GA AYJOO .Rj RYi IQCj5 -tic:' STATE OF GEORGIA DEPARTMENT OF AUDITS 254 WASHINGTON STREET ATLANTA. GEORGIA 30334 AUDIT REPORT STATE OF GEORGIA DEPARTMENT OF REVENUE YEAR ENDED JUNE 30, 1996 DEPARTMENT OF REVENUE TABLE OF CONTENTS SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION EXHIBITS FINANCIAL STATEMENTS A COMBINED BALANCE SHEET (STATUTORY BASIS) ALL FUND TYPES AND ACCOUNT GROUPS 2 B COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS) GOVERNMENTAL FUND TYPES 5 C STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES BUDGET FUND 6 D STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND 9 E STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS STATE REVENUE COLLECTIONS FUND 10 F NOTES TO THE FINANCIAL STATEMENTS 12 SUPPLEMENTARY INFORMATION G COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FIDUCIARY FUND TYPE - AGENCY FUNDS 26 SCHEDULES 1 SCHEDULE OF APPROVED BUDGET 27 2 CASH AND CASH EQUIVALENTS 28 3 SCHEDULE OF FEDERAL REVENUES 29 4 SCHEDULE OF OTHER OPERATING EXPENSES 30 5 ANALYSIS OF STATE REVENUE COLLECTIONS 31 6 RECONCILIATION OF TRAVEL 41 SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS SECTION I FINANCIAL CLAUDE L. VICKERS STATE AUDITOR (404) 6562174 DEPARTMENT OF AUDITS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 January 17, 1997 Honorable Zell Miller, Governor Members of the General Assembly of Georgia and Honorable T. Jerry Jackson, Acting Commissioner Department ofRevenue INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have audited the accompanying financial statements (Exhibits A through F) of the Department of Revenue as of and for the year ended June 30, 1996. These financial statements are the responsibility of the Department's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1, these financial statements were prepared on a prescribed basis of accounting that demonstrates compliance with the budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. As more fully discussed in Section II, Findings and Improper or Questioned Costs, material discrepancies were noted in the Sales Tax Division. State statutes require that all sales-based taxes be collected by the Department ofRevenue and remitted to the Office of Fiscal and Treasury Services. Amounts of sales-based taxes collected on behalf of local governments are subsequently returned to local government jurisdictions based on information compiled by the Department of Revenue from the sales tax returns. The Department of Revenue did not maintain adequate infotmation systems to properly identify the amounts of sales-based taxes 96ARL-3 collected on behalf oflocal governments. We were therefore unable to determine the accuracy ofthe sales based-taxes retained by the State of Georgia or the accuracy of the amounts collected and subsequently disbursed to local governments for sales-based taxes. In our opinion, except for the effects on the financial statements ofthe adjustments to the sales-based taxes that may be necessary as described in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position (statutory basis) ofthe Department ofRevenue as of June 30, 1996, and the results of its operations (statutory basis) for the year then ended, on the basis of accounting described in Note 1. Our audit was made for the purpose offorming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Exhibit G and Schedules 1 through 6) is presented for purposes ofadditional analysis and is not a required part ofthe financial statements ofthe Department ofRevenue. Such information has been subjected to the auditing procedures applied in the audit ofthe financial statements and, in our opinion, except for the effects ofthe matter referred to in the fourth paragraph, such information is fairly presented in all material respects in relation to the financial statements taken as a whole. Respectfully submitted, ~~ Claude L. Vickers State Auditor CLV:gp 96ARL-3 FINANCIAL STATEMENTS - 1- DEPARTMENT OF REVENUE COMBINED BALANCE SHEET (STATUTORY BASIS) ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30,1996 ASSETS Cash and Cash Equivalents (See Schedule) Accounts Receivable State Appropriation Other Prepaid Items Inventories Fixed Assets Equipment Amount to be Provided for Payment of Accrued Compensated Absences Total Assets GOVERNMENTAL FUND TYPES STATE REVENUE BUDGET COLLECTIONS $ 983,460.34 $ 9,024,948.56 $ 7,544,928.18 50,151.92 $ 7;595,080.10 $ 2,112.00 $ 44,955.58 $ 8,625,608.02 $ 9,024,948.56 LIABILITIES AND FUND EQUITY Liabilities Accounts Payable Payroll Withholdings Funds Held for Others Compensated Absences Total Liabilities Fund Equity Investment in General Fixed Assets Fund Balances Reserved Inventories State Revenue Collections Fund Unreserved Designated Surplus Total Fund Equity Total Liabilities and Fund Equity $ 8,On,419.80 3,694.46 $ 8,081,114.26 $ 54,000.00 $ 9,024,948.56 490,493.76 $ 544,493.76 $ 9,024,948.56 $ 8,625,608.02 $ 9,024,948.56 The notes to the financial statements are an integral part of this statement. -2- FIDUCIARY FUND TYPE AGENCY ACCOUNT GROUPS GENERAL GENERAL FIXED LONG-TERM ASSETS DEBT TOTALS (Memorandum Only) JUNE 30,1996 JUNE 30,1995 $ 12,829,753.69 $ 22,838,162.59 $ 11,575,680.96 $ 7,544,928.18 $ 10,119,706.78 50,151.92 48,673.58 $ 7;595,080.10 $ 10,168,380.36 $ 2,112.00 $ 89,461.67 $ 44,955.58 $ 36,478.06 $ 9,954,030.45 $ 9,954,030.45 $ 8,527,609.11 $ 4,485,118.94 $ 4,485,118.94 $ 4,348,805.14 $ 12,829,753.69 $ 9,954,030.45 $ 4,485,118.94 $ 44,919,459.66 $ 34,746,415.30 $ 12,829,753.69 $ 12,829,753.69 $ $ 4,485,118.94 8,077,419.80 $ 3,694.46 12,829,753.69 4,485,118.94 11,177,838.12 2,581.04 9,744,351.08 4,348,805.14 $ 4,485,118.94 $ 25,395,986.89 $ 25,273,575.38 $ 9,954,030.45 $ 9,954,030.45 $ 8,527,609.11 54,000.00 9,024,948.56 39,000.00 605,614.64 $ 9,954,030.45 490,493.76 $ 19,523,472.77 $ 300,616.17 9,472,839.92 $ 12,829,753.69 $ 9,954,030.45 $ 4,485,118.94 $ 44,919,459.66 $ 34,746,415.30 - 3- DEPARTMENT OF REVENUE COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS) GOveRNMENTAL FUND TYPES YEAR ENDED JUNE 30.1996 EXHIBIT-B- The notes to the financial statements are an integral part of this statement. -5- DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES BUDGET FUND YEAR ENDED JUNE 30.1996 EXHIBITC FUNDS AVAILABLE REVENUES STATE APPROPRIATION General Appropriation Amended Appropriation Less: Lapsed Funds Tetal State Appropriation FEDERAL REVENUES (See SChedule) OTHER REVENUES RETAINED Indirect Services Funding Department of Administrative Services Unclaimed Property Receipts Total Other Revenues Retained Total Revenues CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance Inventories Total Funds Available EXPENDITURES PERSONAL SERVICES Salaries and Wages Employer's Contributions for: F.I.CA Retirement Health Insurance Personal Liability Insurance Unemployment Compensation Insurance Workers' Compensation Insurance Assessments by Merit System Drug Testing REGULAR OPERATING EXPENSES Motor Vehicle Expenses Supplies and Materials Repairs and Maintenance Utilities Rents (Other than Real Estate) Insurance and Bonding Other Operating Expenses (See Schedule) Extraordinary Expenditures Duplicating and Rapid Copy Publications and Printing Equipment Purchases The notes to the financial statements are an integral part of this statement. - 6- TOTALS yEAR ENDED JUNE 30, 1996 JUNE 30, 1995 $ 95,619,590.00 $ 86,628,745.00 4,048,000.00 3,711,200.00 $ 99,667,590.00 $ 90,339,945.00 100,000.00 0.00 $ 99,567,590.00 $ 90,339,945.00 $ 108,355.34 $ 103,782.07 $ 3,845,000.00 $ 3,845,000.00 1,549,832.00 1,289,313.00 $ 5,394,832.00 $ 5,134,313.00 $ 105,070,m.34 $ 95,578,040.07 39,000.00 46,000.00 $ 105,109,m.34 $ 95,624,040.07 $ 42,924,695.08 $ 41,336,941.16 2,855,724.21 5,985,326.61 4,784,649.08 258,986.00 66,371.00 598,479.00 241,264.39 869.00 2,754,916.65 5,809,201.22 4,642,125.06 230,808.00 83,549.00 686,693.00 204,616.87 583.00 $ 57,716,364.37 $ 55,749,433.96 $ 123,324.43 $ 139,281.35 683,249.76 599,602.67 902,964.09 846,924.58 18,429.63 15,243.10 34,5n.94 21,681.70 69,339.68 64,034.50 688,529.59 820,607.94 0.00 22,000.00 65,975.67 71,679.59 2,717,245.98 2,627,138.75 347,510.05 393,599.63 $ 5,651,146.82 $ 5,621 ,793.81 DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES. BUDGET FUND YEAR ENDED JUNE 30, 1996 EXHIBIT"C" The notes to the financial statements are an integral part of this statement. -7- Gkt.,\- k fj '6 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND YEAR ENDED JUNE 30,1996 EXHIBIT "0" FUNDS AVAILABLE REVENUES State Appropriation Federal Revenues Other Revenues Retained CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 99,667,590.00 $ 99,567,590.00 $ 238,707.00 108,355.34 5,394.832.00 5,394,832.00 $ 105,301,129.00 $ 105,070.777.34 $ -100,000.00 -130,351.66 0.00 -230,351.66 0.00 39.000.00 39,000.00 $ 105,301,129.00 $ 105.109,777.34 $ -_19_1..;...3_5_1._66_ EXPENDITURES Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem. Fees and Contracts County Tax Officials/Retirement and FICA Motor Vehicle Tags and Decals Postage $ 57,756,087.00 $ 57.716.364.37 $ 5.772.527.00 5,651.146.82 1,397,040.00 1,310.689.59 195,470.00 188,074.35 950,220.00 743,433.85 14.448.520.00 14,589,987.18 2.830.695.00 2,828,976.68 3,086,805.00 2.769,048.40 1,277.810.00 1,322.459.30 3,358.795.00 3.358,795.00 10,349,350.00 10,349,333.24 3,877,810.00 3,787,043.02 39,722.63 121.380.18 86.350.41 7.395.65 206.786.15 -141.467.18 1,718.32 317,756.60 -44,649.30 0.00 16.76 90.766.98 Excess of Funds Available over Expenditures --_-..:..._- $ 105,301,129.00 $ 104.615,351.80 $ 685,777.20 $ 494,425.54 $ =====49~4=,42=5=.5=4 The notes to the financial statements are an integral part of this statement. -9- DEPARTMENT OF REVENUE STATEMENT OF CASH RECEIPTS AND D'SBURSEMENTS STATE REVENUE COLLECTIONS FUND YEAR ENDED JUNE 30. 