revenue ia performance audit of the bureau of revenue's internal controls - compliance...

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Office of Inspector General

City of New Orleans

A Performance Audit of the Bureau of Revenues Internal Controls Compliance

Division

AR11PAU003

E.R. Quatrevaux Inspector General

Issued: September 10, 2014

TheCityofNewOrleans AR11PAU003 BureauofRevenueInternalControlsOfficeofInspectorGeneral Page1of19 ComplianceDivisionAudit

A Performance Audit of the Bureau of Revenues Internal Controls Compliance Division

ExecutiveSummary.............................................................................................................2I. Objectives,ScopeandMethodology..................................................................................3II. Introduction........................................................................................................................4III. FindingsandRecommendations.........................................................................................7

Finding#1: TheBureauofRevenue lacked internalwrittenpoliciesandproceduresforitsauditorstoenforcetimelycollectionofunpaidtaxassessments.

Finding#2: TheCityofNewOrleansRevenue Systemdidnothave the capabilitiesnecessaryfortheBureauofRevenuetocollecttaxesexpeditiously.

Finding#3: TheBureauofRevenuedidnotmaintaincompleteauditfiles. Finding#4: TheBureauofRevenuedidnotcompleteauditsinatimelymanner.Finding#5: The Bureau of Revenue did not timely update its Formal Assessment

lettertobeincompliancewithLouisianaStatelaw.Finding#6: Taxpayer bank accountswere not levied as required by the Bureau of

Revenuesinformalpolicy.IV. Observations.....................................................................................................................13

Observation#1: Theengagement letter sent to taxpayers referenceda LouisianaRevisedStatutethatdidnotexist.

Observation#2: Audit reports and exit conference memos were not dated ordatedaftertheexitconferencewasheld.

Observation#3: Staffingwasnot sufficient toperformassigned tasks ina timelymanner.

Observation#4: Taxpayersdidnothaveanexitconference,andnoevidencewasmaintaineddocumentingthetaxpayersdecisiontowaivetheexitconference.

V. GlossaryofTerms.............................................................................................................14VI. Appendices........................................................................................................................18VII. OfficialCommentsfromtheBureauofRevenue.............................................................21


EXECUTIVE SUMMARY TheBureauofRevenue isacomponentwithin theDepartmentofFinancewithin theCityofNewOrleans(City)andisresponsibleforadministeringandenforcingordinancespertainingtothecollectionofvarioustaxessuchassalestaxes,hotelmoteltaxes,parkingandothertaxesinaccordancewithCityCode.TheOfficeof InspectorGeneralconductedanauditof the internalcontrolsof thepostauditprocesses of the Bureau of Revenues Compliance Division from January 1, 2011 throughDecember31,2012. Theobjectiveof theauditwas to reviewand test the internalcontrolsovertheComplianceDivisionssalestaxcollectionandenforcementprocessesandevaluatetheBureauscompliancewiththecontrols.OnehundredthirtyfivesalestaxauditswereperformedbytheComplianceDivisionduringthetwoyearscopeperiod;35auditsyieldingtotalsalestaxliabilitiesof$2.8millionwererandomlyselected for testing. At the time this reportwas released, thecityhadcollected inexcessof$1.6millionoftheseliabilities.Thesoftwaresystemusedbytherevenuedepartmentdidnothavethenecessarycapabilitiesto expeditiously track compliance by the taxpayer after the audit process was completed.Staffingwas insufficientwithin the settlement and enforcement unit. As a result, sales taxcollectionsweredelayed.TheBureaulackedinternalwrittenpoliciesandproceduresforitsauditors.Asaresult:

Theauditfilesdidnotcontainnecessary,auditspecific,documentation; TheBureauofRevenuedidnotcompleteauditsinatimelymanner; TheBureauofRevenuedidnottimelyupdatetheFormalAssessment lettertocomply

withLouisianaStateLaw;and The taxpayers bank accounts were not levied as required by the Bureaus informal

policy.TheCitydisagreedwithfiveofthesixfindings inthisreportofferingnocorrectiveactionsforthe lackofadequatedocumentationwithinthe filestested inthecomplianceunitduringtheauditAlthoughtheCitybelievestheproceduresinplacewereadequatetoeffectivelycollectsalestaxrevenue,detailedwrittenprocedurestoaugmentstatelawandcityordinancesareessentialtopropermanagementofthesettlementandenforcementunitsoftheBureauofRevenue.Note:AllresponsesfromtheCityinthebodyofthisreportaredirectstatementsandhavenotbeenmodified.


I. OBJECTIVES,SCOPE, AND METHODOLOGY TheobjectiveoftheauditwastodeterminewhetherinternalcontrolsandprocessesutilizedbytheComplianceDivisionoftheBureauofRevenuewereoperatingeffectivelyandincompliancewithstatelaws.TheauditscopeperiodwasJanuary1,2011December31,2012.TheauditwasconductedinaccordancewiththePrinciplesandStandardsforOfficesofInspectorGeneral(theGreenBook)1andGenerallyAcceptedGovernmentalAuditingStandards2(GAGASortheYellowBook).Toaccomplish theobjectives,a stratified random sampleof35 sales taxauditswas selectedfromthepopulationof135salestaxauditscompletedduringJanuary1,2011December31,2012). The auditors randomly selected sample units according to their proportion in thepopulationforeachyearofinterest,2011and2012,respectively.Auditorsstratifiedthesamplebyyear toensureeachyearwasproportionally represented in the total sample.The samplesizeof35wasselectedtoachievea90%confidencelevelanda6%tolerableerrorrate.Thefollowingprocedureswereperformed:

