Audit report, state of Georgia, Department of Revenue, year ended June 30, 1997

AUDIT REPORT STATE OF GEORGIA DEPARTMENT OF REVENUE YEAR ENDED JUNE 30, 1997

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STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
254 WASH I NGTON STREET
ATLANTA, GEORGIA 30334-8400

DEPARTMENT OF REVENUE - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXIDBITS

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

4

C STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES

BUDGET FUND

5

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

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF REVENUE - TABLE OF CONTENTS -
SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

CLAUDE L. VICKERS
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
November 19, 1997

Honorable Zell Miller, Governor Members of the General Assembly of Georgia
and Honorable T. Jerry Jackson, Commissioner Department of Revenue
INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying fmancial statements (Exhibits A through F) ofthe Department ofRevenue as of and for the year ended June 30, 1997. 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 stan~ards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial 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 III, Current Year Findings and Questioned Costs, material discrepancies were noted in the equipment inventory records of the Department. Equipment inventory comprises the General Fixed Assets Account Group. We were unable to determine the effects these discrepancies may have on the financial statements.
As more fully discussed in Section III, Current Year Findings and Questioned Costs, material discrepancies were noted in the Sales Tax Division. State statutes require that all sales-based taxes be collected by the Department of Revenue 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
97ARL-3

based on information compiled by the Department of Revenue from the sales tax returns. The Department of Revenue did not maintain adequate information systems to properly identify the amounts of sales-based taxes collected on behalf of local 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 fmancial statements of the matters described in the fourth and fifth paragraphs, the financial statements referred to above present fairly, in all material respects, the financial position (statutory basis) of the Department of Revenue as of June 30, 1997, 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 of forming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Exhibit G and Schedules 1 through 5) is presented for purposes of additional analysis and is not a required part of the fmancial statements of the Department of Revenue. Such information has been subjected to the auditing procedures applied in the audit ofthe financial statements and, in our opinion, except for the effects of the matters referred to in the fourth and fifth paragraphs, 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 97ARL-3

FINANCIAL STATEMENTS - 1-

DEPARTMENT OF REVENUE COMBINED BALANCE SHEET (STATUTORY BASIS)
ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30, 1997

ASSETS
Cash and Cash Equivalents (See Schedule)
Accounts Receivable State Appropriation Federal Other
Prepaid Items
Inventories
Fixed Assets Equipment
Amount to be Provided for Payment of Accrued Compensated Absences Installment Purchase Commitments

GOVERNMENTAL FUND TYPES

STATE

REVENUE

BUDGET

COLLECTIONS

$ 2,447.924.60 $ 13,237,212,74
$ 15,768,049.04 67,472.40 74,850.77
$ 15.910.372.21 $ _ _...:4~,3:::.:9~2.:.::.0~0 $ _ _.:::.34~,84=2~.8::::...6

Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accounts Payable Payroll Withholdings Funds Held for Others Compensated Absences Installment Purchases
Total Liabilities
Fund Equity Investment in General Fixed Assets Fund Balances Reserved Evidence Seizures Inventories Investment for Modernization State Revenue Collections Fund Unreserved Designated Surplus
Total Fund Equity
Total Liabilities and Fund Equity
The notes to the financial statements are an integral part of this statement.
-2-

$ 18,397,531.67 $ 13,237,212.74

$ 5,460,461.01 9,622.51
$ 5,470,083.52

$

4,327.00

66,000.00

11,741,002.98

$ 13,237,212.74

1.116,118.17 $ 12,927,448.15 $ 13,237,212.74

$ 18,397,531.67 $ 13,237,212.74

EXHIBIT "A"

FIDUCIARY FUND TYPE
AGENCY

ACCOUNT GROUPS

GENERAL

GENERAL

FIXED

LONG-TERM

ASSETS

DEBT

TOTALS (Memorandum Only) JUNE 30.1997 JUNE 30.1996

$ 9.951 .244.41

$ 25,636.381.75 $ 22,838,162.59

$ 15.768.049.04 $ . 67,472.40
74.850.77

$ 15,910,372.21 $

$

4.392.00 $

$

34.842.86 $

7,544,928.18 0.00
50.151.92
7.595.080.10
2,112.00
44,955.58

$ 10.935,160.64

$ 10.935.160.64 $ 9.954,030.45

$ 4.589,768.15 $ 1.542,442.50
$ 6,132,210.65 $

4.589.768.15 $ 1,542,442.50
6,132,210.65 $

4,485,118.94 0.00
4,485,118.94

$ 9,951.244.41 $ 10.935,160.64 $ 6,132.210.65 $ 58,653,360.11 $ 44,919,459.66

$ 9,951,244.41 $ 9,951 ,244.41

$
$ 4,589.768.15 1,542,442.50

5,460,461.01 $ 9,622.51
9.951.244.41 4.589.768.15 1,542,442.50

8,077,419.80 3,694.46
12,829,753.69 4,485,118.94
0.00

$ 6,132,210.65 $ 21 ,553,538.58 $ 25,395,986.89

$ 10.935,160.64

$ 10,935,160.64 $ 9,954,030.45

4,327.00 66,000.00 11,741,002.98 13,237,212.74

0.00 54,000.00
0.00 9,024,948.56

$ 10,935,160.64

1,116,118.17

490,493.76

$ 37,099,821.53 $ 19,523,472.77

$ 9,951.244.41 $ 10,935,160.64 $ 6,132,210.65 $ 58,653,360.11 $ 44,919,459.66

-3-

DEPARTMENT OF REVENUE COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS)
GOVERNMENTAL FUND TYPES YEAR ENDED JUNE 30,1997

EXHIBIT"B"

FUND BALANCES - JULY 1
Reserved Unreserved
Designated Surplus
ADDITIONS
Adjustments to Prior Year's Accounts Payable Cash Receipts for the Year
Exhibit"E" Excess of Funds Available over Expenditures
Exhibit "C"
DEDUCTIONS
Unreserved Fund Balance (SurplUS) Retumed to Office of Treasury and Fiscal Services Year Ended June 30,1995 Year Ended June 30,1996
Adjustments to Prior Year's Accounts Receivable
Cash Disbursements for the Year Exhibit "E"
Reserved Fund Balance Carried Over from Prior Year as Funds Available
FUND BALANCES - JUNE 30
(To Exhibit "A")

BUDGET

STATE REVENUE COLLECTIONS

TOTALS

(Memorandum Only)

YEAR ENDED

JUNE 30,1997

JUNE 30,1996

$

54,000,00 $

490,493,76

$

544,493,76 $

9,024,948,56 $ 9,024,948,56 $

9,078,948,56 $
490,493,76 9,569,442,32 $

644,614,64
300,616.17 945,230,81

$

607,655,99

$

607,655,99 $

55,918,83

$ 10,590,224,530,38

10,590,224,530,38

9,981,098,851,57

12,319,792,16

12,319,792,16

494,425,54

$ 12,927,448.15 $ 10,590,224,530,38 $ 10,603,151,978,53 $ 9,981,649,195,94

$

0,00

490,493,76

$

0,00 $

300,616,17

490,493,76

0,00

0,00

0,00

5,850.61

$ 10,586,012,266,20

10,586,012,266,20

9,972,679,517,65

54,000,00

54,000,00

39,000,00

$

544,493,76 $ 10,586,012,266,20 $ 10,586,556,759.96 $ 9,973,024,984.43

$ 12,927,448,15 $

13,237,212,74 $

26,164,660,89 $

9,569,442,32

The notes to the financial statements are an integral part of this statement. -4-

DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 30, 1997

EXHIBIT"C"

FUNDS AVAILABLE
REVENUES
STATE APPROPRIATION General Appropriation Amended Appropriation Budget Adjustments
Less: Lapsed Funds
Total State Appropriation
FEDERAL REVENUES (See Schedule)
OTHER REVENUES RETAINED Collection Fees Contract Department of Natural Resources Cooperative Agreement United States Department of Treasury National Asset Seizure and Forfeiture Program Evidence Seizures 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

TOTALS YEAR ENDED JUNE 30, 1997 JUNE 30, 1996

$ 91,872,904.00 $ 14,425,581.00 123,482.00

$ 106,421,967.00 $ 0.00

$ 106,421,967.00 $

$

120,644.57 $

95,619,590.00 4,048,000.00 0.00
99,667,590.00 100,000.00
99,567,590.00
108,355.34

$

23,483.32 $

238,500.00

0.00 0.00

4,327.00

0.00

3,845,000.00 1,340,365.00

3,845,000.00 1,549,832.00

$ 5,451,675.32 $ 5,394,832.00

$ 111,994,286.89 $ 105,070,777.34

54,000.00

39,000.00

Total Funds Available

$ 112,048,286.89 $ 105,109,777.34

EXPENDITURES
PERSONAL SERVICES
Salaries and Wages Employer's Contributions for:
F.I.C.A. Retirement Health Insurance Personal Liability Insurance Unemployment Compensation Insurance Workers' Compensation Insurance Assessments by Merit System Drug Testing

$ 44,484,359.24 $ 42,924,695.08

2,932,821.82 6,096,005.06 4,871,943.53
195,419.00 81,420.00
495,420.00 242,096.59
383.75

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

$ 59,399,868.99 $ 57,716,364.37

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 30,1997

EXHIBIT"C"

EXPENDITURES
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) Duplicating and Rapid Copy Publications and Printing Equipment Purchases
TRAVEL
MOTOR VEHICLE PURCHASES
EQUIPMENT
Equipment Purchases Rental of Equipment
COMPUTER CHARGES
Software Equipment
Equipment Purchases Per Diem, Fees and Contracts
Per Diem and Fees Contracts Computer Billings, DOAS
REAL ESTATE RENTALS
TELECOMMUNICATIONS
PER DIEM. FEES AND CONTRACTS
Per Diem and Fees Contracts
OTHER COUNTY TAX OFFICIALS/RETIREMENT AND FICA Personal Services Employer's Contribution for: Retirement Other Costs Grants to Counties, Cities and Civil Divisions
The notes to the financial statements are an integral part of this statement.
-6-

TOTALS YEAR ENDED JUNE 30, 1997 JUNE 30, 1996

$

127,344.70 $

123,324.43

745,272.38

683,249.76

681,100.44

902,964.09

18,681.43

18,429.63

45,442.19

34,577.94

77,593.31

69,339.68

774,738.71

688,529.59

110,582.36

65,975.67

2,392,696.45

2,717,245.98

241,518.44

347,510.05

$ 5,214,970.41 $ 5,651,146.82

$ 1,271,476.42 $ 1,310,689.59

$

241,682.84 $

188,074.35

$

180,711.44 $

598,322.07

151,135.94

145,111.78

$

331,847.38 $

743,433.85

$

254,895.48 $

263,578.30

1,557,236.22

755,534.35

7,188.84 5,106,621.93 7,329,379.20

31,487.04 3,683,082.22 9,856,305.27

$ 14,255,321.67 $ 14,589,987.18

$ 2,830,692.61 $ 2,828,976.68

$ 2,735,708.03 $ 2,769,048.40

$

851,088.48 $ 1,124,584.64

102,283.32

197,874.66

$

953,371.80 $ 1,322,459.30

$ 2,690,394.00 $ 2,626,394.00

732,401.00

732,401.00

$ 3,422,795.00 $ 3,358,795.00

DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 3D. 1997

EXHIBIT"C"

EXPENDITURES
OTHER
MOTOR VEHICLE TAGS AND DECALS Per Diem, Fees and Contracts Contracts
POSTAGE Other Costs Supplies and Materials
INVESTMENT FOR MODERNIZATION Other Costs Supplies and Materials Repairs and Maintenance Publications and Printing Equipment Equipment Purchases Lease/Purchase of Equipment Computer Charges Software Per Diem, Fees and Contracts Per Diem and Fees Contracts
Total Other
Total Expenditures
Excess of Funds Available over Expenditures

TOTALS YEAR ENDED JUNE 3D, 1997 JUNE 3D, 1996

$ 2,642,847.59 $ 10,349,333.24

$ 3,714,082.97 $ 3,787,043.02

$

89,437.87 $

0.00

129,203.49

0.00

81,784.95

0.00

22,974.94

0.00

90,796.47

0.00

15,205.62

0.00

800,000.00

0.00

1,484,425.68

0.00

$_....:2J,.7:.1.3..,:8=2=9=.0=2- $

0.00

$-~=12=,.49:3:,5.5.4..5:8=$ 17,495,171.26

$ 99,728,494.73 $ 104,615,351.80

12,319,792.16

494,425.54

$ 112,048,286.89 $ 105,109,777.34

The notes to the financial statements are an integral part of this statement. -7-

THIS PAGE LEFT BLANK

DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30,1997

EXHIBIT"D"

$ 113,514,059,00 $ 112,048,286,89 $ -1,465,772.11

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 Investment for Modernization

$ 59,142,061,00 $ 59,399,868.99 $

-257,807.99

5,318,166.00

5,214,970.41

103,195,59

1,417,744.00

1,271,476.42

146,267.58

251,386.00

241,682,84

9,703.16

421,189.00

331,847.38

89,341.62

14,380,969,00

14,255,321.67

. 125,647.33

2,855,447.00

2,830,692,61

24,754,39

2,867,510.00

2,735,708,03

131,801.97

2,617,300.00

953,371.80

1,663,928.20

3,422,795.00

3,422,795.00

0.00

2,642,850.00

2,642,847.59

2.41

3,721,810,00

3,714,082,97

7,727.03

14,454,832,00

2,713,829.02

11,741,002.98

$ 113,514,059,00 $ 99,728,494.73 $ 13,785,564,27

Excess of Funds Available over Expenditures
The notes to the financial statements are an integral part of this statement. -9-

$ 12,319,792,16 $ 12,319,792.16

DEPARTMENT OF REVENUE STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
STATE REVENUE COLLECTIONS FUND YEAR ENDED JUNE 30, 1997

EXHIBiT "E"

STATE REVENUE COLLECTIONS (See Schedule)
Business License Tax Non Business License Tax
Motor Vehicle Registrations - Tags Motor Carrier Registrations - Tags Motor' Vehicle Title Registrations
Corporate Net Worth Tax EstateTax 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 Government
Local Option Sales Tax Collection Cost Marta Sales Tax Collection Cost Motor Carriers' Fees Real Estate Transfer Tax Collection Cost Special Purpose Sales Tax Collection Cost Other Fees
Total Cash Receipts
CASH AND CASH EQUIVALENTS - JULY 1, 1996

