U.S. Department of the Interior
Office of Inspector General
AUDIT REPORT
ASSESSMENT AND COLLECTION OF
GROSS RECEIPTS TAXES,
DEPARTMENT OF REVENUE
AND TAXATION,
GOVERNMENT OF GUAM
REPORT NO. 98-I-570
JULY 1998
United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
N-IN-GUA-003-97
Washington, D.C. 20240
Honorable Carl T.C. Gutierrez
Governor of Guam
O&e of the Governor
Agana, Guam 96910
Subject:
Audit Report on Assessment and Collection of Gross Receipts Taxes, Department
of Revenue and Taxation, Government of Guam (NO.
98-I-570)
Dear Governor Gutierrez:
This report presents the results of our review of gross receipts taxes at the Department of
Revenue and Taxation during fiscal years 1995, 1996, and 1997 (through
December 3
1,
1996). The objective of our audit was to determine whether the Government
of Guam effectively assessed and collected the gross receipts taxes applicable under Guam
laws and regulations.
Our audit disclosed that the Department of Revenue and Taxation did not ensure that all
delinquent gross receipts taxes were collected and did not use available sources of information
to identity businesses (taxpayers) that had not filed gross receipts tax returns. These
conditions occurred because the Department (1) had transferred Collection Branch personnel
to other divisions, which prevented the Collection Branch from initiating timely enforcement
actions to collect delinquent gross receipts taxes; (2) had not developed written procedures
for conducting an effective nonfiler identification program; (3) had not assigned a program
coordinator and personnel to conduct nonfiler identification programs; and (4) had not
entered income tax information into the Department’s automated income tax system to
provide a method for comparing income reported on income tax returns with income shown
on gross receipts tax returns. As a result, the Government of Guam lost gross receipts taxes
of $724,149 and risks losing additional taxes of at least $1.3 million if timely enforcement
actions are not taken. In addition, based on our limited testing of taxpayer information
sources on Guam, we identified 47 nonfilers who may have owed the Government of Guam
at least $972,486 in gross receipts taxes and related penalties and jnterest.
To correct these conditions, we recommended that you, as the Governor of Guam, require
the Director, Department of Revenue and Taxation, to (1) use all available enforcement
methods to collect delinquent gross receipts taxes, including seizures and sales of taxpayer
property; (2) consider returning the previously transferred personnel to the Collection Branch;
and (3) develop and implement a written plan and assign a program coordinator and personnel
to conduct nonfiler identification programs.
On April 8, 1998, we discussed the preliminary draft of this report with the Department’s
Director, the Tax Enforcement Administrator, and the Taxpayer Services Administrator, all
of whom expressed agreement with the findings and recommendations. In addition, the
Director stated that our report provided him “useful information” that he planned to use as
support for obtaining additional resources needed by the Department to carry out its tax
collection and enforcement activities.
On April 29, 1998, we transmitted a draft of this report to you, requesting your comments
by June 19, 1998. The June 22, 1998, response (Appendix 2) from the Acting Governor
indicated concurrence with all five of the recommendations. Based on the response, we
consider one recommendation resolved and implemented and one recommendations resolved
but not implemented, and we request additional information for three recommendations (see
Appendix 3).
The Inspector General Act, Public Law 95-452, Section S(a)(3), as amended, requires
semiannual reporting to the U.S. Congress on all audit reports issued, the monetary impact
of audit findings (Appendix l), actions taken to implement audit recommendations, and
identification of each significant recommendation on which corrective action has not been
taken.
In view of the above, please provide a response, as required by Public Law 97-357, to this
report by August 18, 1998. The response should be addressed to our Pacific Office, 415
Chalan San Antonio, Baltej Pavilion, Suite 306, Tamuning, Guam 96911. The response
should provide the information requested in Appendix 3.
We appreciate the assistance of the staff of the Department of Revenue and Taxation in the
conduct of our audit.
Sincerely,
$y?‘.
$u-&~
RichardbN. Reback
Acting Inspector General
cc:
Director, Department of Revenue and Taxation
Acting Director, Bureau of Budget and Management Research
CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
BACKGROUND ,...____..,._._...., ._ __....., ,....,...,....,
I
OBJECTIVE AND SCOPE .
1
PRIORAUDITCOVERAGE . . . . . . . . . . ..___.........__..__.._....
2
FINDINGS AND RECOMMENDATlONS
. . . . .
3
A. COLLECTION OF GROSS RECEIPTS TAXES
r .
3
B. NONFILER IDENTIFICATION PROGRAhi
. . . .
7
APPENDICES
1. CLASSIFICATION OF MONETARY AMOLXTS
. . . . . . . . . .
