Audit report, state of Georgia, Department of Revenue, year ended June 30, 1998

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AUDIT REPORT STATE OF GEORGIA DEPARTMENT OF REVENUE YEAR ENDED JUNE 30, 1998
STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
254 WASHINGTON 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

EXlllBITS

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

30

SCHEDULES

1 SCHEDULE OF APPROVED BUDGET

32

2 CASH AND CASH EQUIVALENTS

33

3 SCHEDULE OF FEDERAL REVENUES

34

. 4 SCHEDULE OF OTHER OPERATING EXPENSES

35

5 ANALYSIS OF STATE REVENUE COLLECTIONS

36

6 RECONCILIATION OF TRAVEL

46

SECTIONll 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
STAlE AUDllOR (404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
January 29, 1999

Honorable Roy E. Barnes, 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 financial statements (Exhibits A through F) ofthe Department ofRevenue as of and for the year ended June 30, 1998. These fmancial statements are the responsibility of the Department's management. Our responsibility is to express an opinion on these fmancial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material 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.
Governmental Accounting Standards Board Technical Bulletin 98-1, Disclosures About Year 2000 Issues, requires disclosure ofcertain matters regarding the year 2000 issue. The Department ofRevenue has included such disclosures in Note 12 of the Notes to the Financial Statements. Because of the unprecedented nature ofthe year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until year 2000 and thereafter. Accordingly, insufficient audit evidence exists to support the Department of Revenue's disclosures with respect to the year 2000 issue made in the Notes. Further, we do not provide assurance that the Department of Revenue is or will be year 2000 ready, that the Department of Revenue's year 2000 remediation efforts will be successful in whole or in part, or that parties with which the Department of Revenue does business will be year 2000 ready.

98ARL-2X

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 Ill, 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 fmancial statements.
In our opinion, except for the effects on the financial statements ofthe adjustments, ifany, as might have been determined to be necessary had we been able to examine sufficient evidence regarding year 2000 disclosures described in the third paragraph, and except for the effects on the financial statements of the adjustments to the equipment inventory records that may be necessary as described in the preceding paragraph, the fmancial statements referred to above present fairly, in all material respects, the financial position (statutory basis) of the Department ofRevenue as ofJune 30,1998, and the results ofits operations (statutory basis) for the year then ended, on the basis of accounting described in Note 1.
Our audit was made for the purpose offorming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Exhibit G and Schedules 1 through 6) is presented for purposes of additional analysis and is not a required part of the financial 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 such adjustments, if any, as might have been required had we been able to examine sufficient evidence regarding year 2000 disclosures, such information is fairly presented in all material respects in relation to the fmancial statements taken as a whole.
Respectfully submitted,
d.,.,~~-
Claude L. Vickers State Auditor
CLV:gp 98ARL-2X

FINANCIAL STATEMENTS - 1-

DEPARTMENT OF REVENUE COMBINED BALANCE SHEET (STATUTORY BASIS)
ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30.1998

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

FIDUCIARY FUND TYPE
AGENCY

$ 203.150.82 $ 11 .604.658.51 $ 25,400.691.09

$ 24.588,240.41
51.314.36 52.776.15

$ 24.692.330.92

$

45.00

$

70.008.35

Total Assets

$ 24.965.535.09 $ 11.604.658.51 $ 25,400,691.09

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 Modemization Year 2000 Projed State Revenue Collections Fund Unreserved Designated Surplus
Total Fund Equity

$ 9,677.723.56 2,290.82
$ 9.680,014.38

$ 25,400.691.09 $ 25,400.691.09

$

0.00

120,000.00

6,343.129.56

7,702,257.15

$ 11,604,658.51

1.120.134.00 $ 15.285.520.71 $ 11.604.658.51

Total Liabilities and Fund Equity The notes to the financial statements are an integral part of this statement.
-2-

$ 24.965,535.09 $ 11.604.658.51 $ 25,400.691.09

EXHIBIT"AH

ACCOUNT GROUPS

GENERAL

GENERAL

FIXED

LONG-TERM

ASSETS

DEBT

TOTALS (Memorandum Only) JUNE 30,1998 JUNE 30,1997

$ 37,208j500.42 $ 25,636,381.75

$ 24,588,240.41 $ 15,768,049.04

51,314.36

67,472.40

52,776.15

74,850.77

$ 24,692,330.92 $ 15,910,372.21

$ _ _~4:.:.5.:.:.00:...$ _ _4..:J;,3~9=2:.::;.00:...

$ 70,008.35 $ 34,842.86

$ 13,224,752.85

$ 13,224,752.85 $ 10,935,160.64

$ 4,733,987.16 $ 4,733,987.16 $ 4,589,768.15

984,252.71

984,252.71 1,542,442.50

$ 5,718,239.87 $ 5,718,239.87 $ 6,132,210.65

$ 13,224.752.85 $ 5.718,239.87 $ 80,913,877.41 $ 58,653,360.11

$ 9,677,723.56 $

2,290.82

25,400,691.09

$ 4,733,987.16 4,733,987.16

984,252.71

984,252.71

5,460,461.01 9,622.51
9,951,244.41 4,589,768.15 1,542,442,50

$ 5,718,239.87 $ 40,798,945.34 $ 21,553,538.58

$ 13,224,752.85

$ 13,224,752.85 $ 10,935,160.64

0.00 120,000.00 6,343,129.56 7,702,257.15 11,604,658.51

4,327.00 66,000.00 11,741,002.98
0.00 13,237,212.74

$ 13,224,752.85

1,120,134.00 1,116,118.17 $ 40,114,932.07 $ 37,099,821.53

$ 13,224,752.85 $ 5.718,239.87 $ 80,913,877.41 $ 58,653,360.11

-3-

DEPARTMENT OF REVENUE COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS)
GOVERNMENTAL FUND TYPES YEAR ENDED JUNE 30.1998