CASH RECEIPTS

$

3,757,420.00

$

136,306,204.17

46,639,804.41

39,225,195.86

222,171,204.44

22,491,187.71 60,295,855.97 14,799,455.24

$

706,912,315.76

4,754,7n,319.99

5,461,689,635.75

$

37,708,850.95

634,690.65

38,343,541.60

$

21,662.65

1,523,325.02

1,544,987.67

$ 3,918,998,050.17 164,567,499.56 $

4,083,565,549.73

$

74,041,264.98

34,175,426.80

16,633,642.17

124,850,333.95

83,247,054.74 392,180,249.27

4,683,843,187.69

4,402,420.19 16,959,997.65 19,021,087.04
1,220,080.00

$

7,610,071.57

2,587,587.82

107,440.19

189,838.65

5,631,981.10

23,557,550.10

39,684,469.43

$ 10,590,224,530.38

9,024,948.56

$ 10,599,249,478.94

The notes to the financial statements are an integral part of this statement. - 10-

DEPARTMENT OF REVENUE STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
STATE REVENUE COLLECTIONS FUND YEAR ENDED JUNE 30,1997

EXHIBIT"E"

GOVERNMENTAL COST

Fees Retained at Collecting Source Property Tax County Tax Digest Accounts Intangible Recording

Taxes Based on Sales

Sales and Use Tax

Regular

$

Motor Fuel

Cigars and Cigarettes Motor Fuel

Assessing Property Tax County Tax Digest Accounts

Disbursements of Intemational Registration Plan Collections to Other States

Disbursement for Attomey's Fees Federal Employees' Retirement Settlement

Total Governmental Cost

TRANSFERS

To Office of Treasury and Fiscal services Less: Refunds through Office of Treasury and Fiscal Services

Total Disbursements

CASH AND CASH EQUIVALENTS - JUNE 30,1997

DISBURSEMENTS

$

1,227,798.36

33,839,99 $

1,261,638.35

15,716,461,68 664.080.16 $

16.380.541.84
2.682.263.20 3,076,751,11

22,139,556.15 $

23.401.194.50

469,146.42

18,983.510.48

4.264,218.84

$

47.118.070.24

$ 11.519.702.269.36

980,808.073.40

10.538.894.195.96

$ 10,586.012.266.20

13,237.212.74

$ 10,599.249,478.94

The notes to the financial statements are an integral part of this statement. - 11 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 3D. 1997

EXHIBIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The Department of Revenue, an organizational unit ofthe State of Georgia, is part of the executive branch ofthe government ofthe State of Georgia. 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 officer of the Department is the Revenue Commissioner, who is appointed by the Governor with the consent of the Senate ofthe 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 of Revenue does not have authority to determine the amount of funding 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 of Revenue is included within the State of Georgia reporting entity for fmancial reporting purposes because of the significance of its legal, operational and financial relationships with the State of Georgia. 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 of Revenue uses funds and account groups to report on its financial position and the results of its operations determined in conformity with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia. A fund is an independent fiscal and accounting entity with a selfbalancing 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:
GOVERNMENTAL FUND TYPES
BUDGET FUND - The fund used to account for activities and functions as set forth in the Amended Appropriations Act of 1996-1997. 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 of Georgia 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, 1997

EXHffiIT"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 costs of normal maintenance and repairs that do not add to the value of assets 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 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 fmancial reporting treatment applied to a fund is determined by its measurement focus. Governmental funds should be accounted for using the flow ofcurrent 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 of available 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 BUDGET FUND
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 of accounting, 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
- 13-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXIDBIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPES BUDGET FUND
entitlements, and certain amounts earned under operating agreements with other parties. Expenditures are recorded when the 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 fmancial resources.
Contractual obligations for goods and services which have not been received at the end of the 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 of fund 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 of the Budget Fund in the accompanying fmancial 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
- 14-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHffiIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUDGET classes as provided in Act No. 1037 of Georgia Laws 1996 (as approved April 25, 1996) and amended by Act No. 11 of Georgia Laws 1997 (as approved March 11, 1997). This budget is considered to be an appropriated budget and is referred to in these notes as the Amended Appropriations Act of 1996-1997.
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 58 of the 1996-1997 Amended Appropriations Act. Expenditures of no more than 102% ofthe stated amount for each common object class are authorized by Section 58. However, the total expenditure for the group of common object classes may not exceed the sum ofthe 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.
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 Departinent 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 of supplies are valued at weighted average cost on the Combined Balance Sheet (Statutory Basis) using the first-in/first-out (FIFO) method. 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:
EVIDENCE SEIZURES Funds received for this program represent the residual portion of funds seized as evidence in various cases. This amount is restricted for expenditure in future years.

- 15 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESERVED FUND BALANCE
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.
INVESTMENT FOR MODERNIZATION Represents State appropriations restricted for the modernization of the Department. This amount is restricted for expenditures in the subsequent fiscal year.
STATE REVENUE COLLECTIONS FUND The balance of revenues collected but not transmitted to the Office of Treasury 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 and compensatory 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 fmancial 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 fmancial information and are presented only to facilitate fmancial 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.

- 16-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHffiIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 ofthe 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 fmancial position and operations or would cause the statem~nts to be unduly complex and difficult to understand.
NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds of the State of Georgia cannot be placed in a depository paying interest longer than ten 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 of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
(1) Bonds, bills, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
(2) Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia.
(3) Bonds of any 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.

- 17 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"F"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

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, 1997, 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.

Category 3 - Amounts collateralized with securities (at market value) held by the pledging fmancial 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

$ 20 908 446,94 $ 72,060,603 93 $ 761 656,28 $,====:!O~O{MO $ 71298947,65

CATEGORIZATION OF INVESTMENTS Investments are stated at cost. The carrying amount of the investment balance as of June 30, 1997, shown below is maintained in an investment pool by the Office of Treasury and Fiscal Services and is not subject to risk categorization.

Type of Investment

Carrying Amount

Market Value

State Investment Pool

$ 4.717,234.81 $ 4.717.234.81

NOTE 3: OPERArING 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, 1997, 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.

- 18 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT "F"

NOTE 3: OPERATING LEASES

Fiscal Year Ending June 30

1998

$ 753.523.76

Expenditures for rental of real property and equipment under operating leases for the year ended June 30, 1997, totaled $890,047.81.

NOTE 4: INSTALLMENT PURCHASE COMMITMENTS

The Department of Revenue acquires certain equipment through multi-year installment purchases with varying terms and options. The majority of these agreements contain fiscal funding clauses in accordance with O.C.G.A. 50-5-64 which prohibits the creation of a debt to the State of Georgia for the payment of any sums under such agreements beyond the fiscal year of execution if appropriated funds are not available. If renewal of such agreements is reasonably assured, however, installment purchases requiring appropriation by the General Assembly of Georgia are considered noncancellable for financial reporting purposes.

At June 30, 1997, future minimum commitments under installment purchases for equipment are as follows:

Fiscal Year Ending June 30

1998 1999 2000 2001

$ 638,718.00 379,582.21 379,582.21 379,582.21

Total Future Minimum Commitments

$ 1,777,464.63

Less: Amounts Representing Interest

235,022.13

Present Value of Future Minimum Commitments

$ 1.542.442.50

NOTE 5: 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 $1 ,000.00 or greater are reflected in the General Fixed Assets Account Group.