1996 EXHIBIT -E" STATE REyENUE COLLECTIONS (See Schedule) Business License Tax Non Business License Tax Motor Vehicle Registrations - Tags Motor Carrier Registlations - Tags Motor Vehicle Title Registlations Corporate Net Worth Tax Estate Tax Financial Institutions Business OCcupation Tax Income Tax Corporations Individuals Property Tax County Tax Digest Accounts Intangible Recording Public Utilities Property Tax Assessments Taxes Based on Sales Sales and 'Use Tax RegUlar Motor Fuel Alcoholic Beverages Beer Liquor Wine Cigars and Cigarettes Motor Fuel . Fines and Forfeitures Peace Officers and Prosecutors Training Fund Unclaimed Property State Children's Trust Fund Eamings - General Govemment Local Option Sales Tax Collection Cost Marta Sales Tax Collection Cost Motor Carriers' Fees Railroad Car Tax Collection Cost Real Estate Transfer Tax Collection Cost Special Purpose Sales Tax Collection Cost Other Fees Total Cash Receipts CASHAND CASH EQUIVALENTS - JULY 1,1995 CASH RECEIPTS $ 3,522,897.10 $ 138,762,327.86 47,713,520.08 44,343,056.92 230,818,904.86 23,717,302.88 66,538,070.93 12,173,232.70 $ 696,606,823.29 4,233,296,917.24 4,929,903,740.53 $ 35,246,742.29 576,863.00 35,823,605.29 $ 35,476.21 1,289,645.69 1,325,121.90 $ 3,828,444,298.14 140,633,696.54 $ 3,969,on,994.68 $ 72,866,156.27 32,688,582.68 16,147,639.62 121,702,378.57 93,868,321.36 398,981 ,754.44 4,583,630,449.05 2,878,596.02 15,512,372.52 23,980,995.97 1,158,855.00 7,199,608.02 2,542,099.58 558,449.03 30,024.47 159,454.30 5,665,309.15 . 33,959,762.27 50,114,706.82 $ 9,981,098,851.57 605,614.64 The notes to the financial statements are an integral part of this statement. -10- $ 9,981,704,466.21 DEPARTMENT OF REVENUE STATEMENT OF CASH RECEIPTS AND D'SBURSEMENTS STATE REVENUE COLLECTIONS FUND YEAR ENDED JUNE 30, 1996 EXHIBIT"E" GQYERNMENTALCQST Fees Retained at Collecting Source Property Tax County Tax DIgest Accounts Intangible Recording TaxIS Based on Sales Sales and Use Tax Regular Motor Fuel Cigars and Cigarettes Motor Fuel Assessing Property Tax County Tax Digest Accounts Disbursement of Motor Vehicle Transfer Fee Escrow Funds Disbursements of International Registration Plan Collections To Other States Disbursement for Attomey's Fees Federal Employees' Retirement Settlement Disbursement to OfIice of Treasury and Fiscal Services National Flood Control Funds Total Govemmental Cost TRANSFERS To OfIice of Treasury and Fiscal Services Less: Refunds through OfIice of Treasury and Fiscal Services Total Disbursements CASH AND CASH EQUIVALENTS - JUNE 30, 1996 D'SBURSEMENTS $ 995,214.44 3O,9n.37 $ 1,026,191.81 $ 16,145,055.59 1,546,320,32 $ 17,691,375.91 2,620,308.91 3,023,487.13 23,335,171.95 $ 24,361,363.76 464,546.62 5,506,345.87 17,303,829.93 4,292,567.47 661,875,61 $ 52,590,529.26 $ 10,841,048,040.62 920,959,052,23 9,920,088,988.39 $ 9,9n,679,517.65 9,024,948,56 $ 9,981,704,466,21 The notes to the financial statements are an integral part of this statement. - 11 - DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY The Department ofRevenue, an organizational unit of the State of Georgia, is part ofthe executive branch ofthe government ofthe State ofGeorgia. It is the chieftax collection agency for the State of Georgia. The principal taxes collected are those on sales, motor fuel, income, alcoholic beverages, cigars and cigarettes, property, motor vehicle licenses, and estates. The executive office of the Department is the Revenue Commissioner, who is appointed by the Governor with the consent ofthe Senate of the General Assembly of Georgia. It is the Revenue Commissioner's duty to administer all Georgia tax laws and he is empowered to make all rules and regulations necessary for the enforcement of those laws. The Department ofRevenue does not have authority to determine the amount offunding it will receive from the State of Georgia for any given fiscal year. Such authority is vested in the General Assembly of Georgia. The Department also does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, the Department ofRevenue is included within the State of Georgia reporting entity for financial reporting purposes because ofthe significance ofits legal, operational and financial relationships with the State ofGeorgia. These reporting entity relationships are defined in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting. Standards. FUND ACCOUNTING The Department ofRevenue uses funds and account groups to report on its financial position and the results ofits operations determined in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State ofGeorgia. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device used to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. Funds and account groups presented in the accompanying financial statements are as follows: FUND ACCOUNTING GOVERNMENTAL FUND TYPES BUDGET FUND - The fund used to account for activities and functions as set forth in the Amended Appropriations Act of 1995-1996. The Budget Fund is similar in nature to a General Fund as defined in generally accepted accounting principles in that the Budget Fund is used to account for all activities except those required to be accounted for in some other fund. STATE REVENUE COLLECTIONS FUND - The fund used to account for the collection of specific revenues ofthe State ofGeorgia as provided by statute or administrative action and the subsequent transfer of such funds to the Office of Treasury and Fiscal Services. This presentation differs from generally accepted accounting principles in that such activity should be included in the General Fund of the governmental organization. - 12- DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30.1996 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FUND ACCOUNTING FIDUCIARY FUND TYPE AGENCY FUNDS - The funds used to account for assets held for use by other funds, governments, or individuals. ACCOUNT GROUPS GENERAL FIXED ASSETS - The account group used to account for fixed assets used in governmental fund type operations. Fixed assets purchased are recorded at cost or at estimated historical cost if historical cost is not practically determinable. Donated fixed assets are recorded at fair market value on the date donated. Disposals are deleted at recorded values. No depreciation has been provided on general fixed assets. The cost ofnormal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not included in the General Fixed Assets Account Group. Material improvements adding to the value or useful life of the assets are included in the General Fixed Assets Account Group. GENERAL LONG-TERM DEBT - The account group used to report the noncurrent portions of certain governmental long-term liabilities, such as claims, judgments and compensated absences, which will be paid from future resources. BASIS OF ACCOUNTING MEASUREMENT FOCUS The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Governmental funds should be accounted for using the flow of current financial resources measurement focus. With this measurement focus, operating statements present increases and decreases in net current assets and unreserved fund balance is a measure ofavailable spendable resources. In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, the Budget Fund remits its unreserved fund balance (surplus) to the Office of Treasury and Fiscal Services in the subsequent fiscal year. GOVERNMENTAL FUND TYPES BUDGETFUND Except as disclosed in the following paragraphs, units of government of the State of Georgia record their Budget Fund revenues and expenditures in accordance with the modified accrual basis of accounting. Under the modified accrual basis ofaccounting, revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Revenues that are accrued include primarily State appropriations, Federal grants and entitlements, and certain amounts earned under operating agreements with other parties. Expenditures are recorded when the - 13 - DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 3D. 1996 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPES BUDGET FUND related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Contractual obligations for goods and services which have not been received at the end ofthe fiscal year are recognized as expenditures and liabilities in the accompanying financial statements. This accounting practice causes expenditure-driven grant revenues to be accrued based, in part, on the unexecuted portion of contracts for goods and services. The recognition of encumbrances as expenditures and liabilities is in conformity with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, but is not consistent with generally accepted accounting principles, which provide for the recording of encumbrances as a reservation offund balance. Further, revenue recognition for expenditure-driven grants should be based upon expenditures determined in accordance with generally accepted accounting principles. Prior period adjustments and certain other items are reported as additions to and deductions from fund balances ofthe Budget Fund in the accompanying financial statements. This presentation is in accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, but differs from generally accepted accounting principles in that immaterial adjustments should be reported as current period revenues and expenditures. . STATE REVENUE COLLECTIONS FUND The State Revenue Collections Fund is maintained on the Cash Receipts and Disbursements