10
2. ACTLNG GOVERNOR OF GUAM RESPOXSE
.
11
3. STATUS OF AUDIT REPORT RECOMMEhBATIONS
. .
20
INTRODUCTION
BACKGROUND
The Department of Revenue and Taxation is responsible for enforcing all Guam tax laws,
including the gross receipts tax law. Title
11,
Chapter 26, of the Guam Code Annotated
provides the authority for imposing gross receipts taxes, and
Section 26202(a) of Chapter 26
states that businesses (referred to in this report as taxpayers) selling goods and services will
be taxed at a rate of 4 percent on the gross proceeds of sales.
The Director of Revenue and
Taxation is appointed by the Governor of Guam and confirmed by the Guam Legislature and
is responsible for managing the operations of the Department of Revenue and Taxation.
The Department of Revenue and Taxation has three branches that are responsible for
administering Guam’s gross receipts tax law: the Business Privilege Tax Branch and the
Accounting Branch, which are under the Taxpayer Service Division, and the Collection
Branch, which is under the Tax Enforcement Division. The Business Privilege Tax Branch
is responsible for receiving, processing, and verifying the accuracy of information on Monthly
Gross Receipts Tax Returns. The Accounting Branch is responsible for processing payments
of gross receipts taxes and assessing any gross receipts taxes that may be due the Government
of Guam. The Collection Branch is responsible for initiating collection actions to collect any
unpaid or past-due gross receipts taxes. During fiscal year 1997, the Business Privilege Tax
Branch (9 positions), the Accounting Branch (10 positions), and the Collection Branch (38
positions) were authorized a total of 57 full-time positions.
Revenue and Taxation’s records indicated that during fiscal years 1995, 1996, and 1997
(through December 3 1, 1996) the Business Privilege Tax Branch processed 448,288 gross
receipts tax returns with taxes totaling $389 million. During fiscal year 1996, gross receipts
tax revenues totaled $180 million, which is about 34 percent of the Government of Guam’s
total General Fund revenues. Gross receipts taxes receivable increased from $6.7 million at
the end of fiscal year 1994 to $14.9 million at the end of fiscal year 1996.
OBJECTIVE AND SCOPE
The audit objective was to determine whether the Government of Guam effectively assessed
and collected the gross receipts taxes applicable under Guam laws and regulations.
The scope
of the audit covered Revenue and Taxation’s assessment and collection of gross receipts taxes
that occurred during fiscal years 1995, 1996, and 1997 (through December 3 1, 1996).
However, by letter of April 1, 1997, the Inspector General amended the scope of the audit
to include a review of income tax returns and any other records that were necessary to
complete the audit of gross receipts taxes.
Our audit was conducted at Revenue and Taxation’s offices from January to September 1997.
In addition, we obtained information relating to gross receipts taxes from offtcials at the
1
Department of Administration, the Guam Housing and Urban Renewal Authority, the Guam
Legislature, and the Guam Finance Commission. In addition, we visited ofIicials of the
Contracting Services Office at Andersen Air Force Base on Guam to obtain information
related to payments made to contractors that perform work for the military.
The audit was made, as applicable, in accordance with the “Government Auditing Standards,”
issued by the Comptroller General of the United States. Accordingly, we included such tests
of records and other auditing procedures that were considered necessary under the
circumstances.
As part of the audit, we evaluated the system of internal controls relating to processing gross
receipts tax returns, assessing and collecting gross receipts taxes, maintaining taxpayer case
files, and operating nonfiler identification programs to the extent that we considered necessary
to accomplish our audit objective. We found that the Department had adequately assessed
gross receipts tax returns filed by taxpayers. However, significant internal control weaknesses
were identified in the areas of collecting gross receipts taxes, maintaining taxpayer case tiles,
and conducting a nonfiler identification program. These weaknesses are discussed in the
Findings and Recommendations section of this report. Our recommendations, if implemented,
should improve the internal controls in these areas.
PRIOR AUDIT COVERAGE
During the past 5 years, neither the Genera! Accounting Office nor the Office of Inspector
General had audited the Government of Guam’s assessment and collection of gross receipts
taxes. However, on May 2, 1989, the Office of Inspector General issued the report “Gross
Receipts Tax Billing and Collection Practices, Department of Revenue and Taxation,
Government of Guam” (No. 89-70). The report noted deficiencies in tax operations that
resulted in (1) the loss of $118,000 because the 3-year statute of limitation had expired on
various tax cases and (2) the risk of loss of $628,000 in unbilled and undocumented taxes and
$3 million in uncollected delinquent taxes.