The following is a summary of changes of equipment in the General Fixed Assets Account Group during the fiscal year:

- 19-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT "F"

NOTE 5: CHANGES IN GENERAL FIXED ASSETS

Balance July 1, 1996

$ 9,954,030.45

Additions Deductions

1,305,110.66 323,980.47

Balance June 30, 1997

$10,935,160.64

NOTE 6: GENERAL LONG-TERM DEBT

CHANGES IN GENERAL LONG-TERM DEBT A summary of changes in General Long-Term Debt for the year ended June 30, 1997, follows:

Compensated Absences

Installment Purchase Commitments

Total

Balance July 1, 1996

$ 4,485,118.94 $

0.00 $ 4,485,118.94

Additions Annual Leave Earned and Utilized (Net) Salaries Salary Related Fringe Benefits Current Year Purchases
Deductions

97,212.46 7,436.75

2,156,653.92 614,211.42

97,212.46 7,436.75
2,156,653.92 614,211.42

Balance June 30, 1997

$ 4.589.768.15 $ 1.542.442.50 $ 6,132,210.65

NOTE 7: 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 ofthe 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.

- 20-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT "F"

NOTE 7: RISK MANAGEMENT
Other Risk Management
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia ofmaking 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 of Georgia 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 8: DEFERRED COMPENSATION PLAN
The State of Georgia 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 of their 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 or rights ofthe 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, 1997.
A change in the Internal Revenue Code Section 457, effective August 20, 1996, requires that by January 1, 1999 all existing eligible deferred compensation plans must be held in trust for the exclusive benefit of participants and their beneficiaries. The State of Georgia's plan will be converted effective July 1, 1998.
NOTE 9: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description The Department of Revenue participates in the Employees' Retirement System of Georgia ("ERS"), 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.

- 21 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT"F"

NOTE 9: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description The benefit structure ofERS is defined by State statute and 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 ofyears 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.
The ERS issues a financial report each fiscal year which may be obtained through ERS.
Funding Policy As established by State statute, all full-time employees ofthe State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The Department's payroll for the year ended June 30, 1997, for employees covered by ERS was $38,182,267.50. The Department's total payroll for all employees was $44,484,359.24.
Under the old plan, member contributions consist of 4% of annual compensation up to $4,200.00 and 6% of annual compensation in excess of $4,200.00. Of these member contributions, the employee pays the first 1.25% and the employer pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.25% of annual 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, 1997, the ERS employer contribution rate for the Department amounted to 15.71 % of covered payroll and included the amounts contributed on behalf of the employee under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees.

- 22-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT "F"

NOTE9: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Funding Policy Total contributions to the plan made during fiscal year 1997 amounted to $6,477,901.99, of which $6,000,615.22 was made by the Department and $477,286.77 was made by employees. These contributions met the requirements ofthe plan.
Actuarial and Trend Information Actuarial and historical trend infonnation is presented in the ERS June 30, 1997, fmancial report which may be obtained through ERS.
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 of Trustees.
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 hislher account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
The Employees' Retirement System of Georgia (ERS) issues a financial report each fiscal year which may be obtained through ERS.
Contributions and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board. Upon termination of employment, the amount ofthe member's account is refundable upon request by the member. The Department's payroll for the year ended June 30, 1997, for employees covered by GDCP was $5,427,199.32. The Department's total payroll for all employees was $44,484,359.24.
Total contributions made by employees during fiscal year 1997 amounted to $407,045.73 which represents 7.50% of covered payroll. These contributions met the requirements of the plan.
- 23 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997

EXHIBIT "F"

NOTE 10: LEAVE 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 of continuous State service with a maximum accumulation of forty five days. Employees are paid for unused accumulated annual leave upon retirement or termination ofemployment. 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 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 Federal social security benefits for employees of these offices from funds appropriated by the General Assembly. During the year ended June 30, 1997, the Department paid $2,690,394.00 to the Employees' Retirement System of Georgia for retirement benefits and paid $732,401.00 to the local governments for social security benefits for these offices.
NOTE 12: 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 ofexpenditures 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 of Revenue, if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 1997.

- 24-

SUPPLEMENTARY INFORMAnON - 25 -

DEPARTMENT OF REVENUE COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
FIDUCIARY FUND TYPE AGENCY FUNDS YEAR ENDED JUNE 3D, 1997

EXHIBIT"G"

FUND
Central Processing Unit Special Account Local Option Sales Tax:
Collections For Distribution to Local Govemments MARTA Sales Tax Motor Fuel Cash Bond Escrow Account Railroad Car Tax Real Estate Transfer Tax Setoff Debt Collections Account Various Govemmental Units Special Purpose Sales Tax: Collections For Distribution to Local Govemments Tennessee Valley AuthoritY Account Unclaimed Property Account

ASSETSI LIABILITIES JULY 1,1996
$ 270,383,17 $
0,00 -59,596.34
0.00 31,520,03 349,433.99 11,239,872.89
0.00
0.00 0,00 529,377.66 468,762.29

ADDITIONS
11,027,396.90 $
761,007,123,55 760,290,710,91 258,758,782.95
3,000.00 3,223,957.89 22,005,591,25
11,302,124,85
563,198,102,51 554,538,567.20
3,572,192.75 23,812,567.36

DELETIONS

ASSETSI LIABILITIES JUNE 30, 1997

10,865,014.79 $

432,765.28

761,007,123.55 (1) 760,231,115.86 258,758,782.95 (2)
3,066.53 0.00
28,554,231.40 (3)

0.00 -1.29 0.00 31,453.50 3,573,391.88 4,691,232.74

11,302,124,85

0.00

563,198,102,51 (4) 554,538,567.20
3,505,235.75 23,655,262.01

0.00 0.00 596,334.66 626,067.64

$ 12,829,753,69 $ 2,972.740,118.12 $ 2,975,618,627.40 $ 9,95t244.41

See notes to the financial statements.

- 26-

DEPARTMENT OF REVENUE SCHEDULE OF APPROVED BUDGET
YEAR ENDED JUNE 30,1997

SCHEDULE "1"

FUNDS AVAILABLE
REVENUES
State Appropriation Federal Revenues Other Revenues Retained

ORIGINAL

AMENDED

BUDGET

APPROPRIATION APPROPRIATION ADJUSTMENTS

TOTAL

$ 91,872,904,00 $ 14,425,581,00 $

123,482.00 $ 106,421,967.00

334,900.00

334,900,00

5,185,365.00

1,571,827.00

6,757,192.00

$ 97,058,269.00 $ 14,425,581.00 $ 2,030,209.00 $ 113,514,059.00

EXPENDITURES
Personal Services RegUlar Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts County Tax Officials/Retirement and FICA Motor Vehicle Tags and Decals Postage Investment for Modernization

$ 57,970,695.00 $

970,749.00 $

5,399,457.00

-182,000.00

1,366,540.00

251,386.00

421,189,00

14,870,790.00

-600,000.00

2,855,447.00

3,267,510.00

-400,000.00

1,106,300.00

182,000.00

3,422,795.00

2,404,350.00

3,721,810.00

14,454,832.00

200,617.00 $
100,709.00 51,204,00
110,179.00
1,329,000.00 238,500.00

59,142,061.00 5,318,166.00 1,417,744,00 251,386.00 421,189.00
14,380,969.00 2,855,447.00 2,867,510.00 2,617,300.00 3,422,795.00 2,642,850.00 3,721,810.00 14,454,832.00

$ 97,058,269.00 $ 14,425,581.00 $ 2,030,209.00 $ 113,514,059.00

See notes to the financial statements.

