City of West Palm Beach Internal Audit Department

Transcription

1 POST AUDIT REVIEW OF THE BUSINESS, RENTAL AND SPECIAL EVENTS TAXES AUDIT Report No. PAR January 22, 2018 City of West Palm Beach Internal Audit Department Roger Strout, City Internal Auditor, CIA, CGAP, CRMA, CFE, CICA Beverly Mahaso, Deputy City Internal Auditor, JD, CFE Elena Georgiev, Senior Internal Auditor, CPA, CGMA, CIA Ellen Misita, Senior Internal Auditor

2 January 22, 2018 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: POST AUDIT REVIEW OF THE BUSINESS, RENTAL & SPECIAL EVENTS TAXES AUDIT, AUD Dear Audit Committee Members: On March 16, 2015, the Internal Audit Department released an audit of the Business, Rental and Special Events Taxes. We performed certain procedures, as enumerated below, with respect to activities of the Development Services Department (DSD) in order to render a conclusion on the status of the recommendations made as a result of that audit. This Post Audit Review consisted primarily of inquiries of City personnel and examinations of various supporting documentation. It was substantially less in scope than an audit in accordance with generally accepted government auditing standards. The evidence obtained provided a reasonable basis for our conclusions; however, had an audit been performed, other matters might have come to our attention that would have been reported to you and our conclusions may have been modified. The audit contained eleven (11) recommendations that addressed the audit s findings. Based on the review performed, we concluded that recommendations 1, 2, 3, 7, 9, 10, and 11 were implemented, and recommendations 4, 5, 6, and 8 were partially implemented. 1

3 Recommendations Status with Priority Medium - 1 High - 6 Implemented Medium - 1 High - 3 Partially Implemented High - 0 Not Implemented We have enclosed a table listing all the recommendations with the current statuses. We found that management made significant effort to take corrective action. We thank the personnel at the DSD for their assistance in conducting this review. We encourage the DSD to continue their efforts and fully implement the recommendations provided. Respectfully submitted, /s/ Roger Strout City Internal Auditor cc: Cory Neering, Commission President Keith James, Commissioner Shanon Materio, Commissioner Sylvia Moffett, Commissioner Paula Ryan, Commissioner Jeffrey Green, City Administrator Dorritt Miller, Deputy City Administrator Richard Greene, Director of the Development Services Department Mark Parks, Chief Financial Officer Encl. 2

4 Post Audit Review of Business, Rental and Special AUDIT RECOMMENDATIONS Legend Implemented 1 We recommended that persons sending payment to the DSD be directed to address it to the DSD and not to a named individual. Mail should be opened by an employee who either does not have access to Community Plus or has view only access and any checks received should be logged (including name, amount, and date), and totaled for the day. Checks should be stamped For Deposit Only, a deposit slip should be created and the checks should be transmitted to the cashiers in batches (rather than as applications are processed). Finally, the License and Permit Supervisor should receive a copy of the log and, at the end of each day, compare it to the deposit slip, and ensure that all payments are reflected in the Community Plus system. 2 We recommended that the Code Compliance Division, and the Planning and Zoning Division print the report available in Community Plus at least weekly. Then, the inspectors may contact the License and Permit Supervisor will coordinate with Finance Cash Management to acquire the appropriate stamp and to institute an approved process and procedure for stamping, logging and processing the checks in question. We plan to have instituted these changes by November 1, Department will require its employees to print the report on a weekly basis and follow up with the business owners. IMPLEMENTED Department (DSD) does not have control over who the addressors put as an addressee (usually a person they have dealt with and feel comfortable with). Starting on Tuesday, October 13, a temporary Clerical position is being opened and a temporary employee is being hired. His/her duties will include opening mail, retrieving any checks, logging them in, stamping the "For Deposit Only" and forwarding them for processing. He/she will have view only access to Community Plus. IMPLEMENTED 3

5 Legend Post Audit Review of Business, Rental and Special Implemented businesses and arrange for a mutually convenient time to conduct an inspection. If the inspector appears on the business site and the business is not prepared for the inspection, resulting from the business s conduct, a fee may be charged to discourage similar behavior in the future. The DSD, being responsible for the assessment and collection of Business, Rental, and Special Events Taxes, should communicate this requirement to all parties and assess fees for missed inspections when warranted. 3 We recommended that the Business Tax Review Completion Report be examined on a weekly basis. In addition, the DSD is in the process of implementing a new system, One Solution, and the list of businesses cannot be easily transferred from the old system due to the volume of businesses. Due to the time and effort required to set each one up from scratch, any outstanding issues should be resolved by the time the new system goes live. Management should consider a follow-up mechanism for any business We plan to have instituted these changes by November 1, License and Permit Supervisor has instituted a policy and procedure that entails running the Business Tax Review Completion Report on a weekly basis with timely notification to Code, Fire, Police and Planning of required inspections. However, the report was designed and intended that it should be run and monitored by each of the responsible Divisions. Therefore it is our recommendation that Code Enforcement, Planning, Police and The report is being run weekly. In addition, the updated City Comprehensive Fee Schedule provides for Code Compliance fees. IMPLEMENTED The report is being run weekly. 4

