and certificates of deposit held for health clubs and telemarketing businesses. (page 12)