basis of accounting as prescribed or permitted by statutes and regulations of the State of Georgia. This basis of accounting is defined as that method of accounting in which certain revenue and the related assets are recognized when received rather than when earned, and certain expenses are recognized when paid rather than when the obligation is incurred. The State Revenue Collections Fund, which should be included in the General Fund in accordance with generally accepted accounting principles, should be maintained on the modified accrual basis of accounting. FIDUCIARY FUND TYPE AGENCY FUNDS Agency Funds are custodial in nature and do not measure results of operations or have a measurement focus. The modified accrual basis of accounting is utilized for recognizing assets and liabilities. BUDGET Appropriation allotments to the Department of Revenue are on the basis of a budget submitted by the Department and approved by the Legislature and the Governor. The budget is adopted on a basis consistent with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia and is compiled in the same manner as all State departments. Expenditures are classified by budget unit object classes - 14- DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30.1996 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUDGET as provided in Act No. 476 ofGeorgia Laws 1995 (as approved April 21, 1995) and amended by Act No. 513 of Georgia Laws 1996 (as approved February 16, 1996). This budget is considered to be an appropriated b~dget and is referred to in these notes as the Amended Appropriations Act of 1995-1996. Overexpenditure of a budget unit object class, except for the "common object classes", included in the Department's final amended budget is in violation of Section 54 ofthe 1995-1996 Amended Appropriations Act. Expenditures ofno more than 102% ofthe stated amount for each common object class are authorized by Section 54. However, the total expenditure for the group of common object classes may not exceed the sum of the stated amounts for the separate object classes of the group. The common object classes include Personal Services, Regular Operating Expenses, Travel, Motor Vehicle Purchases, Equipment, Computer Charges, Real Estate Rentals, Telecommunications and Postage. A comparison of anticipated funds available and budgeted expenditures by budget unit object class indicates that the object class Per Diem, Fees and Contracts was overspent by $44,649.30. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include currency on hand, demand deposits with banks and other financial institutions, and cash management pools that have the general characteristics of demand deposit accounts in that the Department may deposit additional cash at any time and also may withdraw cash at any time without prior notice or penalty. INVESTMENTS The Department participates in an investment pool managed by the State of Georgia's Office of Treasury and Fiscal Services (OTFS) referred to as the "Georgia Fund 1". The Department does not have any risk exposure related to investments in derivatives or similar investments in Georgia Fund 1 as the investment policy of OTFS does not provide for investments in derivatives or similar investments through the Georgia Fund 1. INVENTORIES Inventories ofsupplies are valued at weighted average cost on the Combined Balance Sheet (Statutory Basis). The consumption method is used to account for the use of inventories. Under the consumption method, the costs of inventories are recorded as expenditures when the inventories are consumed rather than when purchased. RESERVED FUND BALANCE Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. The following is a brief description of the reserves reflected in the accompanying financial statements: INVENTORIES Reported inventories, under the consumption method, are offset by a portion of State funds reserved to provide working capital for managing a reasonable level of inventories. - 15 - DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RESERVED FUND BALANCE STATE REVENUE COLLECTIONS FUND The balance ofrevenues collected but not transmitted to the Office ofTreasury and Fiscal Services at fiscal year end. These funds are required by the Official Code of Georgia to be transferred to the Office of Treasury and Fiscal Services and are not available for use by the Department. UNRESERVED FUND BALANCE In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, the Budget Fund's unreserved fund balance is remitted to the Office of Treasury and Fiscal Services in the subsequent fiscal year as surplus. This amount of unexpended general appropriations is designated for reappropriation by the State in subsequent years. COMPENSATED ABSENCES Compensated absences represent obligations of the Department relating to employee's rights to receive compensation for future absences based upon services already rendered. This obligation relates only to vesting accumulating annual leave in which payment is probable and can be reasonably estimated. No liability has been recorded in the individual funds for the current portion of this obligation as this amount will not be liquidated with expendable available financial resources. Funds are provided in the appropriation of funds each year to the Department to cover the cost of annual leave paid to terminated employees. The liability for compensated absences at year end is reported in the General Long-Term Debt Account Group for governmental funds. MEMORANDUM ONLY - TOTAL COLUMNS Total columns on the Combined Statements (Statutory Basis) are captioned "Memorandum Only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, results of operations or changes in financial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. COMPARATIVE DATA Comparative total data for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding of the changes in the Department's financial position and operations. Comparative totals have not been included on statements where their inclusion would not provide enhanced understanding of the Department's financial position and operations or would cause the statements to be unduly complex and difficult to understand. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. - 16- DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds ofthe State of Georgia cannot be placed in a depository paying interest longer than fen days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral anyone or more ofthe following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: (1) Bonds, bills, certificates ofindebtedness, notes, or other direct obligations ofthe United States or ofthe State of Georgia. (2) Bonds, bills, certificates ofindebtedness, notes, or other obligations ofthe counties or municipalities of the State of Georgia. (3) Bonds ofany public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. (4) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. (5) Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. (6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies ofthe State of Georgia the option of exempting demand deposits from the collateral requirements. CATEGORIZATION OF DEPOSITS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. The bank balances as of June 30, 1996, are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk. Category 1 - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Department or by its agent in the Department's name. Category 2 - Amounts collateralized with securities (at market value) held by the pledging financial institution's trust department or agent in the Department's name. - 17 - DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXlDBIT "F" NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS CATEGORIZATION OF DEPOSITS Category 3 - Amounts collateralized with securities (at market value) held by the pledging financial institution or by its trust department or agent, but not in the Department's name, and amounts uncollateralized. Cash Deposits Carrying Amount Bank Balances Risk Categories 2 3 $12344 807 81 $61 086884,46 $ 650077 04 $,====O!!,!lOO~ $60436807 42 CATEGORIZATION OF INVESTMENTS Investments are stated at cost. The carrying amount of the investment balance as ofJune 30, 1996, shown below is maintained in an investment pool by the Office ofTreasury and Fiscal Services and is not subject to risk categorization. Type of Investment Carrying Amount Market Value State Investment Pool $10.485.354.78 $10.485.354.78 NOTE 3: OPERATING LEASES The Department has entered into certain agreements to lease real property and equipment which are classified as operating leases. These leases generally contain provisions that, at the expiration date of the original term of the lease, the Department has the option of renewing the lease on a year-to-year basis. Future minimum commitments for operating leases as ofJune 30, 1996, are listed below. Amounts are included only for multiyear leases and for cancellable leases for which an option to renew for the subsequent fiscal year has been exercised. Fiscal Year Ending June 30 1997 1998 1999 2000 2001 Thereafter $ 884,387.62 88,993.18 88,993.17 88,993.18 88,993.17 88,993.18 Total Future Minimum Commitments $ 1.329,353.50 Expenditures for rental of real property and equipment under operating leases for the year ended June 30, 1996, totaled $816,894.50. - 18 - DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 4: CHANGES IN GENERAL FIXED ASSETS In accordance with the statutory definition of moveable personal property as defined in Official Code of Georgia Annotated Section 50-16-161, only those items with