Parks and Recreation: Review of Sales Tax Reporting Process

Transcription

1 Exhibit 1. Parks and Recreation: Review of Sales Tax Reporting Process March 22, 2012 Report No Office of the County Auditor Evan A. Lukic, CPA County Auditor

2 Table of Contents Topic Page Executive Summary... 2 Objective, Scope and Methodology... 3 Background... 3 Findings... 5 Recommendations... 7 APPENDIX Office of the County Auditor 1

3 Executive Summary This report presents the results of our review of the Sales Tax Reporting Process at the Broward County Parks and Recreation Division. Our review disclosed the following issues affecting the accuracy and completeness of sales tax reporting by the Parks and Recreation Division: 1. The computerized park management system, RecTrac, does not fully support the sales tax and accounting needs of the Parks and Recreation Division due to the following: a. RecTrac does not calculate sales taxes in compliance with the Florida Bracket System. As a result, the Division is not collecting the correct amount of sales taxes on all transactions. b. RecTrac does not separately report details of sales exempted from sales taxes, which is necessary for filing monthly sales tax returns required by the Florida Department of Revenue. 2. RecTrac has not been fully implemented, resulting in a manually intensive sales tax reporting process which duplicates system processing and is highly susceptible to errors. To ensure accurate and complete reporting of sales taxes as required by the State of Florida, we recommend the Board of County Commissioners direct the County Administrator to take the following actions: 1. Determine whether RecTrac can be reconfigured or modified to comply with sales tax reporting requirements of the Department of Revenue. 2. Develop controls over sales tax reporting for the Parks and Recreation Division in coordination with the Accounting Division to include: A documented, uniform process to ensure consistent classification and treatment of sales transactions for the a. Collection of sales taxes, b. Treatment of exempt sales, and c. Reporting of sales taxes for all park facilities and sales tax categories (Sales, Commercial Rentals, and Food & Beverage Vending). A method for combining RecTrac (RecTrac Reports of sales and taxes) and Non- RecTrac activity (Ledgers of Non-RecTrac parks) which does not duplicate Office of the County Auditor 2

4 transaction processing and reporting that is already performed by the RecTrac system. Procedures addressing the record retention requirements of the Department of Revenue to enable substantiation of all tax returns filed. Objective, Scope and Methodology The purpose of our review was to determine whether controls are in place to ensure accurate and complete reporting of gross sales, exempt sales and taxes collected each month. To accomplish our objectives, we: Reviewed: o Applicable provisions of Florida Statutes Title XIV Taxation and Finance, Chapter 212 Tax on Sales, Use and Other Transactions. o Florida Department of Revenue publications on sales and use tax collection and reporting, including the Sales and Use Tax Return form DR-15CS R.01/10. o Applicable sections of the Broward County Administrative Code, regarding responsibilities for collection and reporting of sales taxes. o Parks and Recreation Division Sales tax reports submitted to the Accounting Division for filing with the combined Broward County sales tax return. Interviewed staff responsible for sales tax accounting and reporting at both the Parks and Recreation Division and the Accounting Division. Walked through the sales tax collection, compilation and reporting processes at the Parks and Recreation Division. Tested the RecTrac calculation of sales taxes for compliance with the Florida sales tax bracket methodology. Background Florida Sales Taxes The legislature of Florida has established that every person is exercising a taxable privilege when anything of value is sold or received. Accordingly, in Florida, consumers must pay a privilege tax, also known as a sales tax on sales, use and other transactions. Office of the County Auditor 3

5 According to Statute 1, Florida uses a Bracket System for calculating sales taxes. All taxable transactions in Florida are taxed at the base statutory rate of 6 percent on each whole dollar of the total sale. The Bracket System requires sales taxes also be charged on any partial dollar amounts according to the following statutory bracket: Florida Tax Bracket Amount of Sale Sales Tax $ $ Guidance published by the Florida Department of Revenue 2 states that due to the bracket methodology of calculating sales taxes, the actual tax collected is more than a straight percentage of the sales. To accurately calculate the applicable sales taxes, the bracket system must be used to calculate the tax due when any part of each total sale is less than a whole dollar amount. How the Parks and Recreation Division Calculates and Reports Sales Taxes In 2009, the Parks and Recreation Division began converting all parks to a computerized park management system called RecTrac. Park staff currently use RecTrac to electronically process day-to-day park transactions, including activity registrations, facility reservations, gate admissions, and park passes. The sale of these items is subject to the state sales tax, unless the buyer is specifically exempted by the Florida Department of Revenue. Between January and August 2011, the Parks and Recreation Division reported nearly $7 million in taxable sales and $426,423 in sales taxes. RecTrac automates the point-of-sale (cashiering) functions for sales at Parks. At the time of the sale, RecTrac automatically calculates and applies sales taxes to all taxable sales transactions using a pre-programmed Round/Unit methodology. RecTrac multiplies the unit price of the sale by the base statutory tax rate (6%); then rounds the total up to the nearest nickel. This figure is then multiplied by the quantity sold to arrive at the total sale 1 Florida Statute Title XIV Taxation and Finance, Chapter 212 Tax on Sales, Use and Other Transactions, Section Dealer s credit for collecting tax, penalties for noncompliance; powers of Department of Revenue in dealing with delinquents; brackets applicable to taxable transactions; records required. 2 Florida Department of Revenue publication DR-15N R. 01/11, Instructions for 2011 DR-15 Sales and Use Tax Returns. Rule 12A Florida Administrative Code. Office of the County Auditor 4