EXHIBIT"B"

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, 1998

EXHIBIT"C"

FUNDS AVAILABLE
REVENUES
STATE APPROPRIATION General Appropriation Amended Appropriation
BUdgetAdjustmen~
Total State Appropriation
FEDERAL REVENUES (See Schedule)
OTHER REVENUES RETAINED Collection Fees Contract Department of Natural Resources Cooperative Agreement United States Department ofTreasury National Asset Seizure and Forfeiture Program Evidence seizures Indirect Services Funding Department of Administrative Services Unclaimed Property Receip~
Total Other Revenues Retained
Total Revenues
CARRY-OVER FROM PRIOR YEAR
Transfer from Reserved Fund Balance Evidence Seizures Inventories Investment for Modemization
Total Carry-Over From Prior Year
Total Funds Available
EXPENDITURES
PERSONAL SERVICES
Salaries and Wages Employer's Contributions for:
F.I.CA Retirement Health Insurance Personal Uabllity Insurance Unemployment Compensation Insurance Workers' Compensation Insurance Assessme~ by Merit System Drug Testing
The notes to the financial statemen~ are an integral part of this statement.
-5-

TOTALS

YEAR ENDED

JUNE 30,1998

JUNE 30,1997

$

92,513,751,00 $

91,872,904.00

11,367,122.00

14,425,581,00

12,116,094.00

123,482.00

$

115,996,967.00 $

106,421,967.00

$

51,314,36 $

120,644.57

$

764,636.00 $

23,483.32

0.00

238,500.00

1,000.00

4,327,00

3,845,000.00 1,606,455.00

3,845,000.00 1,340,365.00

$

.6,217,091.00 $

5,451,675,32

$

122,265,372.36 $

111,994,286.89

$

4,327.00 $

66,000.00

11,741,002.98

$

11,811,329.98 $

0.00 54,000.00
0.00
54,000.00

$

134,076:702.34 $

112,048,286.89

$

45,482,209.80 $

44,484,359.24

3,009,3n.n
6,206,750.43 4,999,332.80
161,977,00 99,360,00
479,826,00 189,460.00
844.00

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

$

60,629,137.80 $ _--,5:.;:9"""3""99"""8,.,6""8,,,,.9,,,,,,9

DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 30, 1998

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 OFFICIALSIRETIREMENT 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, 1998

JUNE 30, 1997

$

114,389,20 $

127,344.70

697,356.17

745,272.38

741,942.64

681,100.44

21,415.75

18,681.43

52,267.65

45,442.19

97,940.48

77,593.31

833,841,39

774,738.71

44,559.06

110,582.36

2,414,516.52

2,392,696.45

245,872.41

241,518.44

$

5,264,101.27 $

5,214,970.41

$

1,274,071.45 $

1,271,476.42

$

120,270.58 $

241,682,84

$

167,114.60 $

180,711.44

183,235.56

151,135.94

$

350,350.16 $

331,847.38

$

208,389.74 $

254,895.48

1,476,684.11

1,557,236,22

0.00 4,275,870.03 6,373,051.51

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

$

12,333,995.39 $

14,255,321.67

$

2,842,285.41 $

2,830,692.61

$

2,763,793.94 $

2,735,708.03

$

1,104,536.64 $

682,100.07

$

1,786,636.71 $

851,088.48 102,283.32
953,371,80

$

3,440,394.00 $

2,690,394,00

731,888,14

732,401.00

$

4,172,282,14 $

3,422,795.00

DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 30, 1998

EXHIBIT .C"

EXPENDITURES
MOTOR VEHICLE TAGS AND DECALS Per Diem, Fees and Contracts Contracts
POSTAGE Other Costs Supplies and Materials
INVESTMENT FOR MODERNIZATION Personal Services Salaries and Wages Employer's Contributions for: F.J.C,A, Retirement Health Insurance Other Costs Supplies and Materials Repairs and Maintenance Other Operating Expenses (See Schedule) Publications and Printing EqUipment Equipment Purchases LeaselPurchase of EqUipment Computer Charges Software Computer Billings. DOAS Real Estate Rentals Telecommunications Per Diem, Fees and Contracts Per Diem and Fees Contracts
YEAR 2000 PROJECT Computer Charges Software Equipment EqUipment Purchases Per Diem. Fees and Contracts Per Diem and Fees Contracts Computer Billings. DOAS
Total Other
Total Expendnures
Excess of Funds Available over Expendnures
The notes to the financial statements are an integral part of this statement.
-7-

TOTALS

YEAR ENDED

JUNE 30,1998

JUNE 30,1997

$

2,642,850.00 $

2,642,847.59

$

3,550,390.78 $

3,714,082.97

$

382,477.51 $

13,274.76 21,915.08 17,515.14

237,988.77 8,418.48
210,365,75 471,980.00

1,953,108.90 3,990.00

416,991,96 1,488,562.19
62,933.34 111,000.00

1,635,259.04 10,243,382.50

$

.17,279,163.42 $

0.00
0.00 0.00 0.00
89,437.87 129,203.49
0.00 81,784.95
22,974.94 90,796.47
15,205.62 0.00 0.00 0,00
800,000.00 1,484.425.68
2,713,829.02