1. Conductedinterviewswithrevenuepersonneltogainanunderstandingoftheprocessesandcontrolsinvolvedinthetaxcollectionprocess;

2. PerformedwalkthroughstoobtainanunderstandingofthefunctionsperformedbythedifferentdivisionswithintheBureauofRevenueComplianceDivision;

3. Reviewedapplicablelocalordinancesandstatelaws;4. ReviewedtheBureauofRevenuepoliciesandprocedures,bothwrittenandunwritten;5. Obtainedauditscompletedduringthescopeperiod;6. Reviewedtheselectedauditfilestoensurethecompletenessofthedocumentation in

thetaxpayersfiles;7. Reviewedtheselectedauditfilestodeterminethetimelinessofthecollectionprocess;

and8. Developedfindingsandobservationsasaresultofthetestingperformed.

The audit included findings, observations, and recommendations related to the Bureau ofRevenuesinternalcontrolsovertheComplianceDivision.Computerprocesseddatawasprovidedand reliedon.A formal reliabilityassessmentof thecomputerprocesseddatawasnotperformed.Hardcopydocuments reviewedsupported theinformationcontainedinthecomputerprocesseddata.

1AssociationofInspectorsGeneral(May2004Revision).2 Published by theGeneralAccountingOffice,December 2012Revision,whichwas the revision in effect during the scopeperiod.


II. INTRODUCTION TheBureauofRevenueiscomprisedofthefollowingunits:

AuditUnitComplianceDivision Settlement/EnforcementComplianceDivision ApplicationsOperationsDivision SpecialEventsOperationsDivision DelinquentTaxUnitOperationsDivision ABOAlcoholicBeverageOutletsOperationsDivision FiscalRecordsUnitRevenueAccounting CashierRevenueAccounting

ThisperformanceauditonlyreviewedtheComplianceDivision,and this introductionoutlinestheprocessesoftheComplianceDivisionasitrelatestosalestaxes.AllbusinessesthatoperatewithinordelivertoOrleansParishare requiredtoregister,obtainalicense,andcollectandremitsalestaxestotheBureauofRevenue.TheCitycollectsa5%taxonsales/useanda4.5%taxonthesalesoffood itemsandprescriptiondrugs.Businessesaremailed tax returns eachmonth and are required to remit the sales taxes to the Bureau ofRevenuebythe20thofthemonthfollowingthemonthofcollection.Ataxpayerhastheoptionof paying sales/use taxes either at City Hall, online websites (nola.gov, parishefile.com orsalestaxonline.com)ormailtheirtaxreturnandpaymenttotheBureauofRevenue.TheBureauofRevenueselectssalestaxreturnstoauditbydevelopinganauditplan. Italsoselects taxpayers to audit by reviewing delinquent taxpayer accounts; receiving informationprovidedbyother taxpayers; comparingvariousCity issued licenses to filed tax returns;andselectingtaxpayerswithalicensewhodidnotfileasalestaxreturn.Anauditisthenconductedandanexitconferenceisheldwiththetaxpayerattheconclusionoftheaudit.Once the audit was completed, the Compliance Division employed the following collectionprocedures:3

AProposedAssessment letter ismailed to the taxpayerafter theexitconference.TheProposedAssessment letter grants the taxpayer 30 days to pay or protest the taxesowed.

An Adjusted Proposed Assessment4 letter is mailed if the taxpayer protested andprovideddocumentationthatrequiresanadjustmenttothetaxowed.

AFormalAssessmentletterismailedifthetaxhasnotpaidafterthedeadlineexpiresinthe Proposed Assessment or Adjusted Proposed Assessment letters. The FormalAssessmentlettergrantsthetaxpayer30days5topayorprotestthetaxesowed.

3RefertoAppendixIforaflowchartofthisprocess.4TheAdjustedProposedAssessment isnot requiredby LouisianaState law,but theBureauofRevenue includes this in itscollectionprocedures.560daysifdatedpriortoJanuary1,2011.


AnAdjustedFormalAssessment6letterismailedifthetaxpayerprotestedandprovideddocumentationthatrequiresanadjustmenttothetaxowed.

ADemand PaymentNotice ismailed to the taxpayer if the tax is not paid after thedeadlineexpires intheFormalAssessmentorAdjustedFormalAssessment letters.TheDemandPaymentNoticegrantsthetaxpayer10daystopayorenterintoaninstallmentagreementtopaythetaxesowed.

A lien isrecordedandfiledwiththeRecorderofMortgagesOffice inOrleansParishonthetaxpayersbusinessproperty.

ANoticeofLevyismailedtolocalandnationalbanksifthetaxesarenotpaidaftertheDemandPaymentNotice.

TheauditfileistransferredtotheLawDepartmentifthetaxesarenotpaidasaresultofthelienandlevy.

Thestatusofthe35taxpayer files isdocumented inTable1below.TaxpayerD, forexample,had an initial assessment of $63,598. After providing additional sales tax documentation,$19,307wasadjustedand$44,291wasthefinalassessment.Nocreditswereapplied,buttheTaxReviewCommittee (TRC)waived$8,289 inpenaltiesand fees.The remainingbalanceof$36,002waspaidbythetaxpayer.Two taxpayers requested refunds.TaxpayerQ, forexample, requesteda refundof$161,951and also had accrued interest of $3,128 owed to him. Therefore, his total refund totaled$165,079.Asof June25,2014,$919,335of taxes assessedon the sampled taxpayersduring the auditperiodremainedoutstanding.