In addition, an independent public accounting firm issued single audit reports on the
Department of Revenue and Taxation’s operations for each of fiscal years 1994, 1995, and
1996. These reports showed that (1) account balances were not reconciled at Revenue and
Taxation and at the Department of Administration for checks which were returned by banks
for insufficient funds, (2) about 85 percent of receivables for these checks were more than
120 days past due, (3) the allowance for doubtful accounts could not be verified, and (4)
abatements of taxes receivable were generally not reported to the Department of
Administration.
2
FINDINGS AND RECOMMENDATIONS
A. COLLECTION OF GROSS RECEIPTS TAXES
The Department of Revenue and Taxation did not ensure that delinquent gross receipts taxes
were collected or collected in a timely manner. Title
11,
Chapters
15
and 26, of the Guam
Code Annotated provides time frames for initiating enforcement actions to collect delinquent
gross receipts taxes. However, Collection Branch personnel said that they were not alu-ays
able to initiate enforcement actions in a timely manner because the Collection Branch did not
have a sufficient number of revenue officers to manage the delinquent taxpayer caseload.
As
a result, during fiscal years 1995, 1996, and 1997 (through December 3 1, 1996): the
Government of Guam lost gross receipts tax revenues of at least $724,149 and may be at risk
of losing another $1.3 million of delinquent gross receipts taxes if timely enforcement actions
are not taken.
Enforcement Practices
Title 11, Chapter 15, Section 15 10 1 (a), of the Guam Code Annotated states that “in all cases
ofunpaid gross receipts taxes, demand for payment shall be made in writing within thirty (30)
days of filing unpaid gross receipts tax returns, and liens and levies shall be filed on such
unpaid amounts not later than sixty (60) days of filing unpaid gross receipts tax returns.”
Also, Section 15 102(a) states,
“Repayment may be made over a period of sixty (60) months
or less.” However, Section 15 102(d) states, “Upon default of the delinquent taxpayer in all
or all [sic] of the agreement terms and conditions, the entire amount owed shall be
immediately due and payable, and collection procedures shall be immediately instituted against
the defaulting taxpayer’s property or properties unless the Director of Revenue and Taxation,
on his discretion, finds that the default was excusable, and the taxpayer promptly (within 30
days) cures the default.” In addition, Title 11, Chapter 26, Section 26205, of the Guam Code
Annotated states, “The statute of limitations for collections of unpaid taxes due on gross
receipts tax returns shall be seven (7) years after the return is filed.” Finally, Chapter 15,
Section 15 10 1 (b), “Collection of Delinquent Taxes,”
states, “Nothing herein shall affect the
power of the Department of Revenue and Taxation to levy, seize and sell property at public
auction.” However, we found that Revenue and Taxation did not always comply with these
requirements.
Based on Revenue and Taxation’s December 3 1, 1996, Collection Branch Monthly Activity
Report, the Collection Branch had an outstanding inventory of 5,206 demand for payment
notices that had been issued to 1,415 delinquent taxpayers who owed gross receipts taxes
totaling $14.9 million.
Of the 1,415 taxpayer case files, we selected a judgmental sample of
129 taxpayer case files, which contained 1,007 payment notices totaling about $3.3 million,
to determine whether Revenue and Taxation had complied with statutory requirements for
collecting the delinquent taxes. Of the 129 delinquent taxpayer case files selected for review,
Revenue and Taxation was not able either to locate case files or to produce complete case
3
tiles for 35 taxpayers who owed taxes of $145,465. Therefore, based on our review of the
94 available case tiles, we found that Revenue and Taxation generally issued notices to
delinquent taxpayers within the 30-day period prescribed by the Guam Code and had followed
statutory requirements for collecting delinquent taxes from 30 taxpayers who owed taxes of
$1.2 million.
However, Revenue and Taxation (1) did not comply with statutory
requirements for using liens and levies and enforcing payment agreements against 54
delinquent taxpayers who owed taxes of $1.3 million and (2) did not use available
enforcement actions to collect delinquent taxes from 10 other taxpayers, which resulted in the
loss of gross receipts taxes of $724,149.
Of the 54 delinquent taxpayers that had a total of $1.3 million of past-due taxes, we
determined that Revenue and Taxation had not filed any liens and/or levies against the
property of 20 taxpayers that owed taxes of $219,882 and had not filed liens and/or levies
timely against the property of 24 taxpayers that owed taxes of $694,182. Furthermore, we
found that for five taxpayers that owed delinquent taxes of $179,679, Revenue and Taxation
had not initiated followup collection actions subsequent to filing liens and/or levies against
the taxpayers’ property to ensure that the Government of Guam’s interests in the delinquent
gross receipts taxes were protected. As a result, Re\-enue and Taxation had not collected
delinquent taxes of $1.1 million from these 49 taxpayers.