$

637,399,80 $

254,727.00

76,122.00 388.382.25 3,057,205.80

$

4,413,836.85 $

$

32,058,523.19 $

$ 119.423,165.90 $

14,653,536.44

0.00
0.00
0.00 0.00 0.00 0.00 12,493,554.58 99.728,494.73 12,319,792.16

$

134.076.702.34 $ _ ...11._20\0;,O4;,;.;,8..2~8~6..8._9

THIS PAGE LEFT BLANK

DEPARTMENT OF REVENUE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30,1998

EXHIBIT"D"

FUNDS AVAILABLE REVENUES
State Appropriation Federal Revenues Other Revenues Retained
CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 115,996,967,00 $ 115,996,967.00 $

294,071.00

51,314,36

17,958,093,00

6,217.091.00

0,00 -242,756,64 -11,741,002.00

$ 134,249,131.00 $ 122,265,372.36 $ -11,983,758,64

0.00

11,811,329.98

11,811,329.98

$ 134,249,131,00 $ 134,076,702,34 $ _ _....;-1;.;.,7;;;.:2,..;.;42;;;.;;8.;.;.6~6

EXPENDITURES
Personal Services . Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications
Per Diem, Fees and Contracts County Tax OfficialslRetirement and FICA Motor Vehicle Tags and Decals Postage Investment for Modernization Year 2000 Project

$ 60,660,092.00 $ 60,629,137.80 $

5,315,501.00

5,264,101.27

1,410,040.00

1,274,071.45

120,000.00

120,270.58

433,048.00

350,350.16

12,810,064.00

12,333,995.39

2,886,194.00

2,842,285.41

2,713,114.00

2,763,793.94

1,840,237.00

1,786,636.71

4,172,795.00

4,172,282.14

2,642,850.00

2,642,850.00

3,506,810.00

3,550,390.78

23,622,292.00

17,279,163.42

12,116,094.00

4,413,836.85

30,954.20 51,399.73 135,968.55
-270.58 82,697.84 476,068.61 43,908.59 -50,679.94 53,600.29
512.86 0.00
-43,580.78 6,343,128.58 7,702,257.15

$ 134,249,131.00 $ 119,423,165.90 $ 14,825,965.10

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

$ 14,653,536.44 $ 14,653,536.44

DEPARTMENT OF REVENUE STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
STATE REVENUE COLLECTIONS FUND YEAR ENDED JUNE 30, 1998

EXHIBIT wE"

STATE REVENUE COLLECTIONS (See Schadule)
Business License Tax Non Business License Tax
Motor Vehicle Registrations - Tags Motor Carrier Registrations - Tags Motor Vehicle Title Registrations
Corporate Net Worth Tax Estate Tax Financial Institutions Business Occupation Tax Income Tax
Corporations Individuals
Property Tax County Tax Digest Accounts Intangible Recording
Public Utilities Property Tax Assessments
Taxes Based on Sales Sales and Use Tax Regular Motor Fuel
Alcoholic Beverages Beer Liquor Wine
Cigars and Cigarettes Motor Fuel
Fines and Forfeitures Peace Officers and Prosecutors Training Fund Unclaimed Property State Children's Trust Fund Earnings - General Government
Homestead Option Sales Tax Collection Cost Local Option Sales Tax Collection Cost MARTA Sales Tax Collection Cost Motor Carriers' Fees Railroad car Tax Collection Cost Real Estate Transfer Tax Collection Cost Sales Tax for Educational Purposes Collection Cost Special Purpose Sales Tax Collection Cost Other Fees
Total Cash Receipts
CASH AND CASH EQUIVALENTS - JULY 1, 1997

CASH RECEIPTS

$

4,127,746.27

$ 90,536,516,94 52,738,682.09 39,651,529.39

182,926,728,42

24,013,610.41 84,808,641.83 11,305,304.05

$ 749,442,509.65 5,333,761 ,875,83

6,083,204,385,48

$ 38,527,859,82 875,795.34

39,403,655,16

$

42,469,61

379,930,59

422,400.20

$ 3,896,318,888,80 149,856,238.51 $ 4,046,175,127.31

$ 74,781,934,91 34,633,124.50 17,481,387.22

126,896,446.63

86,621,493.25 410,166,596.08

4,669,859,663.27

4,064,697.81 18,395,768.10 17,870,126.42
1,160,840.00

$

588,581.87

7,443,707.57

2,600,214,79

100,263,02

32,807.04

212,666.38

5,726,806,83

6,436,952.38

-8,339,287.57

14,802,712,31

$ 11,156,366,279.73

13,237,212.74

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

$ 11,169,603,492,47

DEPARTMENT OF REVENUE STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
STATE REVENUE COLLECTIONS FUND YEAR ENDED JUNE 30, 1998

EXHIBIT "E"

GOVERNMENTAL COST
Fees Retained at Collecting Source Properly Tax County Tax Digest Accounts Intangible Recording
Taxes Based on Sales Sales and Use Tax Regular Motor Fuel
Cigars and Cigarettes Motor Fuel
Assessing Properly Tax County Tax Digest Accounts
Disbursements of International Registration Plan Collections to Other States
Disbursement for Attorney's Fees Federal Employees' Retirement Settlement
Disbursement for Collection Costs Reimburse Budget Fund
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. 1998

DISBURSEMENTS

$ 1,407,164.33 46,869.48 $

1,454,033.81

$ 36,198.885.62 3,814,503.76 $ 40,013,389.38
2,617,781.79 3,186,652.09

45,817,823.26 $

47,271,857.07

563,465,37

12,706,128.69

4,283,296.12

764,636.00

$

65,589,383.25

$ 12,151,520,538,27 -1,059,111,087.56 11,092,409,450.71 $ 11,157,998,833.96 11,604,658.51