6 The Adjusted Formal Assessment is not required by Louisiana State law, but the Bureau of Revenue includes this in itscollectionprocedures.


Table1TaxesOutstanding,RefundsRequestedandCurrentStatusofSampledTaxpayersasofJune25,2014


III. FINDINGS AND RECOMMENDATIONS Finding#1Condition:TheBureauofRevenue lacked internalwrittenpoliciesandprocedurestoenforcetimelycollectionofunpaidtaxassessmentsandreliedoninformalpoliciesthatwerenotalwaysfollowed.TheBureauofRevenues informalpoliciesdidnotspecifyanacceptable timeframeto:

Collecttaxesowedfromvoluntarydisclosuretaxpayers. IssueaProposedAssessmentletteraftertheexitconference. Respondtoataxpayersprotestofataxassessment. Issue an Adjusted Proposed Assessment letter to the taxpayer after the Bureau of

Revenuereceivedthetaxpayersprotest. IssueaFormalAssessmentLetteraftertheexpirationoftheProposedAssessmentletter

orAdjustedProposedAssessmentletter. IssueanAdjustedFormalAssessmentlettertothetaxpayeraftertheBureauofRevenue

receivedthetaxpayersprotest,ifanadjustmentisnecessary. IssueaDemandPaymentNoticeaftertheexpirationoftheFormalAssessmentletteror

AdjustedFormalAssessmentletter. File and recorda lienon the taxpayersproperty after theexpirationof theDemand

PaymentNotice. Mail a Notice of Levy letter to various banks after the expiration of the Demand

PaymentNotice. TransferthetaxpayersfiletotheLawDepartmentafterrecordingalienandmailinga

NoticeofLevytovariousbanks.Criteria: TheLouisianaLegislativeAuditorsChecklistofBestPractices inGovernmentstatedFormal/writtenproceduresarenecessaryasa clearunderstandingofwhat shouldbedone,how it should be done, who should do it, and when it should be done and ensure theprocedures followed meet managements expectations. Written procedures aid in thecontinuityofoperationandforcrosstrainingofstaff.Cause:TheBureauofRevenuedidnotprovidesufficientguidanceonthecollectionprocessestotheSettlementandEnforcementDepartments.Additionally,theBureauofRevenueusedasystem that was not designed to track the length of time between eachsettlement/enforcementprocess.Effect: TheBureauofRevenuedidnot implementcollectionprocedures ina timelymanner,whichresulted indelayedcollectionofrevenuefortheCity.AppendixIIshowsthenumberofdaysbetweeneachstepoftheprocess.Note:Notallauditedtaxpayersfilesgothrougheachstepof theprocess.Forexample, ifa taxpayerpayshis taxesafter theProposedAssessmentletter is mailed, then a Formal Assessment letter, Demand Payment Notice, etc. is notnecessary.


Recommendation: The Bureau of Revenue should provide written policy guidance to theSettlement and EnforcementDepartments so that the Bureau of Revenue can collect taxesexpeditiously.City Comment: The Bureau of Revenue follows the law as prescribed by the LouisianaLegislatureandtheNewOrleansCityCounciltoenforcecollectionsofsales,useandothertaxesadministered by the Department of Finance. These laws state who [sic] should perform acollectionactionandwhatshouldbedone.TheBureauofRevenuedoes infactfollowspecificwrittenguidelinesinthecollectionoftaxes:Stateandlocallaw. OIG Comment: The laws outline the requirement and internal written procedures wouldoutline how the law is to be carried out within the Bureau of Revenue. It is difficult tounderstandwhytheimportanceofwrittenproceduresinthisverycrucialareaofthecollectionprocessisnotappreciated.Finding#2:Background:DelageLadenEPartnersbuiltacustomrevenuemanagementsystemfortheCityof New Orleans called the City of New Orleans Revenue System (CNORS). The financingagreementwassignedonDecember28,2004andwasimplementedonJanuary9,2006.Condition:CNORSwasnotdesignednordidithavetheabilityto:

Maintainacentralizedlistdocumentingthetypesofletterssenttothetaxpayers; Trackthedateslettersweresenttothetaxpayers; Recordfollowupactionstakenbytheauditorsifpaymentwasnotreceived; Trackdatesofthefollowupactionstakenbytheauditors;and Provide a ticklerfile to alert the Bureau of Revenue of upcoming and past due

deadlines.Criteria:Managementshoulddesigntheentitysinformationsystem7toobtainandprocessinformation tomeeteachoperationalprocesss information requirementsand to respond tothe entitys objectives and risksInformation technology enables information related tooperationalprocessestobecomemoreavailabletotheentityonatimelybasisManagementdesigns control activities over the information technology infrastructure to support thecompleteness,accuracy,andvalidityofinformationprocessingbyinformationtechnology.8Cause: CNORSdidnotprovidecompleteandaccurate informationneeded fortheBureauofRevenuetocollecttaxesexpeditiously.Effect: The shortcomings in CNORS capability increased collection time and resulted in adelayedcashflowtotheCity.7 According to theGAO, An information system represents the life cycle of information used for the entitys operationalprocessesthatenablestheentitytoobtain,store,andprocessqualityinformation.8GAOStandardsforInternalControlintheFederalGovernment2013ExposureDraft,September2013.