We also found that Revenue and Taxation did not follow statutory requirements when
enforcing payment agreements with five delinquent taxpayers who owed $234,134. In one
instance, we determined that Revenue and Taxation had entered into a payment agreement
with a delinquent taxpayer who owed taxes of $60,192. However, the payment agreement
allowed the taxpayer to extend payments over a 363-month period, which exceeded the
60-month payment period allowed by law. In addition, we found that four taxpayers, who
owed taxes of $173,942, had defaulted on their payment agreements with Revenue and
Taxation. However, Revenue and Taxation had not taken any action to seize and sell
taxpayer assets to collect the delinquent taxes from these four taxpayers in accordance with
Title 11, Chapter 15, Section 15 10 l(b), of the Guam Code.
Based on our review of the remaining 10 delinquent taxpayer case files, we also determined
that the Government of Guam lost gross receipts tax revenues of at least $724,149 because
Revenue and Taxation had not used available enforcement actions, such as seizures and sales
of property, to collect the delinquent taxes. Specifically, we found that Revenue and Taxation
had not collected delinquent taxes of $40,545 from five taxpayers before expiration of the
7-year statute of limitations.
In addition, we determined that the Government of Guam lost
delinquent taxes of $158,940 because three taxpayers declared bankruptcy and Revenue and
Taxation had not taken adequate steps, such as securing a claim against the taxpayers’ assets,
to protect the Government’s interests. Finally, we found that Revenue and Taxation had
written off delinquent gross receipts taxes of $524,664 from two taxpayers because one
taxpayer had departed Guam and the other taxpayer no longer had any assets to seize.
Based on Revenue and Taxation’s budget documents for fiscal year 1997, we determined that
the Collection Branch was authorized a staff of 38 employees (35 revenue officers, 2 tax
auditors, and 1 support staff). Ofthe 38 employees, we found that the Collection Branch had
4
seven vacancies (6 revenue officers and
1
support stat?) and that 12 of its 29 revenue officers
had been reassigned by a former Director to cover shortages of staff in other Revenue and
Taxation divisions. Therefore, during our audit, the Collection Branch had a staff of 19
employees, According to the Administrator of the Tax Enforcement Division, the shortage
of staff in the Collection Branch had negatively impacted the ability of the Collection Branch
to initiate timely collection actions against delinquent taxpayers. The Administrator also
stated that the Collection Branch would be able to reduce the backlog of delinquent taxpayer
cases (I,4 15 taxpayers as of December 3 1, 1996) if some of the reassigned employees were
returned to the Branch and the seven vacancies were filled. Finally, Collection Branch
personnel and the Acting Collection Branch Supervisor stated that the insufficient numbers
of staff had prevented the Collection Branch from properly managing its delinquent taxpayer
caseload.
We also discussed with the Tax Enforcement Administrator the possibility of using seizures
and sales of property to collect delinquent gross receipts taxes, The Tax Enforcement
Administrator stated that he did not want to use seizures and sales of property because he
believed that enforcement tools such as liens and levies were as effective as the use of seizures
and sales of property. However, during the exit conference on April 8, 1998, the Tax
Enforcement Administrator stated that seizures and sales of property should be used only as
a “last resort” to collect delinquent taxes.
Nevertheless, we believe that by delaying
enforcement actions against delinquent taxpayers, including the use of seizures and sales of
property, Revenue and Taxation risks the loss not only of additional gross receipts tax
revenues as a result of the expiration of the statute of limitations but also the opportunity to
collect tax revenues from taxpayers who may declare bankruptcy or leave Guam.
In addition,
we believe that the number of delinquent tax cases (1,415 taxpayers as of December 3 1,
1996) could be reduced if Revenue and Taxation aggressively pursued the collection of
delinquent gross receipts taxes through the use of seizures and sales of property.
Finally, as noted previously, Revenue and Taxation was unable to locate 35 (27 percent) of
the 129 delinquent taxpayer case files that we selected for review. Therefore, we believe that
Revenue and Taxation should develop written procedures to ensure that taxpayer case files
maintained by the Collection Branch are safeguarded and can be located when needed by the
revenue officers.
Recommendations
We recommend that the Governor of Guam require the Director, Department of Revenue and
Taxation, to:
1. Instruct the Tax Enforcement Administrator to comply with established procedures
for collecting delinquent gross receipts taxes, including the use of seizures and sales of
taxpayer property.