6 inclusive of sales tax. The sales tax is the difference between the total sale inclusive of tax and the extended price of the units sold. All sales and sales taxes collected are accounted for in separate general ledger accounts. At the end of each month, the Parks and Recreation Division prepares and submits a monthly sales tax report to the Accounting Division. Filing of the Broward County Sales Tax Return County administrative policy 3 refers to the Florida Statutes for sales taxes and requires the director of each agency to determine whether the agency is involved in transactions which may be subject to sales tax. The policy further designates the Accounting Division staff as the internal authority for researching, resolving and providing guidance on tax issues. The Accounting Division prepares a consolidated monthly County-wide sales tax return from sales and tax reports from each agency and requests the Records, Taxes & Treasury Division to remit the corresponding payment for sales taxes to the Florida Department of Revenue. Findings Finding 1 The computerized park management system, RecTrac, does not fully support the sales tax and accounting needs of the Parks and Recreation Division due to the following: a) RecTrac does not calculate sales taxes in compliance with the Florida Bracket System. Sales taxes should be calculated on the total amount of the sale as follows: first on the whole dollar at a rate of 6% and then according to published sales tax brackets for any remaining fraction of a dollar. Instead, RecTrac applies the statutory sales tax rate of 6% to the programmed unit price, rounds the extended unit price to the nearest nickel, and then multiplies the unit sale amount by the quantity purchased. In an analysis of select sales transactions processed by RecTrac, the sales tax calculated by RecTrac was more or less than the sales tax calculated according to the Florida Bracket system for 3 out of 4 transactions. Appendix 1 shows a comparison of sales taxes calculated according to the Florida Bracket System and sales taxes calculated by RecTrac on actual sales transactions. According to sales tax guidance published by the Florida Department of Revenue, a penny difference may not seem significant, but a business with thousands of similar 3 Internal Control Handbook Volume 6: Accounting, Payroll, and Tangible Property, Chapter 8: General Ledger, Part II. State of Florida Sales Tax. Office of the County Auditor 5

7 transactions could end up owing a large amount of additional tax, plus penalty and interest. On average, Broward County Parks and Recreation processes approximately 70,000 transactions monthly. b) RecTrac does not separately report details of sales exempted from sales taxes. The sales and use tax return requires Parks to report Gross Sales, Exempt Sales, Taxable Amount, and Tax Collected for three applicable categories: Sales and services Commercial rentals (leases) Food & beverage vending In an analysis of sales tax reports prepared by the Parks and Recreation Division, we were unable to validate the amounts reported for exempt sales. RecTrac does not specifically identify sales transactions exempted from sales taxes by accounting line or cost center. RecTrac only reports the aggregated total monthly exempt sales for all Park operations processed on RecTrac. As a result of these conditions, the Parks and Recreation Division is at risk for over/under collection of sales taxes. Further, the Parks and Recreation Division is not able to substantiate sales exempted from the collection of sales tax. Finding 2 RecTrac has not been fully implemented, resulting in a manually intensive sales tax reporting process which is highly susceptible to errors. At the time of our review, several parks, including municipal service parks, had not been wholly converted to RecTrac. To compile the requisite sales tax return, Parks Accounting staff were manually consolidating sales and sales tax information for 26 park facilities. This manual consolidation of financial data is inefficient and prone to errors. A review of 2011 sales tax reports produced by the Parks and Recreation Division revealed errors in consolidations and reporting as follows: Reported gross sales incorrectly included amounts for sales taxes collected, which artificially inflated the sales figures included in the sales tax return. Lease payments processed through RecTrac were not appropriately classified to the correct accounting line; as a result, commercial rental sales were not correctly identified with the appropriate tax filing category on the tax return. One monthly consolidation worksheet did not reconcile with the corresponding Parks sales tax return, due to unbalanced correcting and reclassification entries in consolidation. Parks staff used the consolidation exercise to make adjustments on previously filed monthly tax returns in the current period sales tax return, instead of filing amended returns. Office of the County Auditor 6

8 As a result of these errors, reported tax rates fluctuated from less than 6% to over 7% between monthly reports. Inaccurate or incomplete collection and reporting of sales taxes could result in interest and penalties imposed by the Department of Revenue. Recommendations To ensure accurate and complete reporting of sales taxes as required by the State of Florida, we recommend the Board of County Commissioners direct the County Administrator to take the following actions: 1. Determine whether RecTrac can be reconfigured or modified to comply with sales tax reporting requirements of the Department of Revenue. 2. Develop controls over sales tax reporting for the Parks and Recreation Division in coordination with the Accounting Division to include: A documented, uniform process to ensure consistent classification and treatment of sales transactions for the a. Collection of sales taxes, b. Treatment of exempt sales, and c. Reporting of sales taxes for all park facilities and sales tax categories (Sales, Commercial Rentals, and Food & Beverage Vending). A method for combining RecTrac (RecTrac Reports of sales and taxes) and Non- RecTrac activity (Ledgers of Non-RecTrac parks) which does not duplicate transaction processing and reporting that is already performed by the RecTrac system. Procedures addressing the record retention requirements of the Department of Revenue to enable substantiation of all tax returns filed. Office of the County Auditor 7

9 Comparison of Sales Tax Computation Methods APPENDIX 1 1 Person Gate Entry 3 Person Gate Entry 5 Person Gate Entry Max Car Rate Published Fee (inclusive of sales tax) $ 1.50 $ 4.50 $ 7.50 $ 8.00 Florida Bracket System Sales tax per statute RecTrac Round/Unit Method Sales tax per RecTrac Sales Tax Collected over/(under) (0.01) Office of the County Auditor 8