Recommendation: TheBureauofRevenue should acquire a system thatprovides completeandaccurate information thatallows theBureauofRevenue toexpedite the settlementandenforcementprocesses.CityComment: In2012 theCitybegan theprocess toacquireanew revenue systemandappropriatedfundingforit.Thenewrevenuesystemisexpectedtobeputintousebytheendof2014.Finding#3Condition:TheBureauofRevenuedidnotmaintaincompleteauditfiles.

Thirtytwo(91%)ofthe35taxpayerfilestesteddidnothaveadequatedocumentationofcorrespondencebetweentheBureauofRevenueandthetaxpayer.

Nineof the35 taxpayersprotestedtheFormalAssessment letter. Four (44%)of theninetaxpayerfilesdidnotcontainthetaxpayersprotestletter.

Two taxpayers paid after the Formal Assessment process. One (50%) of the twotaxpayerfilesdidnotcontaintheTaxReviewCommittee9Determinationletter.

Criteria: Internalcontrolandall transactionsandother significanteventsneed tobeclearlydocumented, and the documentation should be readily available for examination. Alldocumentationandrecordsshouldbeproperlymanagedandmaintained.10Cause:TheBureauofRevenuessettlementandenforcementprocessesaremanualprocesses,anddocumentationwasoftennotcreatedormaintained.Effect:Thelackofdocumentationcreatedinefficienciesinlocatingdocumentsandtracingtheprogressofthefile.Incompletefilesalsoresultedindelayedcollectiontimes,cashflows,andcollectionsfortheCity.Recommendation: The Bureau of Revenue should maintain and file all taxpayerdocumentationinaneasilyaccessibleandtraceableformat.City Comment: The Bureau of Revenue believes its audit files do contain adequatedocumentation,asrequiredbylaw.OIGComment:Severaldifferentauditors from theOIGwent throughcertain filesduring theauditprocess.AllofthemhaddifficultyfindingtheproperdocumentationtosupportmanyoftheunwrittenproceduresoutlinedbytheBureauofRevenue.9AccordingtoCityCodeSec.150151,theTaxReviewCommitteeprovidesabodytoreview,hearanddecide,ataminimumofexpensetothetaxpayer,questionsarisingfromdisputesorcontroversiesbetweentaxpayerandthedirectorofthedepartmentoffinanceofthecityinregardtoalltaxes,otherthanadvaloremtaxes10GAOUnitedStatesGeneralAccountingOfficeStandardsforInternalControlintheFederalGovernment,September2013,p.49.


Finding#4:Condition: TheBureauofRevenuedidnotcompleteaudits ina timelymanner.Twentyfive(71%)of the35auditswereassignedand thencompletedbetweenninetyoneand840days(over2.3years).

Table2Numberofdaystocompleteanaudit#Daystocompleteanaudit #Taxpayers3190 491150 2151250 6251350 1351450 7451650 3651850 2TotalTaxpayers 2511

Theauditorswereunabletodeterminethestartandcompletiondatesforseven(20%)auditsofthe35auditstested.Twelveofthe35auditstested(34%)hadover80manhourschargedtotheaudit.

Table3Numberofhourstocompleteanaudit

Theauditorswereunabletodeterminethenumbersofhoursworkedtocompletetheauditinten(29%)ofthe35auditstested.Criteria: TheLouisianaLegislativeAuditorsChecklistofBestPractices inGovernmentstatedFormal/writtenproceduresarenecessaryasa clearunderstandingofwhat shouldbedone,how it should be done, who should do it, and when it should be done and ensure theproceduresfollowedmeetmanagementsexpectations.TheBureauofRevenuestatedthatitsauditorscompleteauditsinthreetofourweeksandtheauditsarebudgeted80hourstocomplete.11Threeauditswerecompletedwithin30days.12Usinga40hourworkweek.

Approximate #Weeks12

#Hours #Taxpayers02 080 1324 81160 746 161240 368 241320 2TotalTaxpayers 25


Cause:TheBureauofRevenuelackedoversightoverthecompletionoftheauditsanddidnotmonitorormanagethecompletiontimeonauditsconducted.Effect:ExtendedaudittimesresultedindelayedcollectionandcashflowsfortheCity.Recommendation:TheBureauofRevenueshouldmonitorormanagethecompletiontimeofauditstoensureauditsarecompletedinatimelymanner.Anydelaysshouldbedocumented.City Comment: The Bureau of Revenue actively monitors audit assignments to manageprogressandtoensurethatauditsaremovingforwardinasystematicway.Finding#5:Background:Louisianalawdetermineshowmuchtimeataxpayerisgrantedtopaytheirtaxes,whichisdocumentedinaFormalAssessmentletter.13PriortoJanuary1,2011,taxpayersweregranted60daystopaythetaxesassessed.OnJanuary1,2011,theLouisianaLegislaturerevisedLa. R.S. 47:337.51 to reduce the number of days the taxpayer was given to pay the taxesassessedfrom60daysto30days.Condition: TheBureauofRevenuedidnotupdate itsFormalAssessment lettertoreducethenumberofdaysfrom60to30daysuntilOctober2012,approximatelyoneyearand9monthsaftertheeffectivedateoftherevision.Criteria: This notice shall inform the taxpayer of the assessment and that he has thirtycalendardaysfromthedateofthenoticeto(a)paytheamountoftheassessment;(b)requestmandatoryarbitrationpursuanttoR.S.47:337.51.1;or(c)payunderprotestinaccordancewithR.S.47:337.63 and file suit asprovided for in that Sectionor requestmandatory arbitrationpursuanttoR.S.47:337.51.1.14Cause:TheBureauofRevenuedidnotupdate theFormalAssessment letter to complywithLouisianalaw.Effect: Eighteen of the 35 taxpayers testedwere sent Formal Assessment letters. Fourteen(78%)of the 18 FormalAssessment letters granted the taxpayer 60days to remit the taxesowedinsteadof30days.TheadditionaltimegrantedincreasedthecollectiontimeanddelayedcashflowfortheCity.Recommendation: The Bureau of Revenue should update assessment letters timely whenchangesoccurtoapplicableLouisianalaw.