2. Provide the necessary resources to ensure that the Collection Branch reduces its
backlog of delinquent taxpayer cases and collects delinquent gross receipts taxes in a timely
manner.
5
3. Develop and implement written procedures and establish a records management
system to ensure that the Collection Branch controls and safeguards taxpayer case files.
Governor of Guam Response and Office of Inspector General Reply
The June 22, 1998, response (Appendix 2) to the draft report from the Acting Governor of
Guam concurred with all three recommendations and indicated that corrective actions would
be taken. Based on the response, we consider Recommendation
1
resolved and implemented
and request additional information for Recommendations 2 and 3 (see Appendix 3).
6
B. NONFILER IDENTIFICATION PROGRAM
The Department of Revenue and Taxation did not use available information sources to
identify potential nonfilers of gross receipts taxes. Guam Public Law 19- 10, Section 19,
authorized Revenue and Taxation to use various sources of information, such as the Guam
Telephone Directory, the Guam Waterworks Authority’s water connection records, and the
Guam Housing and Urban Renewal Authority’s and Guam Housing Corporation’s listings of
landlords, to identify potential nonfilers. However, Revenue and Taxation had not
(1)
developed a written plan, including specific goals and objectives, to serve as a basis for
conducting an effective nonfiler identification program; (2) assigned sufficient personnel and
a program coordinator to conduct a nonfiler identification program; and (3) ensured that all
income tax return information was entered into Revenue and Taxation’s automated income
tax system to provide a method for comparing income reported on individual and/or
corporate income tax returns with income shown on gross receipts tax returns. As a result,
based on our limited testing of alternative sources of taxpayer information, we estimated that
gross receipts taxes and related penalties and interest of at least $972,486 may not have been
paid by nonfilers during calendar years 1995 and 1996.
Identification of Nonfilers
We tested several alternative sources of taxpayer information that Revenue and Taxation
could use to identify potential nonfilers, including the Guam Telephone Directory, the Guam
Housing and Urban Renewal Authority’s listing of Section 8 (Federal Housing Assistance)
Program landlords, the Guam Legislature’s logbook of personal services contracts, and the
military construction and service contract records at Andersen Air Force Base. From these
sources, we selected 155 taxpayers to determine whether they had filed gross receipts tax
returns during calendar years 1995 and 1996. In addition, for the taxpayers selected for
review from the Guam Housing Authority’s listing, the Legislature’s contract logbook, and
the Air Force Base’s contract records, we compared the amount of taxpayer income shown
in these records with the amount of income reported on gross receipts tax returns to
determine whether all income had been reported by the taxpayers during calendar years 1995
and 1996. Based on our review of the information obtained for the 155 taxpayers, we
determined that 108 taxpayers had filed gross receipts tax returns and had apparently reported
all of their income. However, we found that the remaining 47 taxpayers’ either had not filed
gross receipts tax returns or had underreported their income, of which both actions resulted
in the nonpayment of gross receipts taxes estimated at $972,486, as shown in the following
table:
‘On February 5, 1996, we provided a list of the 47 taxpayers to Revenue and Taxation’s Director so that
Revenue and Taxation could determine why the 47 taxpayers either had not filed gross receipts tax returns or
had underreported income. If appropriate, actions should be taken to collect the amounts due.
7
Summary of Taxpayers Tested and Results for
Calendar Years 1995 and 1996
Income Nonfilers
Taxpayers Reported by and Under-
Information Source Reviewed Tasnavers renorters
Guam Telephone Directory
13 $88,254,814 2
Guam Housing .4uthority
57
2,728,397 16
Guam Legislature
71
2,543,275 21
Andcrsen Air Force Rase
JJ
241.734.775
8
Totals Ijj $335.261.2ti
g
*Includes estimated interest and penalties
computed as
ofDecember 31.
1996.
Income Not
Reported by
Taxpavers
$7,042,480
241,451
114,322
lo.315218
$17.713,471
Estimated
Gross Receipts
Taxes Not Paid
bv Taspavers*
$384,944
13,175
62 1
1
568,156
$972,486
Both the Tax Enforcement Administrator and the Taxpayer Service Administrator agreed that
Revenue and Taxation should develop and implement a program to identify nonfilers.
However, these officials stated that insufficient numbers of staff had prevented Revenue and
Taxation from having a nonfiler identification program. In addition, the Taxpayer Service
Administrator cited the same reason for income tax information not being entered into the
automated income tax system.