$ 11,169,603,492.47

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

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The Department of Revenue, an organizational unit of the 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 of the General Assembly of Georgia. It is the Revenue Commissioner's duty to administer all Georgia tax laws and he is empowered to make all rules and regulations necessary for the enforcement of those laws.
The Department 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 ofRevenue is included within the State of Georgia reporting entity for fmancial reporting purposes because of the significance of its legal, operational and fmancial 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 A fund is an independent fiscal and accounting entity with a self-balancing set of accoun~.. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with fmance-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 1997-1998. The Budget Fund is similar in nature to a General Fund as defined in generally accepted accounting principles in that the Budget Fund is used to account for all activities except those required to be accounted for in some other fund.
STATE REVENUE COLLECTIONS FUND - The fund used to account for the collection of specific revenues ofthe State ofGeorgia as provided by statute or administrative action and the subsequent transfer of such funds to the Office of Treasury and Fiscal Services. This presentation differs from generally accepted accounting principles in that such activity should be included in the General Fund of the governmental organization.

- 12-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FUND ACCOUNTING
FIDUCIARY FUND TYPE
AGENCY FUNDS - The funds used to account for assets held for use by other funds, governments, or individuals.
ACCOUNT GROUPS
GENERAL FIXED ASSETS - The account group used to account for fixed assets used in governmental fund type operations. Fixed assets purchased are recorded at cost or at estimated historical cost if historical cost is not practically detenninable. 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 nonnal 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 governmentallong-tenn liabilities, such as claims, judgments and compensated absences, which will be paid from future resources.
BASIS OF ACCOUNTING MEASUREMENT FOCUS
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. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Governmental funds should be accounted for using the flow of current financial resources measurement focus. With this measurement focus, operating statements present increases and decreases in net current assets and unreserved fund balance is a measure ofavailable spendable resources. In accordance with accounting practices prescribed or permitted by statutes and regulations ofthe 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 ofaccounting, revenues are recognized when susceptible to accrual (Le., when they are "measurable and available"). "Measurable" means the amount ofthe transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the
-13 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPES BUDGET FUND
current period. Revenues that are accrued include primarily State appropriations, Federal grants and entitlements, and certain amounts earned under operating agreements with other parties. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources.
Contractual obligations for goods and services which have not been received at the end 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 financial statements. This presentation is in accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, but differs from generally accepted accounting principles in that immaterial adjustments should be reported as current period revenues and expenditures.
STATE REVENUE COLLECTIONS FUND The State Revenue Collections Fund is maintained on the Cash Receipts and Disbursements basis of accounting as prescribed or permitted by statutes and regulations of the State of Georgia. This basis of accounting is defined as that method of accounting in which certain revenue and the related assets are recognized when received rather than when earned, and certain expenses are recognized when paid rather than when the obligation is incurred. The State Revenue Collections Fund, which should be included in the General Fund in accordance with generally accepted accounting principles, should be maintained on the modified accrual basis of accounting.
FIDUCIARY FUND TYPE AGENCY FUNDS
Agency Funds are custodial in nature and do not measure results of operations or have a measurement focus. The modified accrual basis of accounting is utilized for recognizing assets and liabilities.
BUDGET
Appropriation allotments to the Department of Revenue are on the basis of a budget submitted by the Department and approved by the Legislature and the Governor. The budget is adopted on a basis consistent with accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia and is
- 14-

DEPARTMENT OF REVENUE
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUDGET compiled in the same manner as all State departments. Expenditures are classified by budget unit object classes as provided in Act No. 405 of Georgia Laws 1997 (as approved April 24, 1997) and amended by Act No. 502 of Georgia Laws 1998 (as approved February 16,1998) and by Act No. 518 of Georgia Laws 1998 (as approved March 9, 1998). This budget is considered to be an appropriated budget and is referred to in these notes as the Amended Appropriations Act of 1997-1998.
Overexpenditure of a budget unit object class, except for the "common object classes", included in the Department's final amended budget is in violation of Section 54 of the 1997-1998 Amended Appropriations Act. ExpenditUres of no more than 102% ofthe stated amount for each common object class are authorized by Section 54. However, the total expenditure for the group of common object classes may not exceed the sum 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 the State investment poolthat has 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.
The Department ofRevenue participates in an investment pool managed by the State of Georgia's Office of Treasury and Fiscal Services (OTFS) referred to as Georgia Fund 1. Georgia Fund 1 is an external investment pool that is not registered with the Securities and Exchange Commission (SEC) but does operate in a manner consistent with the SEC's Rule 2a7 ofthe Investment Company Act of 1940. OTFS manages Georgia Fund 1 in accordance with policies and procedures established by State law and the State Depository Board, the oversight Board for OTFS. This investment is valued at the pool's share price, $1.00 per share.
The Department does not have any risk exposure related to investments in derivatives or similar investments in Georgia Fund 1 as the investment policy ofOTFS 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-inlfirst-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:
- 15 -

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"F"

NOTEl: 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.
YEAR 2000 PROJECT Represents State Appropriations for the Year 2000 Project. This amount is restricted for expenditures in the subsequent fiscal year.
STATE REVENUE COLLECTIONS FUND The balance ofrevenues collected but not transmitted to the Office ofTreasury and Fiscal Services at fiscal year end. These funds are required by the Official Code of Georgia to be transferred to the Office of Treasury and Fiscal Services and are not available for use by the Department.
UNRESERVED FUND BALANCE In accordance with accounting practices prescribed or permitted by statutes and regulations ofthe 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 financial resources. Funds are provided in the appropriation of funds each year to the Department to cover the cost of annual leave paid to terminated employees.
The liability forcompensated absences at year end is reported in the General Long-Term Debt Account Group for governmental funds.
MEMORANDUM ONLY - TOTAL COLUMNS Total columns on the Combined Statements (Statutory Basis) are captioned "Memorandum Only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, results of operations or changes in
- 16-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXIllBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MEMORANDUM ONLY - TOTAL COLUMNS fmancial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have.not been made in the aggregation of this data.