13TheLouisianaLegislaturealsodetermineshowmuchtimeataxpayerisgivenintheProposedAssessmentletterandDemandPaymentNotice.Thesedeadlineswerenotrevised.14Acts2010,No.1003,2,eff.Jan.1,2011.


CityComment:TheBureauofRevenuewillensurefuturechangesinstatelawareupdatedmoretimely.Finding#6:Background:TheBureauofRevenueleviedataxpayersaccountifthetaxpayerdidnotpayorsettletheirtaxesaftertheDemandPaymentNoticedeadline.TheBureauofRevenuesinformalpolicycallsforaNoticeofLevytobemailedto17localandnationalbankswithofficesinNewOrleans.SeventeenbanksarechosenbytheBureauofRevenuesoastolocateasmanyofthetaxpayersaccountsaspossible.Condition: Eight(23%)ofthe35taxpayersbankaccountswerenot leviedasrequiredbytheBureauofRevenuesinformalpolicy:

Threetaxpayersdidnothaveanylevyletterssent;and Fivetaxpayershadlessthan17levyletterssent.

Criteria: TheBureauofRevenues informal internalpolicydictatedthatlevy lettersbemailedto17banks.Cause:TheBureauofRevenuedidnotfollowitsowninformalpolicy.Effect:TheBureauofRevenuereduceditsabilitytocollecttaxliabilitiesfromtaxpayers.Recommendation: The Bureau of Revenue should send and retain documentation of levyletters sent to all 17 banks to increase the likelihood of accessing all funds owned by thetaxpayer.City Comment: The merge document used to create levies contains hard coded addressinformationforall17banks.Thecompletedocumentconsistsofseventeen(17)levies. OIGComment:ThefilestestedaswellastheBureauofRevenuepersonnelintervieweddidnotorcouldnotproducecopiesoftheletterspurportedtohavebeensenttotheseventeenbankslistedintheBureauofRevenuesinformalpolicy.


IV. OBSERVATIONS Observation#1:TheengagementlettersenttotaxpayersreferencedLouisianaRevisedStatute46:337.36, which did not exist; the proper citation should have been to Louisiana RevisedStatute47:337.36.Observation#2:Ofthe35auditfilesselectedfortesting:

Thirteenauditreportsandoneexitconferencememowerenotdated. Twoauditreportswerenotdatedwiththefinalauditdate. Twotaxpayersauditreportsweredatedaftertheexitconferencebecauseafinalexit

conferencewasnotheldeventhoughsignificantchangesweremadetotheinitialauditreport.

Observation#3:TheSettlementandEnforcementUnitconsistedofoneperson.Onepersonisresponsibleforthefollowingtasks:

PreparingandmailingtheProposedandAdjustedProposedAssessmentletters,FormalandAdjustedFormalAssessmentletters,andDemandPaymentNoticestoalltaxpayers;

Recordingandtrackingdeadlinesissuedineachoftheabovementionedletters; Filingliensonalltaxpayersproperties; Levyingtaxpayerbankaccounts; Recordingtaxpaymentsfromtaxpayers;and TransferringtaxpayerfilestotheLawDepartment.

Thisstaffingappearsinsufficienttoperformrequiredtasksinatimelymanner.Observation#4:Fourteen(40%)ofthe35taxpayerstesteddidnothaveanexitconference.Noevidencewasmaintainedinthefilethatdocumentedthetaxpayersdecisiontowaivetheexitconference. TheBureauofRevenueshouldconductexitconferenceswithalltaxpayersoncetheaudit iscompleted. Ifataxpayerdesirestowaivetheexitconference,thentheBureauofRevenueshoulddocumentthetaxpayersdecision.


V. GLOSSARY OF TERMS 1. AdjustedProposedAssessmentLetterAlettersenttothetaxpayerafterthetaxpayer

protested the Proposed Assessment, and the proposed tax assessment required anadjustmentduetothetaxpayersprotest.La.R.S.47:337.50,stated,Attheexpirationof thirtycalendardays from thedateof thecollectorsnoticeorat theexpirationofsuch timeasmaybenecessary for the collector to consideranyprotest filed to suchnotice, the collector shall proceed to assess the tax, penalty, and interest that hedeterminestobedueTheassessmentmayconfirmormodifythecollectorsoriginallyproposedassessment.

2. AdjustedFormalAssessmentAlettersenttothetaxpayerafterthetaxpayerprotestedtheFormalAssessment letter,and the formal taxassessment requiredanadjustmentduetothetaxpayersprotest.