As noted in Finding A, a former Director of Revenue and Taxation had reassigned 12 revenue
officers from the Collection Branch to cover shortages of staff in other Revenue and Taxation
divisions In addition, the Collection Branch had seven unfilled positions. In our opinion,
Revenue and Taxation needs to return at least some of the reassigned revenue officers to the
Collection Branch and fill the seven vacant positions to provide the Branch with a sufficient
number of personnel to conduct nonfiler identification reviews and to ensure that necessary
income tax information is entered into the automated income tax system (see
Recommendation A.2). In addition, we believe that the deterrent effect created by
maintaining an active nonfiler identification program will improve Revenue and Taxation’s
collection efforts through voluntary taxpayer compliance with the gross receipts tax law.
Recommendations
We recommend that the Governor of Guam require the Director, Department of Revenue and
Taxation, to:
1.
Develop and implement a written plan, including specific goals and objectives, for
conducting a nonfiler identification program.
8
2. Initiate a review to determine why the 47 taxpayers either had not filed gross
receipts tax returns or had underreported income. If this review determines that additional
taxes are due, actions should be taken to collect the amounts due.
Governor of Guam Response and Office of Inspector General Reply
The June 22, 1998, response (Appendix 2) to the draft report from the Acting Governor of
Guam concurred with the two recommendations and indicated that corrective actions would
be taken. Based on the response, we consider Recommendation
1
resolved but not
implemented. Accordingly, the recommendation will be referred to the Assistant Secretary
for Policy, Management and Budget for tracking of implementation. Also based on the
response, additional information is requested for Recommendation 2 (see Appendix 3).
9
APPENDIX 1
CLASSIFICATION OF MONETARY AMOUNTS
Finding Areas
A. Collection of Gross Receipts Taxes
Unrealized
Revenues*
5724,149
B. Nonfiler Identification Programs
Potential
Additional
Revenues*
$1,327,877
972,486
Totals
$724,149
$2,300,363
*Amounts represent local funds
10
APPESDIX 2
?age 1 of 9
UFISINAN I MAGA’WiI
TERITORION GUAM
JUN 221998
Mr. Robert J. Williams
Acting Inspector General
Office of the Inspector General
United States Department of the Interior
Washington, D.C. 20240
Dear Mr. Williams:
Enclosed is the Department of Revenue and Taxation’s response and the action plans
in regard to the Inspector General’s Audit Report on “Assessment and Collection of
Gross Receipt Taxes” (Assignment No. N-IN-GUA-003-97).
Should you have any questions or comments, please write to me.
Sincerely,
Enclosures
11
Post
Office
60x2950. Agana. Guam 96910 9 (671)472-8931
l
Fax (671)477tUAM
APPEYDIX 2
Page
2
of 9
DEPARTMENT OF REVENUE AND TAXATION’S RESPONSE TO
DOI INSPECTOR GENERAL
AUDIT
N-IN-GUA-00347
BACKGROI JND
The Inspector General (IG) conducts periodic reviews of Government of Guam operations,
more specifically the Department of Revenue and Taxation, as authorized under Section 1421d
(48 U.S.C.-Organic Act of Guam).
The IG conducted an audit of the Department’s effectiveness in the “Assessment and
Collection of Gross Receipt Taxes” for Fiscal Years 1995, 1996 and 1997 (through December
31, 1996). The operational audit was conducted at the Department of Revenue and Taxation
from January through September 1997.
FINDINGS AND RECOMMENDATIONS
The audit objective was to determine whether the Department of Revenue and Taxation effectively
assessed and collected the gross receipts taxes applicable under Guam laws and regulations.
During the course of the audit, the IG noted that the Department processed $389 Million in GRT
revenues for review period (FY 95, 96 and 97). The review highlighted the increase in Gross
Receipts Tax receivables from
$6.7 Million at the end of Fiscal Year 1994 (g/30/94) to $14.9
Million at the end of Fiscal Year 1996 (9130196). This represents an $8.2 MilIion or a 122%
increase over a two year period.
The dramatic increase was attributable to an aggressive audit program directed at industry type
audits netting huge tax deficiencies. This enforcement mode was implemented to increase
enforcement presence targeted at encouraging voluntary compliance.
In most instances the deficiencies are disputed yet put on the books as tax assessments to protect
the government’s priority interests.
Additionally, the $14.9 Million receivables represents unpaid delinquent taxes covering the seven
year period statute of limitations to include self assessed, disputed-litigated, bankruptcy and exam
related GRT assessments.
The IG’s general findings conclude that despite processing/generating $389 Million in GRT
revenues, the Department of Revenue and Taxation did not ensure that delinquent gross receipts
taxes were collected or collected in a timeIy manner. As a result, during FiscaI Years 95, % and
12
APPENDIX 2
Page 3 of 9
97 the Government of Guam lost gross receipts tax revenues of at least $724,149 and may be at
risk of losing another $1.3 Million of delinquent taxes if timely enforcement actions are not taken.