- 27-

DEPARTMENT OF REVENUE CASH AND CASH EQUIVALENTS
JUNE 30.1997

SCHEDULE "2"

NONINTEREST BEARING ACCOUNTS
First Union National Bank of Georgia, Columbus, Georgia
First Union National Bank of Georgia, Savannah, Georgia
NationsBank of Georgia, N.A., Atlanta, Georgia
NationsBank of Georgia, N.A., Macon, Georgia
NationsBank of Georgia, NA, Thomasville, Georgia
NationsBank of Georgia, NA, Waycross, Georgia
Regions Bank, Dalton, Georgia
South Trust Bank of Georgia, NA, Atlanta, Georgia
SunTrust Bank, Atlanta, Georgia
Wachovia Bank of Georgia, NA, Atlanta, Georgia
INTEREST BEARING ACCOUNTS
NationsBank of Georgia, NA, Athens, Georgia
NationsBank of Georgia, NA, Atlanta, Georgia
SunTrust Bank, Atlanta, Georgia
Funds on Deposit with Office ofTreasury and Fiscal Services State Investment Pool
OTHER
Cash on Hand

See notes to the financial statements.

- 28-

$

13,968.00

10,476.00

15,451,221.61

310,788.00

157,140.00

331,740.00

83,808.00

-4,157,380.42

-32,791.82

3,324,031.35 $ 15,493,000.72

$

611,100.00

4,728,088.57

76,257.65

4,717,234.81

10,132,681.03

10,700.00 $ 25,636,381.75

DEPARTMENT OF REVENUE SCHEDULE OF FEDERAL REVENUES
YEAR ENDED JUNE 30.1997

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
$ 71,934.30
48,710.27
$ 120,644.57

See notes to the financial statements.

- 29-

DEPARTMENT OF REVENUE SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30.1997
REGULAR OPERATING EXPENSES
Bank Service Charges Clipping Service Computer Billings, Department of Labor Court Costs Evidence Purchase FIFA's Freight, Express and Storage Levies Security System Subscriptions and Dues Training Films and Tapes Uniforms

SCHEDULE "4"

$

570.43

28,907.41

5,943.49

41,007.43

769.00

344,784.85

158,557.57

21,353.17

1,710.40

141,418.24

12,909.49

16,807.23

$ 774,738.71

See notes to the financial statements.

- 30-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1997

SCHEDULE "5"

BUSINESS LICENSE TAX
Beer Dealers Wholesalers' Licenses Retailers' Licenses Special Permits License and Brand Registration License Penalties
Liquor Dealers Wholesalers' Licenses Retailers' Licenses License and Brand Registration License Penalties
Wine .Dealers Wholesalers' Licenses Retailers' Licenses License and Brand Registration License Penalties
Cigar and Cigarette Dealers Wholesalers' Licenses Manufacturers' Representative License
Coin Operated Amusement Machines Licenses and Permits

$

37,110,00

770,214.66

32,375,00

12,310.00

30,837,50 $

882,847.16

$

33,015,00

563,370,34

23,085,00

20,125,00

639,595,34

$

23,610.00

599,195.00

6,010,00

21,962,50

650,777.50

$

16,950,00

2,250.00

19,200.00

1,565,000.00

$

3.757,420,00

Net to State Beer Dealers Liquor Dealers Wine Dealers Cigar and Cigarette Dealers Coin Operated Amusement Machines

$

882,847.16

639,595,34

650,777.50

19,200.00

1,565,000.00

$

3,757,420.00

See notes to the financial statements.

- 31 -

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1997

SCHEDULE "5"

Disbursement of International Registration Plan Collections to Other States
Net to State Cash Balance
July 1,1996 June 30, 1997

$

18,983,510.48

203,240,906.40

$

1,829.27

-55,041.71

-53,212.44

$ 222,171,204.44

See notes to the financial statements.

- 32-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1997

SCHEDULE "5"

CORPORATE NET WORTH TAX Domestic and Foreign Corporations Current, Delinquent and Penalties
Net to State
ESTATE TAX Original Returns and Additions Less: Refunds Through Office of Treasury and Fiscal Services
Net to State
FINANCIAL INSTITUTIONS BUSINESS OCCUPATION TAX Original Returns and Additions
Net to State

$ ===:;;2~2,!OO49=1==,1=8;,;,.7,:;,,7,;.,1 $ ===:;;2~2,!OO49=1==,1=8=7';,;,.7,;.,1
$ 62,274,203.47 1,978,347,50 $ ===:;;6='52=95;;;,;,8=5=5,=97=
$ ===:;;6='259=5;;;,;,8=5=5,=97=
$ ====1=4=.7=99:.=,4=5=5=,2==4 $ ====1"",4,=79=9:=,4=5=5,..,24=

See notes to the financial statements,

- 33-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1997

SCHEDULE "5"

INCOME TAX Corporations Original Returns, Additional Tax, Interest and Penalties Estimate of Taxes
Less: Refunds Through Office of Treasury and Fiscal Services Individuals
Original Returns, Additional Tax, Interest and Penalties Estimate ofTaxes Fiduciary Withholdings
Less: Refunds Through Office of Treasury and Fiscal Services

$

91,855,132.57

754,027,672.08

$ 845,882,804.65

138,970A88.89 $ 706,912,315.76

$ 429,905,760.74 643,660,367.51 12,084,761.51
4.452,658,118.96
$ 5,538,309,008.72
783,531,688.73

4,754,n7,319.99

$ 5.461,689,635.75

Disbursement for Attorney'S Fees Federal Employees' Retirement Settlement
Net to State Cash Balance
July 1,1996 June 30, 1997

$

4,264,218.84

5,447,327,828.18

$

-608,461.80

10,706,050.53

10,097,588.73

$ 5.461,689,635.75

See notes to the financial statements.

- 34-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30.1997

SCHEDULE "5"

PROPERTY TAX

County Tax Digest Accounts Vehicle Property Mobile Home Timber Intangible Not on Digest Interest Penalties

$

4,038,656.74

32,721,748.55

165,446.00

187,418.28

8,722.08

271,231.16

179,075.93

202,078.68 $

37,774,377.42

Miscellaneous Undesignated General Collections

43,893.60

$

37,818,271.02

Less: Refunds Through Office of Treasury and Fiscal Services

109.420.07 $

37,708,850.95

Intangible Recording Gross Collections

634,690.65

$

38,343,541.60

Commissions Paid on Above County Digest Accounts Receiver Collector
Intangible Recording
Net to State County Tax Digest Accounts Intangible Recording

$

469,146.42

1,227.798.36 $

1,696,944.78

33,839.99

$

1,730,784.77

$

36,011,906.17

600,850.66

36,612,756.83

$

38,343,541.60

PUBLIC UTILITIES Property Tax Ad Valorem Tax Electric Light and Power Companies Equipment Companies Telephone and Telegraph Companies Water and Gas Companies Assessments 1997 Collections
Net to State
See notes to the financial statements.