3. AuditToconductanofficialfinancialexaminationofan individualsororganizationsaccountstodeterminethetaxliability.

4. AuditReportAreportissuedbytheBureauofRevenuetoataxpayerwiththeamountoftaxesowedasaresultoftheauditperformed.

5. AssessedAmountTheinitialtaxowedstatedintheauditreport.6. AssociationofInspectorsGeneral(AIG)AnassociationestablishedinOctober1996to

foster and promote public accountability and integrity in the general areas ofprevention,examination,Investigation,audit,detection,eliminationandprosecutionoffraud, waste and abuse, through policy research and analysis; standardization ofpractices,policies,conductandethics;encouragementofprofessionaldevelopmentbyprovidingandsponsoringeducationalprograms;andtheestablishmentofprofessionalqualifications,certifications,andlicensing.15

7. Bureau of Revenue16 A department within the City ofNew Orleans that providesservicesforbusinessesandcitizenswhichincludes:

a. Enforcingordinancespertaining to the collectionof sales,hotelmotel,parkingandothertaxes;

b. Obtaining thenecessarypermitand licenses tooperateabusiness in theCity;and

c. IssuingResaleCertificatesallowingbusinessestopurchaseitemswithoutpayingsalestaxesaslongastheseitemsareresoldinthenormalcourseofbusiness.

15http://inspectorsgeneral.org/about/.16http://www.nola.gov/revenuesalestax/.


8. DemandPaymentNoticeA lettersentwhenataxpayerhadnotpaidorsettledtheirtaxesafterthedeadlineissuedintheFormalAssessmentletterortheAdjustedFormalAssessment letter. This letter gives the taxpayer10days topay their taxesormakearrangements for payment. La. R.S. 47:337.55, stated If the taxpayer fails toaccompanyhisreturnfiledwithaproperpayment...thecollectorshallimmediatelysenda notice by mail to such persondemanding payment of such amount within tencalendardaysfromthedateofthenotice...

9. DistraintToseizeandsellthetaxpayerspropertytosatisfythetaxesowedtotheCity.La. R.S. 47:337.57 stated, The words distraint or distrainshall be construed tomeantherighttolevyuponandseizeandsell,orthelevyinguponorseizingandselling,ofanypropertyor rights topropertyof the taxpayer includinggoodsrealestateandotherformsofpropertyforthepurposeofsatisfyinganyassessmentoftax,penaltyorinterestdue.

10. Exit Conference A meeting between the Bureau of Revenue representative orcontractedauditorandtaxpayerattheconclusionofanaudittodiscusstheauditreportfindings,whichincludesthetaxassessmentduetotheCity.

11. FinalAssessmentTheactual taxes thataredue to theBureauofRevenue from thetaxpayer.

12. Finding Findings in a performance audit can be any one or a combination of thefollowing:17

1. Significantdeficienciesininternalcontrol,2. Fraudandillegalacts,3. Violationsofcontractandgrantagreements,and/or4. Abuse.

Each finding contains five elements: condition, criteria, cause, effect, andrecommendation.

a. ConditionAnelementofafindingthatexplainswhathappened.b. CriteriaAnelementofafindingthatstateswhatisrequired.c. CauseAnelementofafindingthatexplainswhytheconditionhappened.d. EffectAnelementofafindingthatstatestheimpactofwhathappened.e. RecommendationAnelementofafindingthatprovidessuggestionstocorrect

acondition.

13. FormalAssessmentLetterAlettersentwhenataxpayerhasnotpaidorsettledtheirtaxesafterthedeadlineissuedintheProposedAssessmentletterorAdjustedProposedAssessmentletter.

17GeneralAccountingOffice. (July2007Revision).GovernmentAuditingStandardsUnitedStatesGovernmentAccountabilityOfficebytheComptrollerGeneraloftheUnitedStates.


This lettergives the taxpayeranadditional60days18 topay the taxesunderprotest,protestthetaxes,requestahearingwiththeTaxReviewCommittee(TRC),enterintoaninstallmentagreement,orpaythetaxesowed.La.R.S.47:337.51,statedThisnoticeshallinformthetaxpayeroftheassessmentandthathehasthirtycalendardaysfromthedateofthenoticeto(a)paytheamountoftheassessment;(b)requestmandatoryarbitrationpursuant toR.S.47:337.51.1or; (c)payunderprotestand filesuitasprovidedforinthatSectionorrequestmandatoryarbitrationNote:OnJanuary1,2011,theLouisianaLegislaturechangedthisstatutewhichreducedthetaxpayertimetopayfrom60to30days.

14. GenerallyAcceptedGovernmentAuditingStandards(GAGAS)ThestandardsusedtoconductgovernmentalauditsasrecommendedbytheGeneralAccountingOffice (alsoreferredtoastheYellowBook).

15. GeneralAccountingOffice(GAO)AnagencywithintheU.S.GovernmentresponsibleforwritingtheYellowBook.

16. InstallmentAgreementAninstallmentagreementallowsthetaxpayertomakeadownpaymentandspreadtheremainingtaxesowedoveraperiodoftime.

17. LienTheBureauofRevenuerecordsataxassessmentjudgmentagainstthetaxpayersbusinesspropertyandstructurewiththeOrleansParishClerkofCourt(MortgageOffice)fortheamountoftaxesowedtotheCity.La.R.S.47:337.65stated,Thecollectormaycausenoticeofsuch lien,privilegeandmortgagetoberecordedatanytimeafterthetaxbecomesdue

18. NoticeofLevyAnotification informingthebanksthattheCityhasplacedaWarrantforDistraint for the total taxesowed to theCityby the taxpayer.This letterdemandsthat banks surrender any property rights or rights to property in their possession,custodyorcontrol,includinganyrealestateandotherformsofpropertyfortheamountofthetaxassessmentowedtotheCity.19La.R.S.47:337.56stated,Whenanytaxpayerfailstopayanytax,penalty,andinterestassessed,thecollectormayproceedtoenforcethecollectionthereofbydistraintandsale.