an acquisition cost of$I,OOO.OO or greater are reflected in the General Fixed Assets Account Group. The following is a summary of changes otequipment in the General Fixed Assets Account Group during the fiscal year: Balance July 1, 1995 $ 8,527,609.11 Additions Deductions 1,890,523.05 464,101.71 Balance June 30, 1996 $ 9,954,03045 NOTE 5: GENERAL LONG-TERM DEBT CHANGES IN GENERAL LONG-TERM DEBT During the year ended June 30, 1996, the following changes occurred in the compensated absences liability reported in the General Long-Term Debt Account Group: Balance July 1, 1995 $ 4,348,805.14 Additions Annual Leave Earned and Utilized (Net) Salaries Salary Related Fringe Benefits 126,626.85 9.686.95 Balance June 30, 1996 $ 4.485,118.94 NOTE 6: RISK MANAGEMENT Public Entity Risk Pool The State Personnel Board, Merit System of Personnel Administration administers for the State of Georgia a program of health benefits for the employees ofunits of government of the State of Georgia, units of county government and local education agencies located within the State of Georgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units of government participating in the plan, and appropriations made by the General Assembly of Georgia. The State Personnel Board, Merit System of Personnel Administration has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the State Employees' Health Benefit Plan as established by the State Personnel Board. - 19- DEPARTMENT OF REVENUE . NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 6: RISK MANAGEMENT Other Risk Management The Department ofAdministrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The Department is part of the State ofGeorgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. NOTE 7: DEFERRED COMPENSATION PLAN The State ofGeorgia offers its employees a deferred compensation plan in accordance with Internal Revenue Code Section 457. The plan, available to employees of the State of Georgia and county health departments, permits such employees to defer a portion oftheir salary until future years. Participation in the plan is optional. Participants choose the option or options in which they wish to participate. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property Of rights of the State of Georgia subject only to the claims of the State's general creditors. Participant's rights under the plan are equal to those of a general creditor of the State of Georgia in an amount equal to the fair market value of the deferred account of each participant. Financial information relative to the plan will be presented in the State of Georgia Comprehensive Annual Financial Report for the year ended June 30, 1996. NOTE 8: RETIREMENTPLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description The Department ofRevenue participates in the Employees' Retirement System of Georgia (tiERS"), a singleemployer, defined benefit plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The Department's payroll for the year ended June 30, 1996, for employees covered by ERS was $37,347,423.00. The Department's total payroll for all employees was $42,924,695.08. - 20- DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 8: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Benefits The benefit structure of ERS was significantly modified on July 1. 1982. Unless elected otherwise. an employee who currently maintains membership with ERS based upon State employment that started prior to July 1. 1982. is an "old plan" member subject to the plan provisions in effect prior to July 1. 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan. members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 65. If 10 years of service is completed and age 60 is reached. the member may retire with a reduced benefit. Additionally. there are certain provisions allowing for retirement after 30 years of service regardless of age. Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest eight consecutive calendar quarters of salary. the number of years of creditable service. and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however. options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. Funding Status and Progress Funding status and progress information is presented in the ERS June 30. 1996. financial report which may be obtained through ERS. Contributions Required and Contributions Made As established by State statute. all full-time employees of the State of Georgia and its political subdivisions. who are not members ofother state retirement systems, are eligible to participate in the ERS. Both employer and employee.contributions are established by State statute. Under the old plan, member contributions consist of employee contributions paid by the employee of 1.25% ofcompensation and 4.75% of compensation paid by the Department on behalf of the employee. Under the new plan. member contributions consist solely of 1.25% of compensation paid by employee. The Department also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 1996. the ERS employer contribution rate for the Department amounted to 15.27% ofcovered payroll and included the 4.75% contributed on behalf of the employee under the old plan referred to above. The employer contributions are projected to liquidate the unfunded actuarial liability within 20 years based upon the actuarial valuation ofJune 30. 1995. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. Actuarial assumptions used by the ERS to compute actuarially determined contribution requirements are the same as those used to compute the pension benefit obligation. - 21 - DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1996 EXHIBIT "F" NOTE 8: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Contributions Required and Contributions Made Total contributions to the plan made during fiscal year 1996 amounted to $6,170,112.99, of which $5,703,389.80 was made by the Department and $466,723.19 was made by employees. These contributions met the requirements ofthe plan. Trend Information Historical trend information is presented in the ERS June 30, 1996, financial report which may be obtained through ERS. This information gives an indication ofthe progress made in accumulating sufficient assets to pay benefits when due. Other Information Certain employees ofthe offices ofthe tax commissioners, tax collectors, and tax receivers ofthe counties of the State of Georgia have been declared by State law to be adjuncts ofthe Department ofRevenue, and as such, have been afforded the opportunity to become members of the Employees' Retirement System of Georgia (ERS). As a result, the Department has been directed by statute to pay the employer's portion for these offices directly to ERS from funds appropriated by the General Assembly for this purpose. During the year ended June 30, 1996, the Department contributed $2,626,394.00 to ERS on behalf of these offices. Information relative to the covered and total payroll for the employees applicable to the Department's contribution to ERS was not available. The Department has no further liability under the retirement system other than future employer contributions as established for each fiscal year. GEORGIA DEFINED CONTRIBUTION PLAN Plan Description The Department of Revenue participates in the Georgia Defined Contribution Plan ("GDCP") which is a single-employer defined contribution plan established by the Georgia General Assembly for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Employees' Retirement System Board ofTrustees. The Department's payroll for the year ended June 30, 1996, for employees covered by GDCP was $4,648,023.96. The Department's total payroll for all employees was $42,924,695.08. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board. If a member has less than $ 3,500 credit to hislher account, the Board has the option ofrequiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. - 22- DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "F" NOTE 8: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Contributions and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Earnings are credited to each member's account in a manner established by the Board. Upon tennination of employment, the amount ofthe member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 1996 amounted to $348,605.06 which represents 7.50% of covered payroll. These contributions met the requirements ofthe plan. NOTE 9: LEAVB POLICIES Employees earn ten hours of sick leave each month with a maximum accumulation of ninety days. Unused accumulated sick leave does not vest with the employee and is forfeited upon retirement or termination of employment. Employees earn annual leave ranging from ten to fourteen hours each month depending upon the employees' length ofcontinuous State service with a maximum accumulation offorty five days. Employees are paid for unused accumulated annual leave upon retirement or termination of employment. See Note 1 - Compensated Absences. Certain employees who retire with one hundred and twenty days or more of forfeited annual and sick leave are entitled to additional service credit in the Employees' Retirement System of Georgia. NOTE 10: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although the Department expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against the Department ofRevenue, if any, are generally considered to be actions against the State ofGeorgia. Accordingly, significant litigation, claims and assessments pending against the State ofGeorgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 1996. NOTE 11: OTHER FINANCIAL NOTE PAYMENTS MADE ON