- 35-

$

2,178.04

19,122.76

359.05

2.80 $

21,662.65

1,523,325.02

$

1,544,987.67

$

1,544,987.67

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1997

SCHEDULE "5"

TAXES BASED ON SALES
Sales and Use Tax Monthly Collections by General Accounting Office Regular Motor Fuel
Less: Refunds Through Office ofTreasury and Fiscal Services Regular Motor Fuel

$ 3,958,073,863.10 164,614,159.77 $ 4,122,688,022.87

$

.39,075,812.93

46,660.21

39,122,473.14

$ 4,083,565,549.73

Commissions Paid on Above Regular Motor Fuel
Net to State Regular Motor Fuel
Cash Balance July 1,1996 June 30, 1997

$

15,716,461.68

664,080.16 $

16,380,541.84

$ 3,903,286,787.32 163,903,419.40

4,067,190,206.72

$

-1,031,162.33

1,025,963.50

-5,198.83

$ 4,083,565,549.73

See notes to the financial statements.

- 36-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1997

SCHEDULE "5"

TAXES BASED ON SALES Alcoholic Beverages Beer Malt Beverage Tax Less: Refunds Through Office of Treasury and Fiscal Services
Net to State Cash Balance
June 30,1997
Liquor Stamp Sales Less: Refunds Through Office of Treasury and Fiscal Services
Net to State Cash Balance
June 30, 1997

$

74,054,019.16

12,754.18 $ ====7=45,O4=1~,2;:;:64=.=9=8

$

74,041,545.62

-280.64

$

74,041,264.98

$

34,188,497.12

13,070.32 $ =====34:=.;,1=75=0,4=2=6=.8=0

$

34,175,676.80

-250.00

$

34,175,426.80

Wine Wine Tax Less: Refunds Through Office of Treasury and Fiscal Services
Net to State Cash Balance
June 30, 1997

$

16,643,296.14

9,653.97 $ ===1=6'563=3:=;,64===2.=17~

$

16,633,867.17

-225.00

$

16,633,642.17

Cigars and Cigarettes
Stamp Sales Less: Refunds Through Office of Treasury and Fiscal Services

$

83,547,971.79

300,917.05 $ ====8=3'1:24=7,;,;,0;:;:5=4.=74=

Commissions Paid on Above (Retained at Collecting Source) Net to State Cash Balance
July 1,1996 June 30, 1997

$

2,682,263.20

87,171,667.79

$

-8,061,718.51

1,454,842.26

-6,606,876.25

See notes to the financial statements.

- 37-

$

83,247,054.74

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1997

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 Returned Checks Through Motor Fuel Revolving Accounts
Refunds Made from Collections International Fuel Tax Agreement
Refunds Through Office of Treasury and Fiscal Services AgriCUlture International Fuel Tax Agreement Motor Carrier Retail Dealers

$

66,692.23

319,635,985.99

5.81

97,956,201.95

404,012.95

7,626.47

494,753.81

1,655,023.74

233,318.48 $ 420,453,621.43

3,076,751.11 $ 423,530,372.54

$

5,792,470.69

29,821.79

5,822,292.48

$ 429,352,665.02

$

339,961.17

2.7,842,435.29

$

1,814,306.87

1,608,756.96

4,946,616.86

620,338.60

8,990,019.29

37,172,415.75

$ 392,180,249.27

Commissions Paid on Above (Retained at Collecting Source)

$

3,076,751.11

Net to State

389,041,500.50

Cash Balance

JUly 1,1996

$

59,857.29

June 30, 1997

2,140.37

61,997.66

$ 392,180,249.27

See notes to the financial statements.

- 38-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1997

SCHEDULE "5"

FINES AND FORFEITURES Beer - Malt Beverage Liquor Wine Cigars and Cigarettes
Net to State
PEACE OFFICERS AND PROSECUTORS TRAINING FUND Fees from Court Fines and Bond Forfeitures
Net to State
UNCLAIMED PROPERTY Proceeds from Sale of Abandoned Property
Net to State
STATE CHILDREN'S TRUST FUND Fees from Marriage Licenses and Divorce Cases
Net to State

BOND FORFEITURES

$

$

46,675.00

PENALTIES 65,497.09 $ 44,748.22 72,485.57
4,173,014.31

TOTAL 65,497.09 91,423.22 72,485.57
4,173,014.31

$

46,675,00 $

4,355,745,19 $

4,402,420.19

$

4,402,420.19

$ ====,1:=6.,9...5.9.;;,;;,9;:9.7..=6.5.. $ ====,1:=6,.9...5.9.;;,;;,9;:9.7...:=6.5..

$ ====1=9,=02=1=,0=8=7.=04= $ ====,1,;;;,9,~02;:,;1~,O;,;;;8,;,;7.=04~
$ ==",;1~,2;;;;20=o,O=8;,;;;0=.0=0 $ ==,.;,1~,2~20;;,;;,O~8~0.=0~0

See notes to tlie financial statements.

- 39-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1997

SCHEDULE "5"

EARNINGS - GENERAL GOVERNMENT

Local Option Sales Tax Collection Cost

MARTA Sales Tax Collection Cost

Motor Carriers' Fees

Motor Fuel Truck Registration

Decals

$

Temporary Permits

Penalties for Non-Registration

Real Estate Transfer Tax Collection Cost

Special Purpose Sales Tax Collection Cost

Other Fees

Fees on Contracts

$

International Fuel Trade Agreement Registration

Liquor 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

4,866.00 98,480.00 $
5,370.00 169,435.00
95,000.00 22,496,06224
1,080.00 465,142.74 328,702.01 $

$ 103,346.00
4,094.19
23,560,791.99 3,241.89

7,610,071.57 2,587,587.82
107,440.19 189,838.65 5,631,981.10
23,557,550.10

$

39,684,469.43

Net to State" Cash Balance
July1,1996 June 30, 1997

$

38,965,748.48

$

614,707.52

104,013.43

718,720.95

$

39,684,469.43

See notes to the financial statements.

- 40-

SECTION II AUDlTEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF REVENUE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 1997

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

474-96-01 474-96-02 474-96-03 474-96-04 474-96-05

Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTIONIRESPONSES

REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number 474-96-02

Currently under development, completion date to be January 1, 1998. A PC based accounting software system is being developed which should be completed and tested by the end of December.

REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number 474-96-03

Implementation of Program to Compile and Analyze W-2 Data: In the withholding income tax processing area, the Department's ultimate goal is to develop and implement a withholding system that will meet all the requirements ofthe users including the ability to match electronically income tax withholding data supplied by the employers to the income tax withholding data reported by the individual taxpayers. However at this time, the Department's highest priority in this area is to ensure that the withholding system will be Year 2000 compliant. Therefore, we cannot say with any certainty when we will have the ability to match this data electronically.

In the meantime, during the last legislative session HB 479 was passed and became effective on July 1, 1997. This law requires employers to submit copies of employee wage statements to the Department annually. The Department has published and is currently mailing the guidelines and instructions for complying with this new requirement.