6 Legend Post Audit Review of Business, Rental and Special Implemented licenses that remain open at the time of system conversion. Fire delegate the responsibility for running, timely examination and corrective action as identified by this report. 4 We recommended that the audit trail report be examined regularly for anomalies by an employee removed from the daily responsibility for entering data in Community Plus. This would be an appropriate responsibility for the License and Permit Supervisor, who by definition, should be supervising and following up on issues rather than performing dayto-day operations. Department feels that with adequate staffing levels, this goal can be achieved. We are in the process of hiring a Fiscal Coordinator to assist with this. We plan to have instituted these changes by December 15, PARTIALLY IMPLEMENTED We commend the DSD for recently hiring a Fiscal Services Coordinator. The License and Permit Supervisor will now have the time to perform this task and will soon be trained. MANAGEMENT UPDATE 06/2016: Since the IAO's last follow-up, the Fiscal Services Coordinator has moved to a different position. However, she is still performing the duties of the Fiscal Services Coordinator until a new person is hired. Moreover, since the IAO's last follow-up, the License and Permit Supervisor separated from 5

7 Post Audit Review of Business, Rental and Special Legend Implemented the City. An experienced staff member was given her responsibilities, however, these do not include review of the audit trail report. A new License and Permit Supervisor was recruited. However, the Department, experiencing turnover in the area, is currently focusing on training new staff. Once this is over, the new License and Permit Supervisor will begin to examine the report. MANAGEMENT UPDATE 01/2018: 5 We recommended that the DSD develop a comprehensive program to communicate to the appropriate community the requirements of chapter 82. This could include any or all of the following: Announcement on the City s and the DSD s web sites; Brochures/posters placed in conspicuous places such as auto tag agencies, banks, driver s license offices, post offices, public buildings, technical schools, and As we mentioned in (1), the Business Tax Division will begin to utilize the recommended methods. In addition, we plan to do the following in order to communicate the requirements of Chapter 82 to the Community at large and to Business owners and owners of rental properties that do not have active Business Tax Receipts and Certificates of Use. The Division will utilize inserts in the City Utility Bills bi-annually to Per the Development Services Department staff, the License and Permit Supervisor will begin to examine the audit trail in the future. PARTIALLY IMPLEMENTED The DSD intended to implement the IAD's recommendations. However, the layout of the letter was never agreed upon (Mayor's Office) and thus the DSD could not move forward. Furthermore, when the Senior Systems Analyst, who provided a lot of support to the DSD staff, left, 6

8 Legend Post Audit Review of Business, Rental and Special Implemented other public places as determined appropriate; Brochures included with the Palm Beach County s Property Appraiser s notices; Forms sent with the renewal letters requesting that the licensee reports any changes to the licensee s business operations that could impact the amount and basis for the fee. This form should include a list of criteria and/or examples; Educating local realtors. communicate the requirements of Chapter 82. The Division will coordinate with the Utilities Department to identify rental properties and to assure compliance with Chapter 82. The Division will coordinate with the Palm Beach County Business Tax office to identify those Businesses operating in the City without Business Tax Receipt and Certificate of Use where they are required by Chapter 82. The Division will utilize the Property Appraiser Parcel Data to compare with the City of West Palm Beach Business Tax Receipts database to identify rental properties that do not have a current Business Tax Receipt and Certificate of Use. We plan to have begun these initiatives by November 1, they were too busy with everyday tasks to follow-up. The DSD plans to implement this recommendation in MANAGEMENT UPDATE 06/2016: Department staff explained that the department has been working on developing brochures to be included with the utility bills, and distributed around the City and other entities. However, this has not been done yet. MANAGEMENT UPDATE 01/2018 Per the Development Services Department staff: An insert for the City utilities bills is being designed and will be mailed out bi-annually to communicate the requirements of Chapter 82. It will be two-sided. One side will outline the requirements of Chapter 82 and the other will include the "Landlord Training" flyer, which is already in circulation. A report has been provided by the Public Utilities Department 7