BEHALF OF LOCAL GOVERNMENTS . Certain employees ofthe offices of the tax commissioners, tax collectors, and tax receivers of the counties of the State of Georgia have been declared by State law to be adjuncts of the Department of Revenue. As a result, the Department has been directed by statute to pay the employer's portion of State retirement and - 23- DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1996 EXHIBIT "FI! NOTE 11: OTHER FINANCIAL NOTE PAYMENTS MADE ON BEHALF OF LOCAL GOVERNMENTS Federal social security benefits for these offices from funds appropriated by the General Assembly. During the year ended June 30, 1996, the Department contributed $2,626,394.00 to the Employees' Retirement System ofGeorgia for retirement benefits and paid $732,401.00 to the local governments for social security benefits for these offices. NOTE 12: BONDING INFORMATION The Commissioner and all employees of the Department ofRevenue are bonded under a Public Employees Blanket Bond written by Employers Insurance of Wausau, their Bond No. 1450-02-110723, on which the premium was paid to October 1, 1996. Under this agreement the Public Employee Dishonesty Coverage insures the Department to a maximum of$I,OOO,OOO.OO against loss sustained through fraudulent or dishonest acts by its employees. The Faithful Performance ofDuty Coverage insures the Department to a maximum of $1,000,000.00 against loss sustained from failure of its employees to perform faithfully their duties or to account properly for all monies and property received by virtue oftheir position or employment. All employees ofthe Department ofRevenue are also bonded under Commercial Crime Policies written by the United States Fire Insurance Company, their Policy Nos: 6260122926 and 626 012294 4, on which premiums were paid to October 1, 1996. Under these additional public employee dishonesty coverages, the policies insure the Department to a maximum of $9,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees and from failure of its employees to perform faithfully. - 24- SUPPLEMENTARY INFORMAnON - 25 - DEPARTMENT OF REVENUE COMBINING STATEMENT Of CHANGES IN ASSETS AND LIABILITIES FIDUCIARY fUND TYPE - AGENCY fUNDS YEAR ENDED JUNE 30. 1996 EXHIBIT"G" BH::lP Central Processing Unit Special Account Disputed Taxpayer Escrow Account Local Option Sales Tex: Collections For Dlstnbutionto Local Governments MARTA Sales Tex Motor Fuel cash Bond Escrow Account Railroad car Tex Real Estate TranSfer Tex Setoff Debt Collections Account Various Governmental Units Special Purpose Sales Tex: Collections For Distribution to Local Governrnents Tennessee Valley Authority Account Unclairned Property Account ASSETSI LIABILITIES JULY 1. 1995 ADDITIONS DELETIONS ASSETS! LIABIUTIES JUNE 30. 1996 $ 206.608.99 $ 11,213,365.18 $ 11,149,591.00 $ 270,383.17 320,353.44 0.00 320,353.44 0.00 0.00 1.29 0.00 40,720.03 349,424.88 8,245.732.98 719,960.801.10 706,758,228.13 254,209,956.66 SO.OO 3.002,465.70 26,581.070.85 719,960,801.10 (1) 706.817.823.18 254,209,956.66 (2) 9,2SO.00 3,002,456.59 (3) 23.586,930.94 (4) 0.00 -59,596.34 0.00 31.520.03 349,433.99 11.239.872.89 0.00 14,610,991.63 14,610,991.63 0.00 0.00 0.00 520,555.84 60,956.21 566,961,597.54 562,253,603.91 3,176,582.05 27,221,719.80 566,981,597.54 (5) 562,253,603.91 3,169,760.23 26,813,913.72 0.00 0.00 529,377.66 466,762.29 $ 9,744,351.08 $ 2,695,972,432.55 $ 2,692,867,029.94 $ 12,629,753.69 (1) LOCAL OPTION SALES TAX DISBURSEMENTS To OlIice ofTreasury and Fiscal Services For Distribution to Local Governments To State Revenue Collections Fund (2) MARTA SALES TAX DISBURSEMENTS To OlIice of Treasury and Fiscal Services For Distribution to MARTA To State Revenue Collections Fund (3) RAILROAD CAR TAX DISBURSEMENTS To Counties and Municipalities To State Revenue Collections Fund (4) REAL ESTATE TRANSFER TAX DISBURSEMENTS To Counties and Municipalities To State Revenue Collections Fund (5) SPECIAL PURPOSE SALES TAX DISBURSEMENTS To OlIice of Treasury and Fiscal Services For Distribution to Local Governments To State Revenue Collections Fund See notes to the financial statements. -26- $ 712,761,193.06 7,199,608.02 $ 719,960,801.10 $ 251,667,857.08 2,542,099.56 $ 254,209,956.66 $ 2,972,432.12 30,024.47 $ 3,002,456.59 $ 23,427,476.64 159,454.30 $ 23,566,930.94 $ 561,316,286.39 5,665,309.15 $ 566,961,597.54 DEPARTMENT OF REVENUE SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30,1996 FUNDS AVAILABLE REVENUES State Appropriation Federal Revenues Other Revenues Retained ORIGINAL APPROPRIATION AMENDED APPROPRIATION BUDGET ADJUSTMENTS TOTAL $ 95,619,590.00 $ 0.00 4,700,870.00 4,048,000,00 $ $ 238,707.00 693,962.00 99,667,590.00 238,707.00 5,394,832,00 $ 100,320,460.00 $ 4,048,000.00 $ 932,669.00 $ 105,301,129.00 EXPENDITURES Personal Services $ Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts County Tax OfficialslRetirement and FICA Motor Vehicle Tags and Decals Postage 57,889,998.00 $ 5,531,584.00 1,382,540.00 242,843.00 718,220.00 14,317,520.00 2,830,695.00 3,136,805.00 575,300.00 3,358,795.00 6,458,350.00 3,8n,81 0.00 -157,363.00 $ 184,736.00 -47,373.00 232,000.00 -5,000.00 -50,000.00 3,891,000.00 23,452.00 $ 56,207.00 14,500.00 136,000.00 702,510.00 57,756,087,00 5,n2,527.00 1,397,040.00 195,470.00 950,220.00 14,448,520.00 2,830,695.00 3,086,805.00 1,2n,810.00 3,358,795.00 10,349,350.00 3,8n,81 0.00 $ 100,320,460.00 $ 4,048,000.00 $ 932,669.00 $ 105,301,129.00 See notes to the financial statements. - 27- DEPARTMENT OF REVENUE CASH AND CASH EqUIVALENTS JUNE 30,1996 SCHEDULE "2" NONINTEREST BEARING ACCOUNTS AmSouth Bank of Georgia, Rome, Georgia First Union National Bank of Georgia, Columbus, Georgia First Union National Bank of Georgia, Savannah, Georgia Morris State Bank, Dublin, Georgia NationsBankof Georgia, NA, Athens, Georgia NationsBank of Georgia, NA, Atlanta, Georgia NationsBank of Georgia, N.A., Macon, Georgia NationsBank of Georgia, N.A., Thomasville, Georgia NationsBank of Georgia, N.A., Waycross, Georgia Regions Bank, Dalton, Georgia SouthTrust Bank of Georgia, N.A., Atlanta, Georgia Spivey State Bank, Swainsboro, Georgia SunTrust Bank, Atlanta, Georgia Wachovia Bank of Georgia, NA, Atlanta, Georgia INTEREST BEARING ACCOUNTS Funds on Deposit with Office of Treasury and Fiscal Services State Investment Pool $ 621,576.00 146,664.00 90,792.00 27,936.00 4,337,070.00 4,058,529.31 484,246.00 234,164.00 1,026,648.00 223,476.00 4,631.88 446,976.00 415,504.88 226,593.74 $ 12,344,807.81 10,485,354.78 Cash on Hand See notes to the financial statements. - 28- 8,000.00 $ 22,838,162.59 DEPARTMENT OF REVENUE SCHEDULE OF FEDERAL REVENUES YEAR ENDED JUNE 30, 1996 PROGRAM Transportation, U. S, Department of Highway Planning and Construction Direct Motor Carrier Safety Assistance Program Direct CFDA NUMBER 20.205 20.218 SCHEDULE "3- AMOUNT $ 32,202.16 76,153.18 $ 108,355.34 See notes to the financial statements. - 29- DEPARTMENT OF REVENUE SCHEDULE OF OTHER OPERATING EXPENSES YEAR ENDED JUNE 30, 1996 REGULAR OPERATING EXPENSES Bank Service Charges Clipping Service Computer Billings - Department of Labor Court Costs FIFA's Freight, Express and Storage Levies Security System Subscriptions and Dues Training Films and Tapes Uniforms SCHEDULE "4" $ 1,298,59 16,905.29 4,228,74 71,568,41 334,931,50 121,352.99 7,610.48 1,392.00 91,861.29 9,840.10 27,540,20 $ 688,529,59 See notes to the financial statements. - 30- DEpARTMENT Of REVENUE ANALYSIS Of STATE REVENUE COLlECTIONS )'EAR ENDEp JUNE 30, 1996 SCHEDULE os- BUSINESS LICENSE TAX Beer Dealers Wholesalers' Ucenses Retailers' licenses Special Permits License and Brand Registration license Penallies Liquor Dealers Wholesalers' licenses Retailers' Licenses License and Brand Registration License Penalties Wine Dealers Wholesalers' Licenses Retailers' licenses Llc:ense and Brand Registration License Penalties Cigar and Cigarette Dealers Wholesalers' Licenses Manufacturers' Representative License Coin Operated Amusement Machines Licenses and Permits Netto State Beer Pealers Liquor Dealers Wine Dealers Cigar and Cigarette Pealers Coin Operated Amusement Machines $ 38,500.00 738,108,75 16,525.00 8,500.00 25,262,50 $ 826,896.25 $ 33,550.00 508,161.75 32,985.00 12,745,00 587,441.75 $ 8,120.00 578,696.50 22,402,10 18,112,50 627,331.10 $ 12,560.00 310,00 12,870,00 1,468,358,00 $ 3,522,897,10 $ 826,896,25 587,441.75 627,331.10 12,870,00 1,468,358,00 $ _=~3~,5~2=.!2,;;;89:;,;,7=,,=0 See notes to the financial statements. - 31 DEF'ARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS YEAR ENDEp JUNE 30. 1996 SCHEDULE "S" NONBUSINESS LICENSE TAX Motor Vehicle Registrations Tags Allanta Otfic:e Sales DecalslTags Misc:ellaneous Sales County Otfic:e Sales Gross Collections Motor Vehicle Transfer Fee Escrow Receipts Interest Earned on MotorVehicle Transfer Fee Escrow Receipts Undistributed Collections Other Less: Refunds Through Office of Treasury and Fiscal Services Motor Carner Registrations Tags International Registration Plan Collections from Georgia Motor Carriers For Georgia For Other States Collections from Other States Miscellaneous Collections Less: Refunds Through Office of Treasury and Fiscal Services Motor Vehicle Title Registrations Atlanta Office County OffICes Title Penalties Georgia Bureau of Investigation Inspection Fees Special Handling Fees Out of State Transfer Fees Disbursement of Motor Vehicle Transfer Fee Escrow Funds Disbursement of International Registration Plan Collections to Other States Netto State Cash Balance July 1,1995 June 30, 1996 $ 533,831.88 548,033.02 $ 1,081,864.90 134,958,615.47 $ 5,385,091.87 117,590.87 5,502,682.74 523,337.95 $ 142,066,501.06 3,304,173.20 $ 138,762,327.86 $ 10,092,882.16 17,303,829.93 $ 27,396,712.09 20,332,473.30 634,010.11 $ 48,363,195.50 649,675.42 47,713,520.08 $ 8,605,888.21 26,879,120.00 $ 35,485,008.21 926,905.00 539,300.00 1,474,508.00 5,917,335.71 44,343,056.92 $ 230,818,904.86 $ 5,506,345.87 17,303,829.93 208,013,023.50 $ -2,465.17 -1 ,829.27 -4,294.44 $ 230,818,904.86 See notes to the financial statements. 