- 1-

DEPARTMENT OF REVENUE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number 474-96-03
Also, the Department is participating with the IRS in the Simplified Tax and Wage Reporting System (STAWRS). Under this program, the IRS receives W-2 information from employers, matches the employer/employee name and address information to the data, sorts by state and then sends the data to the appropriate state via magnetic tape or cartridge. With the information to be received from the STAWRS program and the information to be provided by employers, the Department will be able to match, on a limited basis, employer provided withholding income tax data to the individual taxpayer's reported withheld income tax amount. In the near future, the Income Tax Division will develop a program to analyze this data and identify discrepancies for possible audit leads.
Implementation ofNew Individual Income Tax System: At this time, the Department's biggest concern is to ensure that this system is Year 2000 compliant. So the development of the new system will be delayed. However, the Department has begun the preliminary work on the redesign of the individual income tax system with a preliminary planned completion date of December, 1999. Examination guidelines previously provided are currently being followed by the personnel in the Income Tax Division when making adjustments to accounts.
EXPENDITURESILIABILITIESIDISBURSEMENTS GENERAL LEDGER Deficiencies in the Sales Tax Division Subsidiary Records Finding Control Number 474-96-04
1. Consistent monthly cut-off date. Rather than establish a concrete monthly cut-off date, the Department has established a monthly cut-off date to which we adhere as a general rule.
As a general rule, the 17th of each month has been established as the Department's monthly cutoff date, and distributions are scheduled to be mailed on the 21 st. In distributing money to local governments "as soon as practicable" (O.e.G.A. 48-8-89), however, the Department is charged with balancing the value of consistency in timing with the practical concerns of consistency in amount. Accordingly, during months in which we experience processing delays (e.g., unusually high taxpayer or operator error rates, system problems, etc.), our cut-off may be extended slightly when it appears to be in the best interest of the Department or local governments.
-2-

DEPARTMENT OF REVENUE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
EXPENDITURESILIABILITIESIDISBURSEMENTS GENERAL LEDGER Deficiencies in the Sales Tax Division Subsidiary Records Finding Control Number 474-96-04
Communications with local governments have been enhanced so that they are aware ofpotential delays as we anticipate them. As a result, although we may experience fluctuations in distribution dates, local governments appear to be more satisfied with the Department's performance of distribution services.
2. Unprocessed returns backlog. In immediate response to the State Auditor's findings, policies and procedures were implemented to identify unmatched sales tax receipts to sales tax returns and to eliminate the backlog of unprocessed returns. As a result ofthe implementation of these procedures, the sales tax processing unit cleared up the existing backlog and experienced no further significant backlogs during fiscal year 1997.
At the same time that policies and procedures were implemented to help in the short term, resources were invested in the implementation of a completely new sales tax return system, along with audit controls within the mail/cash system and centralized taxpayer accounting systems for the long term. Further, conversion to this new system had to occur in August 1997, due to the enactment of new sales taxes (Education Local Option Sales Tax, Homestead Local Option Sales Tax, and the new statewide 7% sales tax rate cap) that the old system could not process.
The Department has put in place new management of the information systems function. One of the responsibilities of the new management is to ensure funding and planning for adequate testing of new programs and systems prior to implementation.
Weare currently studying the need for restructuring within the Division and the need for additional staffing as a result of the accounting features ofthe new system, the implementation of new local sales taxes, and the addition of local school boards to the group of local governments that must be served by the Sales and Use Tax Division.
GENERAL LEDGER Differences Between Reimbursement Requests and Subsidiary Ledgers Finding Control Number 474-96-05
See our corrective action/response to fmding number 474-96-05 in the Prior Year Federal Awards Findings and Questioned Costs.
-3-

DEPARTMENT OF REVENUE AUDlTEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 1997

PRIOR YEAR FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

474-96-05

Further Action Not Warranted - See Corrective ActionlResponses

CORRECTIVE ACTIONIRESPONSES

FEDERAL FINANCIAL REPORTS Differences Between Reimbursement Requests and Subsidiary Ledgers Finding Control Number 474-96-05

1. The Motor Fuel Tax (MFT) Unit has requested that a separate funding source be established for the Diesel Compliance Officer (DCO) Grant. This action will assist the MFT Unit and Central Taxpayer Accounting to reconcile the charges against this particular grant. Currently, the Tax Compliance Grant and the (DCO) Grant are being paid out of one funding source.

2. The Acting Assistant Director for the MFT Unit will ensure that the accuracy of the grant expenditures as noted in the Unit's ledgers will reconcile with the Divisional Expenditure Report on a monthly basis. Prior to submitting the Federal reimbursement voucher, a complete review will be made by the Unit Director to ensure the accuracy ofthe submitted reimbursement claim.

3. The MFT Unit will consider the filing ofquarterly/semi-annual reimbursement vouchers instead of waiting until the end of the fiscal year to submit same. This will improve the cash flow of grant funding reimbursements and make it easier to reconcile expenditures.

-4-

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30. 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS Inadequate Accounting Procedures Finding Control Number FS-474-97-01
For the year under review, our examination included a review of the internal accounting controls and accounting procedures utilized by the Department of Revenue (Department) to provide for adequate internal control over cash assets ofthe Department. The following deficiencies and inappropriate accounting practices were found to exist:
1) The Department did not provide for adequate separation of employee duties in the performance of maintaining and reconciling thirteen (13) bank accounts.
2) The June 1997 bank reconciliation for the payroll account, as presented for examination, did not agree with the general ledger. Extensive procedures were required to reconcile the account to the general ledger.
3) Cash journals were not maintained for eight (8) bank accounts. In addition, no bank reconciliations were performed for five (5) of these bank accounts.
4) Bank reconciliations for six (6) of forty-four bank accounts were not prepared in a timely manner. A review of bank reconciliations indicates a delay of up to 262 days between month-end and reconciliation date.
5) Reconciling items identified during the bank reconciliation process were not corrected in a timely manner. A review ofthe bank reconciliations indicates that there are $4,084,436.16 in reconciling items that have not been corrected as of June 30, 1997 dating from March, 1994.
6) Outstanding checks totaling $8,210,811.06 were outstanding in excess of six (6) months at June 30, 1997.
7) The cash receipts journal for the Peace Officers and Prosecutors Training Fund, as presented for examination, was incomplete and contained errors totaling $1,435,757.25. Adjusting entries were made to correct these errors.
These deficiencies were a result of the Department's failure to adequately manage cash assets of the Department.
The Department should examine the necessity of each bank account to reduce the number of bank accounts. The Department should establish internal controls to ensure that employees' duties are adequately segregated, monthly bank statements are reconciled with the accounting records on a timely basis, and cash journals are maintained for all bank accounts.
- 1-

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number FS-474-97-02
For the year under review, our examination included a review of the internal accounting controls and accounting procedures utilized by the Department of Revenue (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 ledgers and associated records maintained by the Divisions and individual tax units. Our procedures also included a reconciliation of the revenue collections received and subsequently transferred by the Department to the Office of Treasury and Fiscal Services (OTFS), which acts as the State treasury. 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 of a general ledger accounting system. Failure to provide for dual-entry accounting inhibits 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 adequate procedures in place to ensure that necessary corrections to the general ledger resulting from electronic fund transfers, NSF checks and returned refund checks are reported in a timely manner to the Divisions and individual tax units. The failure to fully communicate known adjustments in a timely manner to responsible persons within the Department can result in inaccurate financial records and possible financial loss to the State.
-2-