COMPARATIVE DATA Comparative total data for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding 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 statements 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 ofthe 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 ofthe State of Georgia.

(3) Bonds of any public authority created by the laws ofthe State of Georgia, providing that the statute that created the authority authorized the use ofthe 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.

- 17-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXIllBIT "F"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 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 ofGeorgia the option ofexempting demand deposits from the collateral requirements.

CATEGORIZATION OF DEPOSITS
For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. The bank balances as of June 30, 1998, 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 financial institution or by its trust department or agent, but not in the Department's name, and amounts uncollateralized.

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 25 404.314 79 $13316338683 $ 683 878.71 $,==~o.o~o $13247950812

CATEGORIZATION OF INVESTMENTS
The carrying amount of the investment balance as of June 30, 1998, shown below is maintained in an investment pool by the Office of Treasury and Fiscal Services and is not subject to risk categorization.

Type ofInvestment State Investment Pool NOTE 3: OPERATING LEASES

Carrying Amount
$11.791.485.63

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 ofthe 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, 1998, 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, 1998

EXHIBIT"F"

NOTE 3: OPERATING LEASES

Fiscal Year Ending June 30

1999

$ 844.672.68

Expenditures for rental of real property and equipment under operating leases for the year ended June 30, 1998, totaled $834,562.10.

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 fmancial reporting purposes.

At June 30, 1998, future minimum commitments under installment purchases for equipment are as follows:

Fiscal Year Ending June 30

1999 2000 2001

$ 379,582.21 379,582.21 379.582.21

Total Future Minimum Commitments

$ 1,138,746.63

Less: Amounts Representing Interest

154.493.92

Present Value of Future Minimum Commitments

$ 984.252.71

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$I,OOO.OO 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, 1998

EXHIBIT"F"

NOTE 5: CHANGES IN GENERAL FIXED ASSETS

Balance July 1, 1997

$10,935,160.64

Additions Deductions

3,503,374.72 1,213,782.51

Balance June 30, 1998

$13.224.752.85 .

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, 1998, follows:

Compensated Absences

Installment Purchase Commitments

Total

Balance July 1, 1997

$ 4,589,768.15 $ 1,542,442.50 $ 6,132,210.65

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

133,970.28 10,248.73

558.189.79

133,970.28 10,248.73
558.189.79

Balance June 30, 1998

$ 4.733.987.16 $ 984.252.71 $ 5,718,239.87

NOTE 7: RISK MANAGEMENT

Public Entity Risk Pool

The State Personnel Board, Merit System ofPersonnel Administration administers for the State of Georgia a program ofhealth benefits for the employees ofunits ofgovernment ofthe State ofGeorgia, units ofcounty 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 ofGeorgia. The State Personnel Board, Merit System ofPersonnel 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, 1998

EXHIBIT"F"

NOTE 7: RISK MANAGEMENT
Other Risk Management
The Department ofAdministrative 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 ofloss 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 ofthe 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, 1998.
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 was 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. 1998

EXIllBIT "F"

NOTE 9: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description The benefit structure of ERS 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 ofcreditable 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 fmancial 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 ofother 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, 1998, for employees covered by ERS was $39,322,338.00. The Department's total payroll for all employees was $45,864,687.31.
Under the old plan, member contributions consist of4% 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, 1998, the ERS employer contribution rate for the Department amounted to 15.59% 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, 1998

EXlllBIT "F"

NOTE 9: RETIREMENT PLANS

EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA

Funding Policy

Total contributions to the plan made during fiscal year 1998 amounted to $6,621,178.57, of which

$6,130,126.02 was made by the Department and $491,052.55 was made by employees. These contributions

met the requirements ofthe plan.

,)

Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 1998, fmancial report which may be obtained through ERS.

GEORGIA DEFINED CONTRIBUTION PLAN

Plan Description

The Department of Revenue participates in the Georgia Defmed Contribution Plan ("GDCP") which is a

single-employer defmed 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. Ifa 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 fmancial 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 ofemployment, the amount ofthe member's account is refundable upon request by the member. The Department's payroll for the year ended June 30, 1998, for employees covered by GDCP was $5,647,157.05. The Department's total payroll for all employees was $45,864,687.31.

Total contributions made by employees during fiscal year 1998 amounted to $423,542.50 which represents 7.50% of covered payroll. These contributions met the requirements ofthe plan.

- 23-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1998

EXHIBIT"F"

NOTE 10: LEAVE POLICIES
Employees earn ten hours of sick leave each month with a maximum accumulation ofninety 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 offorty five days. Employees are paid for unused accumulated annual leave upon retirement or tennination 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 ofthe 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, 1998, the Department paid $3,440,394.00 to the Employees' Retirement System of Georgia for retirement benefits and paid $731,888.14 to the local governments for social security benefits for these offices.
NOTE 12: COMPLIANCE WITH YEAR 2000 ISSUES
The Department of Revenue (DaR) has identified numerous computer systems and other electronic equipment (Systems) that are critical to operations which are affected by the year 2000 issue. The year 2000 issue is the result of shortcomings in many electronic data processing systems and other equipment that make operations beyond 1999 troublesome. These Systems include both "outsourced" Systems where the State of Georgia through the Department of Administrative Services (DOAS) is responsible for remediation efforts and in "in-house" Systems where DaR is responsible for remediation efforts. The folloWing stages have been identified as necessary to implement year 2000 compliant systems.
Awareness Stage - Encompasses establishing a budget and project plan for dealing with the year 2000 issue.
Assessment Stage - The actual process ofidentifying all of its systems and individual components of the systems to check for compliance.
Remediation Stage - When changes are made to systems and equipment.