19. ObservationObservationsemphasizeamatterthatmayormaynotaffectthequalityof the organizations operations.Observations are not findings and do not require aresponsefromtheentity.

20. ProposedAssessment Letter The initial tax assessment letter sent to the taxpayeraftertheexitconferencegivingthetaxpayer30daystopay,settleorprotestthetaxesowed.

1830daysifissuedafterJanuary1,2011.19La.R.S.47:337:57.


La.R.S.47:337.48(B) stated, If a returnor reportmade and fileddoesnot correctlycompute the liability of the taxpayer, the collector shall cause an auditorexaminationto be made to determine the tax, penalty, and interest due. Havingdetermined the amountof tax,penalty, and interestdue, the collector shall sendbymailanoticetothetaxpayer...informingthepersonofhispurposetoassesstheamountsodeterminedagainsthimafterthirtycalendardaysfromthedateofthenotice.

21. Protest A taxpayer disagrees with the Citys tax assessment and sends in writtendocumentation outlining the dispute along with documentation supporting theirdispute.La.R.S.47:337.49stated,Thetaxpayerwithinthirtycalendardays fromthedateofthenoticemayprotestthereto.Thisprotestmustbeinwritingandshouldfullydisclose the reasons, together with facts and figures in substantiation thereof, forobjectingtothecollectorsdetermination.Thecollectorshallconsidertheprotest,andshallgrantahearingthereon,beforemakingafinaldeterminationoftax,penalty,andinterestdue.

22. ProtestResponseTheBureauofRevenuesresponsetothetaxpayersProtestwhichwill either confirm the taxes owed or will reduce the tax liability based on thesupportingdocumentationprovidedintheprotest.

23. SignificantAjudgmentcallbytheauditorthatisusuallybaseduponthefrequencyandmagnitudeofthedeficiencyorcondition.

24. Standards for Offices of Inspector General The standards contained in the GAOsStandards for Internal Control in the Federal Government (Also referred to as TheGreenBook).

25. Summary of TaxDeficiency Exhibit A summary documenting the taxes owed by ataxpayer.

26. Tax Review Committee (TRC) A committee that reviews questions from taxpayersdisputing taxes assessedby theCity. This committee canwaivepenalties,negligencefees,andtheauditcosts,ifdeemedappropriate.

27. TicklerFileAmethodofremindingtheuserofwhereandwhenanitemisplacedinatemporary locationandcanbestructuredtoremind,ortickle,theuserwhenacertainperiodoftimehaselapsed.

28. U.S.GenerallyAcceptedAccountingPrinciples(GAAP)ThestandardguidelinesusedinfinancialaccountingintheUnitedStates.

29. VoluntaryDisclosureA taxpayerdoesaselfassessmentand theBureauofRevenuecalculatesinterestandpenaltiesandpreparesthecaseforahearingwiththeTRC.

30. Warrant for Distraint A warrant issued by the City to secure (seize and sell) thetaxpayers property for taxes owed to the City.


VI. APPENDICES AppendixIFlowChartoftheEnforcement/SettlementProcesses


AppendixIIDaysBetweenEachProcess&NumberofTaxpayersApplicabletoEachProcess

20TheBureauofRevenuesentthetaxpayeraFormalAssessmentbeforetheProposedAssessmentdeadline.21TheBureauofRevenuereceivedtheauditfileonMay2,2011fromcontractauditors,413daysaftertheexitconferencewasheld.22Taxpayerswerevoluntarydisclosuretaxpayers.ThetaxpayercametotheBureauofRevenueandvoluntarilydisclosedthattheyhadnotfiledreturns.TheBureauofRevenuedid not have any collection procedures documented regarding Voluntary Disclosures, and the Bureau of Revenue did not pursue the taxpayer through thesettlement/enforcementprocesses.23TheBureauofRevenuedidnotsendthetaxpayeraFormalAssessmentafterthedeadlineoftheProposedAssessment.24TheOIGauditorscouldnotcalculatethenumberofdaysbecause14taxpayersdidnothaveanexitconference,twotaxpayerfilesdidnotcontainanexitconferencememo,andoneexitconferencememodidnotcontainadate.25TaxpayersweresentaProposedAssessment,buttheOIGauditorscouldnotcalculatethenumberofdaysbetweeneachprocessbecausesixofthetaxpayersdidnothaveanexitconference;twotaxpayerfilesdidnotcontainanexitconferencememo,andoneexitconferencememodidnotcontainadate.26Taxpayerfiledidnotcontainprotestdocumentation;therefore,theOIGauditorscouldnotcalculate.27Taxpayerfiledidnotcontainprotestdocumentation;therefore,theOIGauditorscouldnotcalculate.28Theexitconferencewaswaived;therefore,thecalculationdidnotapply.29Threeexitconferenceswerewaived.FourauditsresultedinnoliabilitysotheProposedAssessmentwasnotrequired.30Taxpayersdidnotprotest;therefore,theprocedurewasnotapplicable.31Eitherthetaxpayerdidnotprotestortheprotestdidnotresultinanadjustment;therefore,noAdjustedProposedAssessmentwasrequired.32TaxpayerpaidaftertheProposedAssessmentdeadline,butbeforeaFormalAssessmentshouldhavebeenmailed.33Thetaxpayerdidnotprotest;therefore,theprocedurewasnotapplicable.34Eitherthetaxpayerdidnotprotestthetaxassessmentortheprotestdidnotresultinanadjustment.Therefore,noAdjustedFormalAssessmentwasrequired.35Totaltaxpayersdecreaseaftereachprocessiscompletedbecausethetaxpayersliabilitiesweresettled.