9 Post Audit Review of Business, Rental and Special Legend Implemented highlighting the accounts where the name on the account and the name of the owner differ. Development Services staff intends to use this report to identify rentals that do not have a rental tax license. Coordination has commenced with the Housing and Community Development Projects Administrator on the "Landlord Training" program that takes place every quarter. This program was developed to educate landlords about the rental rules and regulations enforced by the City. Development Services Department staff actively participates in the training. 6 We recommended that the DSD request the following of businesses in support of their annual inventory valuations instead of simply relying on the numbers provided even though the form must be notarized. When an inspector is dispatched, there are many inventories which require specific knowledge and may not be easily valued by an outsider. Potential sources of inventory value include: Sole-Proprietors Form 1040, Schedule C; Department will need guidance from the City Attorney on how to implement this recommendation. We plan to obtain such guidance by November 1, PARTIALLY IMPLEMENTED The DSD obtained an opinion from the Legal Department that they are allowed to request tax forms as support for the inventory amounts businesses report. MANAGEMENT UPDATE 06/2016: Department has not begun utilizing the suggested forms. Staff 8

10 Legend Post Audit Review of Business, Rental and Special Implemented Partnerships Form 1065, Schedule L; S-Corporations Form 1120S, Schedule L; and C-Corporations Form 1120, Schedule L. explained that they will be requested in the follow-up to be mailed during the month of October/November. MANAGEMENT UPDATE 01/2018: In addition, it should be communicated that businesses which do not update the information as required will be considered in violation of chapter 82 and that penalties may be applied. The inventory affidavits mailed out in June 2017, for the business tax year, have been modified to include the language suggested by the Internal Auditor that lets licensees know that the City has the right to request additional documents as support to the inventory numbers, for example Form 1065, Schedule L. As the inventory affidavits are returned and entered into Community Plus, staff is reviewing the inventory numbers to determine if the figures are incorrect or suspicious based on historical data and/or business category. If so, the accounts will be red flagged and the customers contacted for supporting data. AUDITOR COMMENT: We acknowledge DSD s efforts in modifying the language. However, we note that obtaining the suggested forms will provide more 9

11 Post Audit Review of Business, Rental and Special Legend Implemented sound support. 7 We recommended that a reminder letter be sent to all business owners/property owners with outstanding balances as of October 1, and again as of January 1. This letter should clearly indicate that it is an invoice and that the account is past due. Department proposes to begin sending a 2nd Notice on or about the 5th of November and a 3rd and Final Notice on or about the 5th of January. We plan to have initiated these changes by November 5, IMPLEMENTED The DSD plans to send a reminder in November. The DSD is entertaining the idea of sending it in October in MANAGEMENT UPDATE 06/2016: Department sent out a reminder letter to all businesses that had not paid their business tax as of September 30 on November 6, The Department sent out another notice on February 1, Staff will strive to send the second notice sooner this year. MANAGEMENT UPDATE 01/2018: Department sent out a reminder letter to all businesses that had not paid their business tax as of September 30 in November. 10

12 Post Audit Review of Business, Rental and Special Legend Implemented Instead of sending another letter in January, staff modified the process. Now, a "Delinquent Tax" report is run periodically and used by staff to contact customers and collect payments over the phone. 8 We recommended that the DSD staff ensure that the new system being introduced, One Solution, functions more like an Accounts Receivable system in these situations. Currently there is a limitation with the Community PLUS system design. This problem will be resolved with the implementation of the new One Solution system in the spring of PARTIALLY IMPLEMENTED The IT Department has canceled OneSolution due to the fact that in three (3) years it will not be supported. They have commenced negotiations with Sunguard to implement an alternative software product, TRACKiT. MANAGEMENT UPDATE 06/2016: Department staff explained that the software replacement has been suspended until IT rebuilds the hardware infrastructure of the City, which takes priority. Once this is accomplished, a consultant will be engaged to help the Department write a RFP and select a product. MANAGEMENT UPDATE 01/2018: 11

13 Post Audit Review of Business, Rental and Special Legend Implemented A consultant, Plante-Moran, has been selected to help the City procure a replacement of the Community Plus system. 9 We recommended that the Code Officers perform a more thorough investigation as to when a business became operational and/or a property became available for rent for the first time. We recommended that the DSD staff obtain a subscription to a service similar to Dun & Bradstreet, which can provide a wealth of information that could be used in the process. 10 We recommended that the DSD develops a comprehensive program to identify and communicate to the appropriate community the requirements of Chapter 82. In addition, we recommended that the DSD utilize tools such as Dun and Bradstreet, one of the world s premier business tracking organizations, which identified over 26,000 businesses (Appendix B) with an address indicated as West Palm Beach, to help identify businesses that are operating without a business license. Of In order to implement these more exhaustive investigations, it will be necessary to have additional staff for Business Tax Code Enforcement duties both clerical and Code Enforcement Officers. Business Tax Division agrees with the basic findings and recommendations with respect to this area, although we have no independent analysis that would quantify the percentage of nonhomesteaded properties that would be rented and the City could ultimately collect registration fees from. We agree that any significant expansion of revenues from rental registrations will require significant efforts and take many years to achieve. IMPLEMENTED The DSD hired a total of six (6) code officers since this recommendation was made, two (2) dedicated entirely to business and rental tax. They utilize the Palm Beach County Property Appraiser's web site to conduct research. Also, they have begun collaboration with Utilities to identify rented properties. IMPLEMENTED In addition to working with Utilities, the DSD prints reports from Sunbiz in an effort to identify new businesses. 12