32 - DEPARTMENT OF REVENUE ANAlYSIS OF STATE REVENUE COLLECTIONS YEAR ENDEp JUNE 30, 1996 SCHEDULE "S" CORPORATE NET WORTH TAX Domestic and Foreign Corporations Current, Delinquent and Penalties Netto Slate ESTATE TAX Original Returns and Additions Less: Refunds Through Office of Treasury and Fiscal Services Netto State FINANCIAL INSTITUTIONS BUSINESS OCCUPATION TAX Original Returns and Additions Netto State $ _ _=:23~,7:.:1.:o7,~302~,88~ $ 2.3..,7.1.73..0.2..,8.8. $ 67,619.048.26 1,080.977.33 $ 66;;;!538=,~07:.;;0;;;,9;;;;.3 $ 66.,538--.,&,;;,0.7.0. .,9,.,3 $ ~_ _1_2,,"1,_73.,2=3_2~,7~O $ _ _.1.20=,1=7=3=,23..,2.,7_0 See notes to the financial statements. -33 - DEPARTMENT OF REVENUE ANALYSIS Of STATE REVENUE COLLECTIONS YEAR ENpEp JUNE 30 1996 SCHEDULE "S" INCOME TAX Corporations Original Returns. Additional Tax, Interest and Penalties Estimate of Taxes Less: Refunds Through Office of Treasury and rlSC8l Services Individuals Original Returns, Additional Tax, Interest and Penalties Estimate of Taxes Fiduciary Withholdings Less: Refunds Through Office of Treasury and Fiscal Services Disbursement for Attorney's Fees Federal Employees' Retirement Selllement Disbursement to Office of Treasury and Fiscal Services National Flood Control Funds Netto State Cash Balance JUly 1,1995 June 30,1996 $ 79.531.587.88 n4,031,358.55 $ 803,562,946.43 106,956,123.14 $ 696,606,823.29 $ 363,191.044.85 517,854,886.25 9,254,873.79 4,098,543,626.61 $ 4,988,844,431.50 755,547,514.26 4,233,296,917.24 $ 4,929,903,740.53 $ 4,292,567.47 661,875.61 4,924,257,699.88 $ 83,135.77 608,461.80 691,597.57 $ 4,929,903,740.53 See notes to the financial statements. 34 DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS YEAR ENDED JUNE 30,1996 SCHEDULE -5" PRopeRTY TAX County Tax Digest Accounts Vehicle Property MobIle Home TImber Intangible Not on Digest Interest Penalties Miscellaneous Undesignated General Collections Less: Refunds Through Qflice of Treasury and Fiscal Services Intangible Recording Gross Collections s 3.625.590.52 30,247.528.08 161.199.78 167.002.13 .224.144.63 343.012.91 204.018.89 460,454.89 S 35,432.951.83 47,784.33 s 35,480.736.16 233,993.87 S 35,246,742.29 576.863.00 $ _ _.::35~,8=2;;;o3,~605=.2;;;;.9 Commissions Paid on Above County Digest Accounts Receiver Collector Intangible Recording Netto State County Tax Digest Accounts Intangible Recording S 464,546.62 995,214.44 S 1,459,761.06 30,977,37 $ 1,490,738,43 $ 33,786,981.23 545,885,63 34,332,866.86 $ 35,823,605,29 PUBLIC UTILITIES Property Tax AtJ Valorem Tax Electric Light and Power Companies Equipment Companies Railroad Companies Telephone and Telegraph Companies Water and Gas Companies Assessments 1996 Collections $ 856.11 19,756.99 14.290.55 455.14 117.42 S 35,476,21 1,289,645.69 $ 1,325,121.90 Netto State See notes to the financial statements. - 35- S 1,325,121.90 DEPARTMENT OF REVENUE ANALYSIS OF STATE ReveNUE COLLECTIONS YeAR ENpED JUNE 30 1996 SCHEDULE "S" TAXES BASED ON SALES Sales and Use Tax Monthly Collec:tions by General Accounting 0fIice Regular Motor Fuel Less: Refunds Through 0lIice of Treasury and FISCal Services Regular Motor Fuel Commissions Paid on Above Regular Motor Fuel Netto State Regular Motor Fuel Cash Balance JUly1,1995 June 30,1996 $ 3,864.886.330.34 141.080,986.67 $ 4,005.967.317.01 $ 36.442.03220 447.290.13 36,889,322.33 $ 3,969,On,994.68 $ 16,145,055.59 1,546,320.32 $ 17,691,375.91 $ 3,811.584,749.05 139,087,37622 3.950,6n,125.27 $ -316,668.83 1,031,162.33 714,493.50 $ 3,969,On,994.68 See notes to the financial statements. -36- DEPARTMENT OF REVENUE ANAlYSIS Of STATE REVENUE COLLECTIONS )'EAR ENDED JUNE 30,1996 SCHEDULE "5" TAXES BASED ON SalES Alcoholic Beverages Beer Malt Beverage Tax Less: Refunds Through Office of Treasury and FISClII Services NettoStBte Cash Balance July 1, 1995 Liquor Stamp Sales Less: Refunds Through Office of Treasury and Fiscal Services Netto State Wine Wine Tax Less: Refunds Through Office of Treasury and Fiscal Services Netto State Cigars and Cigarettes Stamp Sales Less: Refunds Through Office of Treasury and Fiscal Services Commissions Paid on Above (Retained at Collecting Source) Netto State Cash Balance July 1.1995 $ June 30.1996 $ 72,879.697,47 13.54120 $ 72866~.'.5.6;o;;;;;,2_7 $ 72.866.056,27 100,00 $ 72.866,156.27 $ 34.665,124,96 1,976.542,28 $ 32.688,582,68 $ 32,688.582.68 $ 16.158.028,32 10,388.70 $ 16.147,639.62 $ 16.147,639,62 $ 93.876.090.76 7,769.40 $ 93,868.321,36 $ 10,639,78 8,061 ,718.51 2,620.308.91 83.175,654,16 8,072,358.29 $ 93.868,321.36 See notes to the financial statements. - 37- DEPARTMENT Of REVENUE ANALYSfS OF STATE REVENUE COLLECTIONS YEAR ENDED JUNE 30, 1996 SCHEDULE "5" TAXES BASED ON SALES Motor Fuel Collections Aviation Dealers Gasoline Dealers Special Fuel Dealers Diesel Operators Bonded L. P. Gas Operators. Bonded Second Motor Fuel Tax on Out-of-State carriers Undistributed by Fuel Type Penalties and Interest Compressed Natural Gas Commissions Allowed Motor Carrier Mileage Tax Collections Penalties and Interest Less: .Total Retumed Checks Through Motor Fuel Revolving Accounts Refunds Through Office of Treasury and Fiscal Services Agriculture International Fuel Tax Agreement Motor Carrier Retail Dealers Commissions Paid on above (Retained at Collecting Source) Netto State Cash Balance July 1, 1995 June 30, 1996 $ 71,89325 311,315,443.89 62,199,66 89,n8,OO4.69 566,614,37 602,620,00 1,297,05023 4,098,216.32 37,568,13 $ 407,829,610.54 3,023,487.13 $ 410,853,097.67 $ 2,317,572,18 309.485,44 2,627,057.62 $ 2,152,733.24 932,595.87 11,105,825,44 90,365,06 216,88124 14,281,519.61 $ 398,981 ,754,44 $ 3,023,487.13 396,019,843,25 $ -1,718.65 -59,857,29 -61,575.94 $ 398,981,754,44 See notes to the financial statements. -38- DEPARTMENT Of REVENUE ANALYS'S Of STATE REVENUE COLLECTIONS YEAR ENDEp JUNE 30 1996 SCHEDULE "5" FINES AND fORFEITURES Beer Malt Beverage Liquor Wine Cigars and Cigarettes Netto State PEACE OffiCERS AND PROSECUTORS TRAINING FUND fees from Court fines and Bond forfeitures Less: Refunds Through Office of Treasury and Fiscal SelVices Netto State Cash Balance July 1, 1995 UNCLAIMED PROPERTY Proceeds from Sale of Abandoned Property Netto State STATE CHILDREN'S TRUST FUND fees from Marriage Licenses and Divorce Cases Netto State Cash Balance July 1.1995 BOND fORfEITURES PENALTIES $ 12,350.00 $ 100.768.80 $ 20.952.50 45.468.85 68.077.51 2.630,978.36 IQI&. 113,118.80 66.421.35 68,077.51 2.630,978.36 $ 33.302.50 $ 2,845.293.52 $ 2.878.596.02 $ 2.878,596.02 $ 15.512,740.52 368.00 $ 15.512.372.52 $ 15,820.891.02 -308,518.50 $ 15,512.372.52 $ _ .....2~3*.9~80,;;,!,;;;,_;99_5.9=7 $ ~===23;;l;,9=80;;;,i.=995=:;;.9~7 $ _ _..:1~,1_58,;;,!',;;,;85_5.;;;.00.;;" $ 1,159,305.00 -450.00 $ 1,158.855.00 See notes to the financial statements. -39 - DEPARTMENT OF REVENUE ANALYSiS OF STATE REVENUE COLLECTIONS YEAR ENDED JUNE 30, 1996 SCHEDULE .S" EARNINGS. GENERAL GOVERNMENT Local Option sales Tu Collection Cost MARTA sales Tax Collection Cost Motor carriers' Fees Motor Fuel Truck Registration Decals Temporary Permits Penalties for Non-Registration Railroad car Tax Collection Cost Real Estate Transfer Tax Collection Cost Special Purpose sales Tax Collection Cost OlherFees Fees on Contracts International Fuel Trade Agreement Uquor Investigation Fees Miscellaneous Collections Motor Fuel Dealers' Registration Fees Unallocated Collections Motor Fuel Unallocated Collections Alcohol and Tobacco Less: Refunds Through Office of Treasury and Fiscal Services Netto State Cash Balance July 1,1995 June 30,1996 $ 7,199,608.02 2,542,099,58 $ 305,118,00 228,384,00 $ 533,502.00 24,947.03 558,449.03 30,024.47 159,454.30 5,665,309.15 $ 3,990,00 139,516.00 77,200.00 32,467,316.99 1,430.00 443,046,73 834,406.04 7,143,49 33,959,762.27 $ 50,114,706,82 $ 50,799,083,38 $ -69,669.04 -614,707.52 -684,376,56 $ 50,114,706.82 See notes to the financial statements. 40 DEPARTMENT OF REVENUE RECONCILIATION OF TRAVEL YEAR ENDED JUNE 30, 1996 Total per Annual Supplement Accrual June 30,1996 Adjustments Green, Hendrix, McGiboney, Miller, Neal, Robinson, Williams, Lannie Bob Cheri Jack Sara Gary ColenT. Total per Report SCHEDULE "6" $ 1,308,574.48 501.38 187.50 222.50 494.32 241.13 9.28 157.50 301.50 $ 1,310,689,59 See notes to the financial statements. - 41 - SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR OUESTIONED COSTS YEAR ENDED JUNE 30. 