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUESIRECENABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number FS-474-97-02
The Central Accounting Unit should develop and implement procedures to ensure that all adjustments are communicated to the Divisions and individual tax unit responsible for maintaining applicable subsidiary ledgers and associated records.
4) The Department does not have adequate controls over unprocessed documents relating to tax returns and various registration 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 Division for investigation. The tracking procedures for these unprocessed documents are inadequate. 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 Divisions and individual tax units. 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 cut-off 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 the Divisions and individual tax units being inconsistent, and in certain instances 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 cut-off 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.
-3-

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number FS-474-97..02
6) The Department has not established an internal control system which requires cash receipts and disbursements to be posted to "Revenue Ledger" and the "Refund Ledger" in the accounting period in which they occur, allowing discretionary shifting of cash receipts and disbursements between accounting periods. This "shifting of funds" is inconsistent with the Cash Receipts and Disbursements basis of accounting and compounds the problems associated with reconciling the general ledger system and the subsidiary ledgers and associated records maintained by the Divisions.
State Revenue Collections Funds are maintained on the Cash Receipts and Disbursements basis of accounting as prescribed or permitted by statutes and regulations of the State of Georgia. The Department should develop and implement procedures to ensure that cash receipts and disbursements are recorded in the "Revenue Ledger" and the "Refund Ledger" at the time of occurrence, as required by the Cash Receipts and Disbursements basis of accounting. In addition, the Department should develop and implement procedures to ensure that posting dates in the "Revenue Ledger" and the "Refund Ledger" are consistent with posting dates in the subsidiary ledgers and associated records.
7) Our examination of the revenue collection and refund procedures disclosed that the Department of Revenue does not submit, to the Office of Treasury and Fiscal Services, a formal request for funds to be used for refunds in all circumstances, but instead withholds monies from the current days collections to provide for refunds due. The Constitution of the State of Georgia, Article VIT, Section ITI, Paragraph IT(a) states in part "all revenue collected from taxes, fees, and aSsessments for state purposes, as authorized by revenue measures enacted by the General Assembly, shall be paid into the general fund ofthe state treasury". The failure to remit state revenue collections to the Office of Treasury and Fiscal Services results in a loss of investment income to the State of Georgia.
The Department should establish policies and procedures that will ensure that all collected funds are immediately transmitted to the Office of Treasury and Fiscal Services and that refunds are made only from funds requisitioned from the Office of Treasury and Fiscal Services for that specific purpose.
The deficiencies noted above are a result of the Department's failure to provide for a comprehensive, modem 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.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number FS-474-97..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 the following 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 of Form 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 of the returns involves the tax examiner submitting adjustments for such items as taxes due and assessment or abatement of interest and penalty amounts. The Division does not have the necessary systematic controls in place to ensure that all adjustments are processed in a timely manner.
The failure to process adjustments in a timely manner could lead to inaccurate financial records. The lack of timely processing is the result of the Department not having automated system controls to age the amended returns in process.
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.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number FS-474-97-Q3
3) The Department uses a batch system to identify and categorize taxes received as the various tax documents flow through the Division. The Withholding Unit ofthe 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 of this log book by the Division's management. Also, when the Withholding Unit computer system's capacity reaches more than 90%, 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 may be purged whether it is complete or not. An adequate system of accounting controls would utilize automated procedures to ensure that all batches are processed by the system prior to purging.
Due to the voluminous activity of the Withholding Unit, the manual process of identifying incomplete batches is tedious and subject to possible error. Without systematic controls 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.
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.
EXPENDlTURESILIABILITIESIDISBURSEMENTS GENERAL LEDGER Deficiencies in the Sales Tax Division Subsidiary Records Finding Control Number FS-474-97-04
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 internal accounting controls and accounting procedures as follows:
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURESILIABILITIESIDISBURSEMENTS GENERAL LEDGER Deficiencies in the Sales Tax Division Subsidiary Records Finding Control Number FS-474-97..04
1.) Substantive tests were perfonned on the "balancing files" created by the Department of Revenue. These files were created to facilitate balancing of monthly sales tax receipts processed by the Division to monies distributed monthly to State and local governments. We were not able to reconcile the total amounts received for a given period to the amounts distributed to State and local governments.
The inability to balance these files can be attributed to the lack of a common identifying reference to associate data in the distribution reports with the time period in which collection was originally made and contributes to the Department's failure to balance its subsidiary records to the general ledger.
2) Substantive tests were also perfonned on the Central Taxpayer Assistance (CTA) Miscellaneous Transactions File, representing Sales Tax adjustments, penalties and interest. We were not able to trace amounts contained in this file to the amounts distributed to State and local governments.
The causes ofthis deficiency can be attributed to the lack of a meaningful link or posting reference attached to each transaction which would allow the matching of the transaction to the daily summary of CTA postings in the "General Ledger" maintained by Central Accounting.
The Department should implement policies and procedures that will establish managerial control for the Sales Tax Unit over the subsidiary ledger and associated records through use of an integrated general and subsidiary ledger system, which would provide for the reconciliation between funds received for Sales Tax and payments of their respective portions of the collections to local entities.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number FS-474-97-05
For the year under review, our examination included a review of the internal accounting controls utilized by the Department of Revenue in maintaining their State Property System and also included testing the system for compliance with State laws and regulations. The following conditions relating to inappropriate accounting practices were found to exist:
1) Equipment acquired through an installment purchase agreement in the amount of$2,276,747.77 was not included in the property inventory listing at June 30, 1997.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation ofProperty Management System Finding Control Number FS-474-97-05
2) Equipment purchases totaling $700,767.09 were not promptly added to the property inventory system and were not included in the property inventory listing at June 30, 1997.
In addition, fifty three (53) equipment items were selected to test the accuracy of the Department's property management records. These items contained a value of$2,820,888.31 out of a population of $1 0,935, 160.64 and were selected for the purpose of locating the equipment as recorded in the inventory records. Six (6) items totaling $11,616.38 could not be located.
The Department is required to maintain equipment inventories in accordance with provisions of the State Property Management System Manual. The discrepancies identified above were caused by the Department's failure to follow guidelines for maintaining equipment inventories.
As a result of the discrepancies identified above, we were unable to determine the validity of the total equipment inventory valuation contained in the inventory records, which comprises the General Fixed Assets Account Group.
The Department should establish the necessary internal controls and implement procedures to ensure the equipment inventory records are maintained in accordance with the State Property Management System Manual.
GENERAL LEDGER Differences Between Reimbursement Requests and Subsidiary Ledgers Finding Control Number FS-474-97-06
The reimbursement requests completed by the Department of Revenue (Department) 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 ofthe reimbursement requests to the fund source trial balances revealed that the reimbursement requests were understated by $24,332.42. A subsequent reconciliation ofthe reimbursement requests to the fund source trial balances was performed by the Department and revealed allowable expenditures for the programs charged to incorrect fund source trial balances. After adjustment for these additional allowable expenditures, allowable expenditures exceeded reimbursement requests for these programs by $1,295.18.
This problem was caused by the failure ofthe 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.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Differences Between Reimbursement Requests and Subsidiary Ledgers Finding Control Number FS-474-97-06 The Department should closely monitor all expenditures associated with Federal grants. Those individuals responsible for the administration ofthe programs and the completion of the reimbursement requests should ensure that these requests are completed using information that is reconcilable with the accounting records.
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