With the findings and recommendations analyzed, the Department of Revenue and Taxation shall
implement the recommended courses of action.
The IG recommends the following be implemented to strengthen the collections operations:
1.
Instruct the Tax Enforcement Administrator to comply with established procedures
for collecting gross receipts taxes, including the use of seizures and sales of taxpayer property.
Response:
Attached please find a copy of a memo dated June 17, 1998, instructing the Tax
Enforcement Administrator and Collection Branch personnel to follow established collection
procedures and as warranted, utilize seizures and sales of property to collect delinquent taxes.
2.
Provide the necessary resources to ensure that the Collection Branch reduces its
backlog of delinquent taxpayer cases and collects delinquent gross receipts taxes in a timely
manner.
Response:
The effectiveness of the Department of Revenue and Taxation’s enforcement program is
predicated on the resources allocated to the Tax Enforcement Program.
Despite an ever increasing taxpayer base and collateral demand for services, the budgetary
resources allocate to the tax enforcement program has either remained level or been reduced
consistent with the financial and economic condition of the Government of Guam. This condition
has progressively worsen as the Departmental budget reflects an allocation lower than pre FY 95
budget authorizations ($1.75 to 2.5 Million lower).
On paper (The FY 97 Budget), Collection Branch was authorized a staff of 38 employees
(35 Revenue Officers, 2 Tax Auditors, and 1 Support Staff). As of the review period the IG
confirmed that only 19 employees, or a 50% compliment, manned the collections branch function.
The 50% understaffing was attributed to 7 vacancies and 12 Revenue Officers reassigned by the
previous Director to cover shortages in other areas of operations.
To correct this, as of mid 1997 internal reassignments were affected to transfer most, if
not all, Revenue Officers back to the tax area and hire 3 entry level Revenue Officers from the
collections branch vacancies.
Additionally, the Department will continue to request funding for the vacancies and that
the collections branch allocations be exempted from budget constraints (hiring freezes).
APPEYDIX 2
Page 4 of 9
3.
Develop and implement written procedures and establish a records management
systems to ensure that the Collection Branch controls and safeguards taxpayer case files.
Response:
Attached please find a copy of a memorandum dated June 17, 1998 to the Administrator,
Tax Enforcement Programs, directing him to
develop and implement procedures for a records
management systems within the Collection Branch.
B. NONFILER IDENTIFICATION PROGRAM
The ICI audit findings conclude that the Department did not use available information sources
to identify non-filers which resulted in potential nonpayment loss of gross receipt taxes of at
least $972,486.
Revenue and Taxation had not (1) developed a written plan, including specific goals and
objectives, to serve a basis for conducting an effective non-filer identification program; (2)
assigned sufficient personnel and a program coordinator to conduct a non-filer program; and
(3) ensured that all income tax return information was entered in Revenue and Taxation’s
automated system.
The Department conducts
such non-filer review (as mandated by Guam Public Law 19-10) of
gross receipt tax returns filed to ensure taxpayers whom are required to file do so prior to the
renewal of the business licenses, the program is currently limited to only the Department’s
automated systems.
The IG recommends the following be implemented:
1.
Develop and implement a written plan, including specific goals and objectives,
for conducting a nonfiler identification program.
Response:
Attached please find a copy of a memo dated June 17, 1998 instructing the Tax
Enforcement Administrator and Taxpayer Service Administrator to develop for implementation
a Gross Receipt non-filer program.
2. Initiate a review to determine why the 47 taxpayers either had not filed gross
receipt tax returns or had underreported income.
If this review determines that additional taxes
are due, action should be taken to collect the amounts due
3
14
APPENDIX 2
Page 5 of 9
Response:
The review of the 47 taxpayers is being conducted and the Tax Enforcement
Administrator is monitoring the findings and actions.
Attached is a copy of a memo dated
June
17, 1998 to Tax Enforcement Administrator.
4
15
APPENDIX 2
CARL T.C. GUTIERREZ. Govern
Wage
6 of 9
DEPARTMENT OF
MADELEINE
Z.
BORDALLO, Lleutonan~ Govwnor
REVENUE AND TAXATION
GOVERNMENT OF GUAM
JOSEPH T. DUENAS. Dirrdor CARL E. TORitES. Deputy DimcIm
JUN 17 1998
MEMORANDUM
To:
Administrator, Tax Enforcement Division
From:
Director
Subject:
IG Report-Collections Procedures
Effective immediately, you are hereby directed to adhere to the established procedures for
collecting delinquent gross receipt taxes, including the use of seizures and sales of taxpayer
property when warranted.