14 Legend Post Audit Review of Business, Rental and Special Implemented course these type of data bases may have some incorrect data, but can still be useful as tools to help identify businesses which should acquire a City business license. Additionally, other business registering data bases, such as the State of Florida Sunbiz, could help with identifying businesses operating within the City of West Palm Beach without a business license and help further ensure equity in the collection of business taxes within the City. Effective enforcement of the requirements of Chapter 82 will necessitate the hiring of additional staff. At one time, the Business Tax Division had three (3) full time Code Enforcement Officers and two (2) full time Business Tax Clerks. All of the Code Officers were moved out of the Department when the Code Compliance Division was established. Shortly thereafter, the two (2) Business Tax Clerks and four (4) Permitting Clerks were reclassified as License and Permitting Specialists combining their duties. Subsequently the number of License and Permitting Specialists was reduced to three (3). Effectively, the Business Tax Division went from five (5) dedicated employees to virtually zero full time personnel. The Business Tax Division is in the process of adding personnel in order to make the Division more effective. In addition, the Business Tax Division will begin to utilize the recommended methods and other procedures as well to identify and communicate the requirements of Chapter 82 to the Community at 13

15 Post Audit Review of Business, Rental and Special Legend Implemented large and to Business owners and owners of rental properties that do not have active Business Tax Receipts and Certificates of Use. The Division will utilize inserts in the City Utility Bills bi-annually to communicate the requirements of Chapter 82. The Division will coordinate with the Utilities Department to identify rental properties and to assure compliance with Chapter 82. The Division will coordinate with the Palm Beach County Business Tax office to identify those Businesses operating in the City without Business Tax Receipt and Certificate of Use where they are required by Chapter 82. The Division will utilize the Property Appraiser Parcel Data to compare with the City of West Palm Beach Rental Tax Receipts database to identify rental properties that do not have a current Rental Tax Receipt and Certificate of Use. 11 We recommended that the Business Tax staff within the DSD work with the Parks and Recreation Department staff to help clarify and apply the taxing criteria consistently for all special events. If an event Department will work with the Parks and Recreation administration to clarify procedures that will coordinate the flow of information between our two groups regarding IMPLEMENTED Per the City of West Palm Beach Community Events web site, a 14

16 Legend Post Audit Review of Business, Rental and Special Implemented meets these criteria, its organizer should be immediately directed to the DSD for payment of the special events license fee. In addition, we recommended that the Community Events Division collect the exact name of the organizer and the applicable Employer Identification Number, which would greatly assist in making determinations. Special Events to help ensure all licenses and permits are obtained and payments received. We plan to have instituted these procedures by December 1, special event is: Any parade, fair, show, festival, carnival, rally, party, motorcade, run, street dance, bike-a-thon, race, walks, athletic event or other attended entertainment or celebration that is to be held in whole or in part upon publicly owned property and/or public rightof-way, or if held wholly upon private property, but will nevertheless affect or impact the ordinary and normal use by the general public of public property or public right-of-way within the vicinity of the event, and/or will involve noise levels prohibited by Section and Section of the Code. Special Event shall also mean any activity to be held in whole or in part upon publicly owned or controlled property and/or public right-of-ways where merchandise or services are offered for sale, whether by for-profit or non-profit organizations. Currently the DSD charges a special events fee for all public events organizers and any private events organizers if there are 15

17 Post Audit Review of Business, Rental and Special Legend Implemented vendors on site. They do not charge a special events fee for nonfor-profits. This issue is politically sensitive and needs to be further discussed with the Administration and/or Commission. MANAGEMENT UPDATE 06/2016: Department staff explained that they have seen an increase in the special events taxes coming to the City. However, they cannot be sure that all are being captured. The department will work with the Community Events Division to improve the process. MANAGEMENT UPDATE 01/2018: Per the Development Services Department staff, new steps have been taken to increase the communication between Development Services and Parks & Recreation. A shared "Special Events" folder has been created on the City s F-Drive, the forms have also been updated. Development 16

18 Post Audit Review of Business, Rental and Special Legend Implemented Services staff reviews the list of all expected community events and identifies which ones would require a special events license and a site plan review. Two License and Permit Specialists have been identified as the contact persons for all private events in the City. The Development Services Department has also enhanced the processing of recurring events on private property by requiring only one application for the year identifying the dates of the events and collecting payments upfront. Per the License and Permit Supervisor, the special events applications processed by her staff has gone from 25 in 2015 to 139 in