Auditing the Tax Office. Property Tax. Property Tax 5/3/10. Audit Program Development Considerations

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1 Auditing the Tax Office Audit Program Development Considerations Software Due to the ever increasing use and complexity of software in property tax collections, a review of access and authority is imperative before designing an audit. Separation of duties can be translated into software access and authority. There should be clear and distinct lines between the data entered by the appraisal district and issuance of receipts or entry of collection data. Each function of adding data, changing data and collecting data should be evaluated for risk and any procedures that could reduce the risk of malfeasance or fraud should be implemented. Well established Internal control over software is extremely important. If the software is being used by two different entities (Tax Office and Appraisal District) there can be conflicts of controls. Ownership of data and access should be defined in any software sharing agreement. 1

2 Control of the back door of the software needs to be reviewed who maintains the software? If it is an internal function of the County (such as an I.T. department) has the I.T. dept. established formal procedures for making software changes? Are they following those procedures? If the software is maintained by an outside vendor, does the contract specify the procedures required to make changes to the programming? Are the persons allowed to contact the vendor and request changes restricted? Does the software maintain a log of changes (an audit trail) with some indication of who made the change? Does the log include access changes such as new employees and terminating employees? Do software changes require a testing period before moving to the live system? 2

3 Refunds - Overpayments and erroneous payments are handled one way by statute but duplicate payments are handled another. How your tax office defines the two can be a gray area and should be reviewed for statutory compliance and adequate internal control procedures. Taxes, penalties and interest calculations need to be reviewed at least annually. Supplemental tax rolls should be well documented for both timing and resultant transactions such as refunds. While the day taxes are due is not a popular day for the Auditor to be at the Tax Office, some assurances can be only gained on that specific date. Example: Penalties are charged on any accounts whose payment is postmarked after the deadline. 3

4 Tax Certificates Are Tax Certificates prenumbered or otherwise accounted for? Does the tax office have a method for ensuring that all tax certificates issued are charged the fee? Motor Vehicle The RTS system, provided by the State is used for all vehicle title and registration activities. Software controls are dictated by the State and are not accessible by the local tax office. Motor Vehicle Manual receipts are issued when the computer system goes down and are supposed to be converted to electronic receipts as soon as the system is back online. 4

5 Motor Vehicle Inventory Tax Office receives placards, registration stickers, license plates and other items of value from the State. These items should be accounted for at all times. Vehicle Inventory Tax As you know we are not allowed to view the renditions from the sales. The account should zero out every year, with all funds disbursed to the jurisdictions. Beer/Wine Permits How does the Tax Office know how much to charge? Is it documented? The tax office may receive a payment months before the TABC invoices. This leaves the money available for abuse. 5

6 Liquor Licenses Applicants for liquor licenses apply directly to TABC. Counties have statutory authority to charge a fee for liquor license. TABC sends the Tax Office a postcard when liquor license is issued but does not maintain or provide any information for counties to use to check the county fee collection. Liquor Licenses The local fees for liquor licenses are not substantial however due to the inability to get information from the State the collections could be compromised and remain undetected. Chapter 19 funds Is the office properly accounting for all Chapter 19 funds? Is the account reconciled monthly? Are all expenditures properly accounted for and within the scope of the statute? 6

7 Returned checks A returned check fee is authorized by LGC (not to exceed $30) Is the Tax Office charging the returned check fee? If not, why not? Returned Checks Most effective method to handle returned checks on the Property Tax side is to reinstate taxes, thus generally incurring penalties and interest. 7