1996 STATUS OF PRIOR YEAR FINDINGS AND IMPROPER OR OUESTIONED COSTS The status of the finding disclosed in the report for the year ended June 30, 1995, is categorized below: Audit Control Number Status of Finding 474-95-01 Corrective Action Implemented CURRENTYEAR BUDGET PREPARATIONIEXECUTION Overexpenditure of Budget Unit Object Class Financial Statements Audit Control Number 474-96-01 The total approved budget for the Department of Revenue provided for expenditures totaling $105,301,129.00. A comparison of anticipated funds available and budgeted expenditures to actual funds available and expenditures by object class indicates that the object class Per Diem, Fees and Contracts was overspent by the amount of $44,649.30. This overexpenditure, which is a violation of Section 54 of the Amended Appropriations Act of 1995-1996, occurred because the Department incorrectly classified certain per diem and fees under the Regular Operating Expenses object class rather than the Per Diem, Fees and Contracts object class. An audit adjustment was made to correct the Department's accounting records which resulted in this overexpenditure. Subsequent to fiscal year end, the Department took corrective action to identify and reclassify the per diem and fees expenditures in question for fiscal year 1997. REVENUESIRECEIVABLESIRECEIPTS . GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Financial Statements Audit Control Number 474-96-02 For the year under review, our examination included a review of the internal accounting controls and accounting procedures utilized by the Department ofRevenue (Department) in maintaining their State Revenue Collections Fund. Our examination included procedures to provide reasonable assurance that revenue collections received by the Department through either the Mail Cash System (manual deposits by the Department) or the Electronic Funds Transfer Maintenance Unit (electronic fund transfers from taxpayers) were adequately accounted for by the Department's general ledger system maintained by the Central Accounting Unit and were properly recorded in the subsidiary ledger and associated records maintained by the individual tax units and divisions. Our procedures also included a reconciliation of the revenue collections - 1- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR OUESTIONED COSTS YEAR ENDED JUNE 30. 1996 CURRENT YEAR REVENUESIRECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Financial Statements Audit Control Number 474-96-02 received and subsequently transferred by the Department tothe Office ofTreaswy and Fiscal Services (OTFS), which acts as the State treaswy. The following deficiencies and inappropriate accounting practices were found to exist: 1) The general ledger system consists of the "Revenue Ledger" and the "Refund Ledger". These ledgers do not provide for dual-entry accounting for the purpose of recognizing receipts and disbursements. Dual-entry bookkeeping is the cornerstone of any accounting system and provides a mechanism to ensure the proper balancing ofa general ledger accounting system. Failure to provide for dual-entry accounting prevents the Department from producing a "balanced" general ledger for audit. The general ledger system should be redesigned to provide dual-entry accounting for the purpose of recognizing receipts and disbursements. 2) The general ledger system did not include separate accounts to identify each type of revenue reported to and recorded by OTFS; nor did the system contain unique identifying numbers (transmittal numbers/deposit numbers) for all revenue amounts recorded within the general ledger system. These deficiencies result in extensive time and effort being required to reconcile the financial activity between the Department and OTFS. The general ledger system should be updated to contain the transmittal number and deposit number for each receipt transmitted to and refund requisitioned from OTFS. In addition, the chart of accounts should be expanded to contain a separate account for each revenue type reported to OTFS. 3) The Central Accounting Unit does not have procedures in place to ensure that necessary corrections to bank deposits are reported to the individual tax units and divisions. The failure to fully communicate known adjustments to responsible' persons within the Department can result in inaccurate financial records and possible financial loss to the State. The Central Accounting Unit should develop and implement procedures to ensure that all adjustments are communicated to the individual tax unit and division responsible for maintaining applicable subsidiary ledgers and associated records. -2- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR OUESTIONED COSTS YEAR ENDED JUNE 30. 1996 CURRENT YEAR REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Financial Statements Audit Control Number 474-96-02 4) The Department does not have adequate controls over unprocessed documents relating to tax returns and various regisiration applications, and the checks associated with these documents. Unprocessed documents occur when certain missing or incorrect information is discovered in the Mail Cash System. At that time, the documents and attached checks are physically removed from the Mail Cash System and transferred to the appropriate tax unit or division for investigation. There are no logout or login procedures for these unprocessed documents. Without adequate control procedures, the unprocessed documents and attachments could be lost or misplaced without knowledge of the Department and result in monetary loss to the State. The Department should develop and implement procedures to ensure that all documents are logged when leaving or returning from the Mail Cash System and the individual tax units or divisions. This log should be monitored and periodically reconciled by someone independent of the individuals maintaining the log and any differences should be investigated and resolved in a timely manner. 5) The Department has not established an internal control system whereby the subsidiary ledgers and associated records properly "roll-up" into the general ledger. As a result, the general ledger system and the subsidiary ledger system operate independently of each other and are not reconciled periodically. In addition, there are no consistent cutoff dates established between the two sets of records. A well designed accounting system provides for general ledger control over subsidiary ledgers and records and provides for a linkage between the general and subsidiary records. The lack of controls which ensure a prompt reconciliation of the general ledger and subsidiary records has resulted in the Department's accounting records in individual tax units and divisions being inconsistent, and in certain instances being unreconcilable, with the general ledger. The Department should establish policies and procedures that will establish managerial control for the Central Accounting Unit over the subsidiary ledger and associated records through use of an integrated general and subsidiary ledger system. In addition, consistent cutoff dates should be established between the two systems and all subsidiary ledgers and associated records should be reconciled to the general ledger on a monthly basis. The deficiencies noted above are a result of the Department's failure to provide for a comprehensive, modern accounting system coupled with strong, clear lines of authority and internal controls. The Department should carefully evaluate each of these deficiencies and take appropriate action to resolve these matters. -3- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR OUESTIONED COSTS YEAR ENDED JUNE 30. 1996 CURRENT YEAR REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Financial Statements Audit Control Number 474-96-03 For the year under review, our examination included a review of the internal accounting controls and accounting procedures utilized by the Income Tax Division (Division) of the Department of Revenue (Department) for maintaining subsidiary ledgers and associated records. This review revealed deficiencies in the maintenance of subsidiary records by the Division as follows: 1) The Division does not adequately track data received from both companies and individuals concerning taxpayer wages, income tax withholdings or estimated payments ofGeorgia income tax. Only limited work in regard to individual confirmation ofForm W-2 information is performed by the Department. As a result of this deficiency, the Division cannot ensure, in all cases, that the withholding amount claimed by the taxpayer on the annual tax return is accurate or that known taxable income is reported as income. This condition resulted due to the Department's failure to design and implement needed procedures, programs or systems. The Department should design and implement a system that will provide for the systematic reconciliation of income and withholding data received from employers and individuals with Form W-2 and other documents filed with year end individual tax returns. 2) Tax examiners of the Individual Income Tax Unit and the Withholding Unit of the Division are responsible for amending tax returns when errors and processing problems are identified as returns are being processed by the Division. Amendment ofthe returns involves the tax examiner submitting adjustments for such items as taxes due and assessment or abatement ofinterest and penalty amounts. The Division does not have the necessary controls in place to ensure that all adjustments are processed in a timely manner, are reviewed and approved by supervisory personnel, and are documented by adequate supporting documentation. The failure to process and adequately document adjustments in a timely manner could lead to inaccurate financial records. The lack oftimely processing, adequate documentation, and supervisory review and approval for adjustments is the result of the Department not having adequate policies and procedures in place over the adjustment process. -4- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR OUESTIONED COSTS YEAR ENDED JUNE 30. 1996 CURRENT YEAR REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Financial Statements Audit Control Number 474-96-03 The Department should implement enhancements to the computer system to produce an automated aging report of all returns in process and provide for regular management review of the report to assure that adjustments are made timely. In addition, the Department should ensure that all adjustments are supported by adequate documentation along with supervisory review and approval. 