NumberofTaxpayers

NumberofDaysbetweenprocesses

AuditReport&

ExitConference

DaysLapsingBetweenExitConference&ProposedAssessment

TaxpayerProtest&

RevenueDept.ProtestResponse(Proposed)

AdjustedProposed

Assessment&Taxpayer

ProtestDate

ProposedorAdjustedProposed

Assessment&Formal

Assessment

TaxpayerProtest&

RevenueDept.ProtestResponse(Formal)

AdjustedFormalAssessment&Taxpayer

ProtestDateLessthan0days 2 0 0 0 0 0 0030days 8 9 10 4 120 3 13190days 2 4 3 1 15 3 191150days 3 0 3 0 1 0 0151days250days 0 0 2 0 1 0 0Greaterthan250days 0 121 0 0 0 0 0Procedurenotperformed 0 522 0 0 123 0 0Couldnotcalculate 1724 925 0 0 0 326 327NotApplicable 328 729 1730 3031 132 1133 1534TotalTaxpayers35 35 35 35 35 20 20 20


AppendixIIDaysBetweenEachProcess&NumberofTaxpayersApplicabletoEachProcess(Continued)

36ThetaxpayersfilewastransferredtotheLawDepartmentbeforetheEnforcementprocesswascompleted.37ThetaxpayersfilewastransferredtotheLawDepartmentbeforetheEnforcementprocesswascompleted.38TheBureauofRevenuedidnotsendthetaxpayeraDemandPaymentNoticeafterthedeadlineintheFormalAssessment.39TheBureauofRevenuedidnotfilealienfor2taxpayersaftertheDemandPaymentNoticedeadline;didnotsendaDemandPaymentNoticeorfileaLienfor1taxpayer;andfiledaLienfor1taxpayer,butdidnotsendaDemandPaymentNoticetothattaxpayer.Theenforcementprocesswasnotcompletedinorder.40TheBureauofRevenuedidnotmailNoticeofLevylettersaftertheDemandPaymentNoticefortwotaxpayersanddidnotissueaDemandPaymentNoticeormailNoticeofLevyLettersforonetaxpayer.41ThetaxpayersfilewasnottransferredtotheLawDepartmenttocontinuethecollectionprocess.42ThetaxpayersfilewasnottransferredtotheLawDepartmenttocontinuethecollectionprocess.43TaxpayerfiledalawsuitaftertheFormalAssessmentandbeforetheDemandPaymentNotice;therefore,thetaxpayerwastransferredtotheLawDepartmentandallothercollectioneffortsceased.44OneTaxpayerpaidafter theDemandPaymentNoticedeadline,butbeforeaLienshouldhavebeen filed.Two taxpayers fileda lawsuitduring theenforcementprocess;therefore,thetaxpayerwastransferredtotheLawDepartmentandallothercollectioneffortsceased.45One taxpayerpaidafter theDemandPaymentNoticedeadline,butbeforeaLien shouldhavebeen filed.Two taxpayers fileda lawsuitduring theenforcementprocess;therefore,thetaxpayerwastransferredtotheLawDepartmentandallothercollectioneffortsceased.OnetaxpayerenteredintoaninstallmentagreementduringtheLien/Levyenforcementprocess.Therefore,onlyaLienwasrequired.46Twotaxpayersfiledalawsuitduringtheenforcementprocess;therefore,thetaxpayerwastransferredtotheLawDepartmentandallothercollectioneffortsceased.47Twotaxpayersfiledalawsuitduringtheenforcementprocess;therefore,thetaxpayerwastransferredtotheLawDepartmentandallothercollectioneffortsceased.48TotalTaxpayersdecreaseaftereachprocesswascompletedbecausethetaxpayersliabilitiesweresettled.

NumberofTaxpayers

NumberofDaysbetweenprocesses

FormalorAdjustedFormalAssessment&

DemandPaymentNoticeDemandPayment

Notice&TaxpayerLien

DemandPaymentNotice&Taxpayer

LevyLien&TransfertoLawDepartment

Levy&TransfertoLawDepartment

Lessthan0days 0 0 0 436 337030days 1 1 0 0 03190days 7 0 1 0 191150days 1 0 0 0 0151days250days 2 2 1 0 0Greaterthan250days 1 2 3 0 0Procedurenotperformed 438 439 340 341 342Couldnotcalculate 0 0 0 0 0NotApplicable 143 344 445 246 247TotalTaxpayers48 17 12 12 9 9


VII. OFFICIAL COMMENTS FROM THE BUREAU OF REVENUE CityCodeOrdinance21120section(8)(b)Reportingtheresultsofinspectorgeneralfindingsprovidedthatapersonorentitythatwasthesubjectofareportshallhave30daysfromthetransmittaldateofthereporttosubmitawrittenexplanationorrebuttaltothefindingsbeforethe report is finalized, and such timely submitted written explanation or rebuttal shall beattachedtothefinalizedreportorrecommendation.An internal review copyof this reportwasdistributed to theBureauofRevenueon July11,2014, toprovideanopportunity tocommenton the reportprior to thepublicreleaseof thefinalreport.TheBureauofRevenuecommentsweredueandreceivedonAugust8,2014.TheBureauofRevenuescommentsareincludedinthebodyofthisreportbehindeachfinding,andinitsentiretybehindthissection.

Revenue Internal Controls Report 8.27.14.pdfCITY_OF_NEW_ORLEANS_20140808_144000

revenue ia performance audit of the bureau of revenue's internal controls - compliance...

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