- 24-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"F"

NOTE 12: COMPLIANCE WITH YEAR 2000 ISSUES

Validationffesting Stage - The process of ensuring that the changes made to systems and equipment will produce a year 2000 compliant system.

It will be necessary for DOR to progress through all four ofthese stages for each computer and/or electronic system, not already year 2000 compliant, in order to assure that these systems will not be adversely affected. The following is a list ofthe Systems, their primary function, and the year 2000 compliance stage the Systems are in as defmed by Governmental Accounting Standards Board Technical Bulletin No. 98-1.

Systems 1) Corporate Income Tax 2) Individual Income Tax
3) Sales Tax
4) Withholding Rewrite
5) Field Service Applications
6) Infrastructure
7) GRITS Security
8) Central Taxpayer Accounting (CTA)
9) Central Taxpayer Registration (CTR)

Primary Function

Compliance Stage at June 30. 1998

Processes tax returns, payments, and refunds for businesses

Remediation Stage

Processes tax returns, payments, and refunds for individual taxpayers

Remediation Stage

Collects, calculates, tracks, and distributes local taxes to Georgia counties on a monthly basis

Assessment Stage

Processes returns and employee tax payments withheld by employers

Remediation Stage

Processes data at the regional field offices to audit and collect taxes

Assessment Stage

Replaces or remediates personal and network computers, desktop software, and network devices

Assessment Stage

Secures the systems used to capture and maintain taxpayer information

Validationtresting Stage

Integrated accounting system that post tax payments, liabilities, assessments, and refunds

Remediation Stage

Central repository oftaxpayer information on individuals and businesses

Remediation Stage

Compliance Stage Necessary for Completion
Validationtresting Stage
Validationtresting Stage
Remediation and Validationtresting Stages
Validationtresting Stage
Remediation and Validationtresting Stages
Remediation and Validationtresting Stages
None
Validationffesting Stage
Validationtresting Stage

- 25-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"F"

NOTE 12: COMPLIANCE WITH YEAR 2000 ISSUES

. Systems 10) Mail/Cash
11) NC Registration and Title System
12) MV Registration and Cash Mgmt Remediation
13) Miscellaneous
14) Correspondence
15) Central Audit Applications
16) Property Tax Applications

Primary Function

Compliance Stage at June 30.1998

Performs initial data capture of tax documents, process payments, and produces bank deposit reports

Remediation Stage

Integrated, on-line system for processing motor vehicle tags and titles

Remediation Stage

Processes motor vehicle tags and Remediation Stage the accounting for such payments

Systems supporting various tax

Assessment Stage

operations, such as motor fuel, and

alcohol and tobacco

Tracks, manages, and retrieves correspondence with taxpayers

Assessment Stage

Perform audit operations using internal programs written in FilePro

Awareness Stage

Administer property tax operations using internal programs written in FilePro

Awareness Stage

Compliance Stage Necessary for Completion
Validation/Testing Stage
Validation/Testing Stage
Validation/Testing Stage
Remediation and Validation/Testing Stages
Remediation and Validation/Testing Stages
Assessment, Remediation and Validation/Testing Stages
Assessment, Remediation and Validation/Testing Stages

Expenditures by DOAS for the Statewide Systems cover the State of Georgia as a whole and are not kept by individualagency. The DOR has commitments totaling $11,928,046.00 for the year 2000 issue at June 30, 1998.

NOTE 13: 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.

- 26-

DEPARTMENT OF REVENUE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"F"

NOTE!3: CONTINGENCffiS
Litigation, claims and assessments filed against the Department ofRevenue, if any, are generally considered to be actions against the State ofGeorgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 1998.

- 27-

THIS PAGE LEFT BLANK

SUPPLEMENTARY INFORMAnON - 29-

DEPARTMENT OF REVENUE COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
FIDUCIARY FUND TYPE - AGENCY FUNDS YEAR ENDED JUNE 30, 1998

EXHIBIT"G"

FUND
central Processing Unit Special Account Homestead Option Sales Tax:
Collections For Distribution to Local Govemments 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 Sales Tax for Educational Purposes: Collections For Distribution to Local Govemments Special Purpose Sales Tax: Collections For Distribution to Local Govemments Tennessee Valley Authority Account Unclaimed Property Account

ASSETSI LIABILITIES JULY 1,1997

ADDITIONS

DELETIONS

ASSETSI LIABILITIES JUNE 3D, 1998

$ 432,765,28 $ 31,234,805.61 $ 31,252,611.57 $

414,959,32

0.00

60,452,454,41

60,452,454,41 (1)

0,00

0.00

55,181,164.83

55,181,164,83

0,00

0,00 -1.29 0.00 31,453.50 3,573,391,88 4,691,232.74

762,730,953,96 759,254,129.44 261,252,474.47
0.00. 7,157,567,48 41,864,412.23

762,730,953,96 (2) 759,256,057,12 261,252,474.47 (3)
0,00 3,280,700,76 (4) 32,098,215,85 (5)

0,00 -1,928,97
0,00 31,453,50 7,450,258.60 14,457,429,12

0.00

11,946,330.37

11,946,330,37

0,00

0.00

586,968,184,70

586,968,184,70 (6)