3) The Department uses a batch system to identify and categorize taxes received as the various tax documents flow through the individual tax units and divisions of the Department. The Withholding Unit of the Division relies on a manual log book to ensure that all batches are accounted for within the processing cycle. The accuracy of controlling this voluminous activity relies only on a manual review ofthis log book by the Division's management. Also, when the Withholding Unit computer system's capacity reaches more than 92%, a "purge" program is run. The report that is generated by the purge program is used by the Withholding Unit to manually identify batches that have not completed the processing cycle and to initiate a purge of all completed batches. Within 180 days, if a batch is not acknowledged as either complete or incomplete, the batch is purged whether it is complete or not. An adequate system of accounting controls would ensure that all batches are processed by the system prior to purging. Due to the voluminous activity ofthe Withholding Unit, the manual process of identifying incomplete batches is tedious and subject to possible error. Without adequate control of the batches, there is a risk that batches will not be processed by the system or batches may be inadvertently purged before being processed resulting in erroneous financial records and a misstatement of income. This condition resulted due to the Department's failure to design and implement needed automated procedures to prevent these deficiencies. The Department should modify the Withholding Unit's computer system to ensure that all batches are accounted for and processed. The system controls should be improved to automatically identify any unprocessed batches. In addition, periodic reports should be produced and reviewed to identify any outstanding or missing batches and ensure they are properly processed. - 5- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED CQSTS YEAR ENDED JUNE 30, 1996 CURRENT YEAR EXPENDITURESILIABILITIESIDISBURSEMENTS GENERAL LEDGER Deficiencies in the Sales Tax Division Subsidiary Records Financial Statements Audit Control Number 474-96-04 For the year under review, our examination included a review of the internal accounting controls and accounting procedures utilized by the Sales Tax Division (Division) of the Department of Revenue (Department) for maintaining subsidiary ledgers and associated sales tax records. This review revealed deficiencies in the maintenance of subsidiary records by the Division as follows: 1) The Department has not established a consistent monthly cutoff date for the processing of sales tax returns for the purpose of remitting sales tax collected on behalf of local governments to the local governments. A well controlled accounting system should have established cutoff dates for accounting and reconciliation purposes. This system should provide for twelve equal accounting periods and for a process that is consistent with enabling legislation. The failure to have a consistent monthly cutoff date for the processing of sales tax returns has contributed to inconsistent amounts being disbursed to local governments. The Department should establish a consistent monthly cutoff date for the purpose of processing sales tax returns and remitting amounts due the local governments. 2) With the implementation ofthe Centralized Taxpayer Accounting System (CTA) in March 1995, the accounting for electronic funds transfers (EFT) for sales tax remittances became an automated process where EFT's are interfaced directly to the CTA system database. A record of each EFT remains on the CTA database until the corresponding sales tax return is received and processed into the sales tax system whereby it is interfaced with CTA. The interface process between CTA and the sales tax system was designed to match the EFT with the sales tax return information and update the data on the sales tax system in order to be included when the sales tax distribution program was run monthly. The sales tax distribution progr~ is designed to accumulate sales tax amounts collected for local governments from all s~es tax returns processed for that month for the purpose of distributing those collections to the local governments. During the first several months after CTA went online, the process did not accurately match the EFT's with the sales tax return information in the sales tax system. As a result, the unmatched files remained within the CTA database and were not included as part ofthe sales tax distribution program, which resulted in a significant backlog of unprocessed sales tax returns. The problems with the sales tax distribution system were further compounded by an apparent under staffing within the Sales Tax Processing Unit to "catch-up" the backlog of unprocessed sales tax returns. - 6- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS YEAR ENDED JUNE 30. 1996 CURRENT YEAR EXPENDITURESILIABILITIESIDISBURSEMENTS GENERAL LEDGER Deficiencies in the Sales Tax Division Subsidiary Records Financial Statements Audit Control Number 474-96-04 Because of the problems discussed above, the Division implemented a system of estimating the payments to the local governments in order to maintain a constant flow of funds to the local governments. Once the system's interface problems were corrected, management returned to using the sales tax distribution system to determine the payments due to the local governments. Due to the failure of the sales tax distribution system to provide accurate distribution information for the local governments, payments were made to local governments that were not supported by processed sales tax returns for those local governments. An adequate system of internal controls requires that EFT receipts be matched with their corresponding sales tax return data and promptly included as part of the sales tax distribution system. . As a result ofthese deficiencies, the Division could not provide monthly sales tax distribution reports for the State and local governments that could be reconciled to the monthly sales tax returns processed by the Division for fiscal year 1996. The causes of the deficiencies can be attributed to the lack ofadequate testing ofthe CTA system prior to its implementation in March of 1995, the fact that adequate policies and procedures were not in place to identify and resolve unmatched sales tax EFT receipts, and the lack ofsufficient staffto process the backlog of sales tax returns in a timely manner.-, The Department should design and implement policies and procedures to promptly identify unmatched sales tax receipts with the sales tax returns. All programs and applications being put in place should be thoroughly tested prior to their full implementation. In addition, the staff size of the Sales Tax Processing Unit should be reviewed and an assessment made as to whether the Unit is sufficiently staffed to process sales tax returns in a timely manner. GENERAL LEDGER - Financial Statements FEDERAL FINANCIAL REPORTS - Federal Financial Assistance Differences Between Reimbursement Requests and Subsidiary Ledgers Highway Planning and Construction (CFDA 20.205) Motor Carrier Safety Assistance Program (CFDA 20.218) Audit Control Number 474-96-05 The reimbursement requests completed by the Department of Revenue to claim Federal reimbursement for expenditures on the Highway Planning and Construction grant and Motor Carrier Safety Assistance grant did not agree with the subsidiary ledgers (fund source trial balances) for these programs. A comparison of the reimbursement requests to the fund source trial balances revealed that -the reimbursement requests were overstated by $24,558.38. A subsequent reconciliation of the reimbursement requests to the fund source trial -7- DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND IMPROPEROR QUESTIONED COSTS YEAR ENDED JUNE 30. 1996 CURRENT YEAR GENERAL LEDGER - Financial Statements FEDERAL FINANCIAL REPORTS - Federal Financial Assistance Differences Between Reimbursement Requests and Subsidiary Ledgers Highway Planning and Construction (CFDA 20.205) Motor Carrier Safety Assistance Program (CFDA 20.218) Audit Control Number 474-96-05 balances was performed by the Department and revealed allowable expenditures for the programs charged to incorrect fund source trial balances. This reconciliation identified additional allowable expenditures which resulted in allowable expenditures exceeding the reimbursement requests for these programs by $869.80. OMB's Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (Common Rule) provides that the Federal financial reports and claims for advances and reimbursements contain information that is supported by the accounting records from which the financial statements are prepared. This problem was caused by the failure of the Department to adequately monitor the expenditures associated with these programs, the failure to timely identify posting errors made to the individual fund source trial balances for these two programs and by identified errors never being corrected on previously filed reports. The Department should closely monitor all expenditures associated with Federal grants. Those individuals responsible for the administration of the programs and the completion of the reimbursement requests should ensure that these requests are completed using information that is reconcilable with the accounting records. -8-