Please instruct all employees of the Collection Branch to adhere to the established procedure so
as to affect timely collection of delinquent GRT assessments.
Qr;b
JOSEPH T. DUENAS
P. 0. Box 23607,
GMF,
Guam
96921 -
Tel:
(671) 475-1801
- Fax: (671)
472-2643
16
APPENDIX 2
Page 7 of 9
CARL T.C. GUTIERREZ, Govomor
DEPARTMENT OF
MADELEINE 2. BORDALLO, Lieutenant Govomor
REVENUE AND TAXATION
GOVERNMENT OF GUAM
JOSEPH T. DUENAS DIrector CARL k TORIUS, Dcpvtr DIrector
MEMORANDUM
To:
Administrator, Tax Enforcement Division
From:
Director
Subject:
Procedures for a Records Management System
You are hereby directed to develop procedures for a records management system for the
Collections Branch.
Please coordinate with all affected operational areas to facilitate the implementation of said
system so as to ensure that the collections Branch controls and safeguards taxpayer case files.
Refer to IG Report No. N-IN-GUA-003-97 for additional guidance on this matter.
JOSEPH T. DUENAS
P. 0. Box
23607.
GMF, Guam
96921-
Tel:
(671) 475-1801
-
Fax:
(671) 472-2643
17
APPENDIX 2
Page 8 of 9
CARL T.C. GUTIERREZ, Govomor
DEPARTMENT OF
MADELEINE 2. BORDALLO, Lhtonant Govm
REVENUE AND TAXATION
GOVERNMENT OF GUAM
JOSEPH T. DUENAS, DlmcIw CARL
L
TORRES, Deputy Dir&or
MEMORANDUM
To:
Administrator, Tax Enforcement Division
Administrator, Taxpayer Service Division
From:
Director
Subject:
Non-Filer Program for Gross Receipt Taxes
You are hereby directed to develop for implementation a Gross Receipt non-filer program.
This
program should include goals and objectives.
A draft of this plan must be submitted to my office within sixty days.
If you have any questions,
please let me know.
JOSEPH T. DUENAS
P. 0. Box 23607,
GMF, Guam
96921 - Tel: (671)
475-1801 -
Fax: (67l) 472-2643
18
APPENDIX 3
STATUS OF AUDIT REPORT RECOMMENDATIONS
Finding/Recommendation
Reference
Status
A. 1
Implemented.
No tkther action is required.
A.2
Management
concurs;
additional
information
needed.
A.3
B.l
B.2
Management
concurs;
additional
information
needed.
Resolved; not
implemented.
Management
concurs;
additional
information
needed.
Action Reauired
Provide the number of revenue officers, tax
auditors, and support staff currently
assigned to the Collection Branch and a
target date and title of the official
responsible for requesting funding for the
vacancies.
Provide a target date for developing and
implementing the written procedures and
establishing a records management system
for controlling and safeguarding taxpayer
case files. When completed, a copy of the
written procedures should be provided to
our office.
The recommendation will be referred to the
Assistant Secretary
for Policy,
Management and Budget for tracking of
implementation. However, when
completed, a copy of the procedures for
the nonfiler identification program should
be provided to our office.
Provide a target date for completing the
review of the 47 taxpayers
When
completed, a report on the results of the
review should be provided to our offke.
20
I
’
ILLEGAL OR WASTEFUL ACTIVITIES
SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY:
Sending written documents to:
Calling:
Within the Continental United States
U.S. Department of the Interior
Office of Inspector General
1849 C Street, N.W.
Mail Stop 5341
Washington, D. C. 20240
Our 24-hour
Telephone HOTLINE
l-800-424-508 1 or
(202) 208-5300
TDD for hearing impaired
(202) 208-2420 or
l-800-354-0996
Outside the Continental United States
Caribbean Retion
U.S. Department of the Interior
Office of Inspector General
Eastern Division - investigations
4040 Fairfax Drive
Suite 303
Arlington, Virginia 22201
(703) 235-9221
North Pacific Region
U.S.
Department of the Interior
Office of Inspector General
North Pacific Region
415 Chalan San Antonio
Baltej Pavilion, Suite 306
Tamuning , Guam 969 11
(67 1) 647-605 1
Toll Free INumbers:
l-800-424-5081
TDD l-800-354-0996
FlVCommercial Numbers:
(202) 208-5300
TDD (202) 208-2320
HOTLINE
1849 C Street, N.W.
&&lad Stop 5341
Washington. D.C. 20240