0,00

0,00

530,696,145.33

530,696,145.33

0.00

0.00 0.00 596,334,66 626,067.64

659,677,376.89 656,504,442.49
3,631,383.24 25,493,271.62

659,677,376,89 (7) 656,501,009.22
3,649,016.90 23,652,954.01

0,00 3,433.27 578,701,00 2,466,385,25

$ 9,951,244.41 $ 4,454,045,097,07 $ 4,438,595,650,39 $ 25,400,691,09

(1) HOMESTEAD OPTION SALES TAX DISBURSEMENTS
To Office of Treasury and Fiscal Services For Distribution to Local Govemments
To State Revenue Collections Fund

$ 59,863,872,54 588,581,87

$ 60,452,454.41

(2) LOCAL OPTION SALES TAX DISBURSEMENTS
To Office of Treasury and Fiscal Services For Distribution to Local Govemments
To State Revenue Collections Fund

$ 755,287,246,39 7,443,707,57
$ 762,730,953,96

(3) MARTA SALES TAX DISBURSEMENTS To Office of Treasury and Fiscal Services For Distribution to MARTA To State Revenue Collections Fund
See notes to the financial statements.

- 30-

$ 258,652,259,68 2,600,214,79
$ 261,252,474,47

DEPARTMENT OF REVENUE COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
FIDUCIARY FUND TYPE - AGENCY FUNDS YEAR ENDED JUNE 30. 1998

EXHIBIT"G"

See notes to the financial statements.

- 31 -

DEPARTMENT OF REVENUE SCHEDULE OF APPROVED BUDGET
YEAR ENDED JUNE 30,1998

SCHEDULE "1"

$ 97.699,116.00 $ 11.560,212.00 $ 24,989,803.00 $ 134.249,131.00

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

Year 2000 Project

60,089.292.00 $
5.221.372.00 1,366,540.00
120,000.00 410,048.00 9,407.440.00 2,886,194.00 2,711,370.00 1,250,237.00 3.422,795.00 2.404,350.00 3.506,810.00 4,902,668.00

400,000.00 $
3,193,090.00
750,000.00 238.500.00 6,978,622.00

170.800,00 $
94,129.00 43,500.00
23,000.00 209,534.00
1,744.00 590,000.00
11,741,002.00 12.116.094.00

60,660.092.00 5.315.501.00 1.410.040.00 120.000.00 433,048.00
12.810,064.00 2,886.194.00 2,713,114.00 1.840,237.00 4,172,795.00 2,642,850.00 3,506,810.00
23,622.292.00 12.116.094.00

$ 97.699,116.00 $ 11.560.212,00 $ 24,989.803,00 $ 134.249.131.00

See notes to the financial statements,

- 32-

DEPARTMENT OF REVENUE CASH AND CASH EQUIVALENTS
JUNE 30. 1998

SCHEDULE "2"

NONINTEREST BEARING ACCOUNTS
AmSouth Bank of Georgia, Rome, Georgia
NationsBank of Georgia, N.A., Atlanta, Georgia
NationsBank of Georgia, N.A., Macon, Georgia
South Trust Bank of Georgia, N.A., Atlanta, Georgia
SunTrust Bank, Atlanta, Georgia
Wachovia Bank of Georgia, NA, Atlanta, Georgia
INTEREST BEARING ACCOUNTS
NationsBank of Georgia, N.A., Atlanta, Georgia
SunTrust Bank, Atlanta, Georgia
Funds on Deposit with Office of Treasury and Fiscal Services State Investment Pool
OTHER
Cash on Hand

$

83,808.00

993.01

6,984.00

1,754,702.04

-53,968.48

7,160,943.80 $ 8,953,462.37

$ 16,348,394.99
102,457.43 11,791,485.63 28,242,338.05
12.700.00
$ 37,208,500.42

See notes to the financial statements.

- 33-

DEPARTMENT OF REVENUE SCHEDULE OF FEDERAL REVENUES
YEAR ENDED JUNE 30. 1998

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 $ 3,687.26
47,627.10 $ 51,314.36

See notes to the financial statements.

- 34-

DEPARTMENT OF REVENUE SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30,1998
REGULAR OPERATING EXPENSES
Bank Service Charges Clipping Service Computer Billings, Department of Labor Court Costs Evidence Purchase FIFA's Freight, Express and Storage Levies Other Security System Subscriptions and Dues Training Films and Tapes Uniforms
OTHER
INVESTMENT FOR MODERNIZATION Training

SCHEDULE "4"

$

421.82

17,409.69

5,907.55

42,705.37

9,024.51

341,889.00

153,352.70

9,591.85

6,858.87

1,793.80

184,171.95

43,005.35

17,708.93

$ 833,841.39

$ 210,365.75

See notes to the financial statements.

- 35-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1998

SCHEDULE "5"

BUSINESS LICENSE TAX
Beer Dealers Wholesalers' Licenses Retailers' Licenses Special Pennits 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 Pennits

$

37,000,00

805,500.75

16,875,00

8,490,00

123,300,40 $

991,166,15

$

32,050,00

474,462,50

22,263,34

78,203.37

606,979,21

$

24,500,00

639,133.75

9,541,66

101,335,50

774,510,91

$

16,910,00

180.00

17,090.00

1,738,000,00

$

4,127,746,27

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

$

991,166.15

606,979.21

774,510,91

17,090,00

1J 738,000,00

$

4,127,746,27

See notes to the financial statements,

- 36- .

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

SCHEDULE "5"

See notes to the financial statements.

- 37-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30,1998

SCHEDULE "5"

CORPORATE NET WORTH TAX Domestic and Foreign Corporations Current, Delinquent and Penalties
Net to State
ESTATE TAX Original Retums and Additions Less: Refunds Through Office ofTreasury and Fiscal Services
Net to State

$===24=,0;;,;1,:03,=61,;,;;0;;,;.4=1 $'==.;;2=4,=:;0,;,;13;;;,;,6:;;,;1=0=.4.1..

$

86.506.084.44

1.697,442.61 $

84.808,641.83

$

84.808.641.83

FINANCIAL INSTITUTIONS BUSINESS OCCUPATION TAX Original Retums and Additions
Netto State

$

11 ,305.304.05

$

11,305.304.05

See notes to the financial statements.

-38-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30. 1998

SCHEDULE "5"

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

$

98,459,562.47

823,046,402.14

$

921,505,964.61

172,063,454.96 $

749,442,509.65

$ 519,528,710.58 694,093,478.38 17,249,663.68
4,912,473,273.11
$ 6,143,345,125.75
809,583,249.92

5,333l61 ,875.83

$ 6,083,204,385.48

Disbursement for Attorney's Fees Federal Employees' Retirement Settlement
Disbursement for Collection Costs Reimburse Budget Fund
Netto State Cash Balance
July 1,1997 June 30, 1998

$

4,283,296.12

764,636.00 6,079,087,950.41

$

-10,706,050.53

9,n4,553.48

-931,497.05

$ 6,083,204,385.48

See notes to the financial statements.

- 39-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

SCHEDULE "5"

PROPERTY TAX

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

$

2,473,224.22

34,989,327.86

208,524:51

215,120.79

1,798.53

281,751.10

220,551.94

315,236.00 $

38,705,534,95

Miscellaneous Undesignated General Collections

174,813.48

$

38,880,348,43

Less: Refunds Through Office of Treasury and Fiscal Services

352,488.61 $

38,527,859.82

Intangible Recording Gross Collections

875,795.34

$,===39:;;.4=0:;;:3,;:;;65=5;;,;.1==6

See notes to the financial statements,

-40-

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

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

$ 3,929,157,209,01 149,907,037,05 $ 4,079,064,246,06

$

32,838,320,21

50,798,54

32,889,118,75

$ 4,046,175,127,31

Commissions Paid on Above Regular Motor Fuel
Net to State Regular Motor Fuel
Cash Balance July 1,1997 June 30,1998

$

36,198,885,62

3,814,503,76 $

40,013,389,38

$ 3,859,803,736,65 146,041,734,75

4,005,845,471,40

$

-1,025,963,50

1,342,230,03

316,266,53

$ 4,046,175,127,31

see notes to the financial statements,

-41 -

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

SCHEDULE "5"

TAXES BASED ON SALES
Alcoholic Beverages Beer Malt Beverage Tax Less: Refunds Through Office of Treasury and Fiscal Services

$

74,783,109,91

1,175,00 $

74,781 ,934,91

Netto State Cash Balance
July 1,1997 June 30,1998

$

74,796,548,72

$

280,64

-14,894,45

-14,613,81

$

74,781,934,91

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

$

34,671,404,50

38,280,00 $,===34:!,;,6:;3=:6l3'!oOi12=4=,5==0

Net to State Cash Balance
July 1,1997

$

34,632,874,50

250,00

$

34,633,124,50

Wine Wine Tax Less: Refunds Through Office of Treasury and Fiscal Services
Netto State Cash Balance
July 1,1997

$

17,481,987.22

600.00 $,===1=7,=4.8.1...,,3=8=7;,;;,2:=2

$

17,481,162.22

225,00

$

17.481,387,22

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

$

86,709,705.52

88,212,27 $

86,621 ,493.25

Commissions Paid on Above (Retained at Collecting Source) Netto State Cash Balance
July 1,1997 June 30, 1998

$

2,617,781.79

85.361,383,08

$

-1,454,842,26

97.170,64

-1,357,671.62

See notes to the financial statements,

-42 -

$

86,621.493,25

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

SCHEDULE "5"

See notes to the financial statements.

-43 -

DEPARTMENT OF REVENUE ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

SCHEDULE "5"

FINES AND FORFEITURES Beer - Malt Beverage Uquor Wine Cigars and Cigarettes
Net to State

BOND FORFEITURES

$

$

41,905.00

PENALTIES 30,276,50 $ 17,725.00 22,550,00
3,952,241.31

TOTAL 30,276.50 59,630.00 22,550,00
3,952,241,31

$

41,905,00 $

4,022,792,81 $

4,064,697,81

$

4,064,697,81

PEACE OFFICERS AND PROSECUTORS TRAINING FUND Fees from Court Fines and Bond Forfeitures
Net to State

$

18,395,768,10

$

18,395,768,10

UNCLAIMED PROPERTY Proceeds from Sale of Abandoned Property
Net to State
STATE CHILDREN'S TRUST FUND Fees from Marriage Licenses and Divorce Cases
Netto State

$

17,870,126.42

$

17,870,126,42

$

1,160,840,00

$

1,160,840.00

See notes to the financial statements,

-44-

DEPARTMENT OF REVENUE . ANALYSIS OF STATE REVENUE COLLECTIONS
YEAR ENDED JUNE 30, 1998

SCHEDULE "5"

EARNINGS - GENERAL GOVERNMENT

Homestead Option Sales Tax Collection Cost

Lo;;al Option Sales Tax Collection Cost

MARTA Sales Tax Collection Cost

Motor Carriers' Fees

Motor Fuel Truck Registration

Temporary Permits

$

Penalties for Non-Registration

Railroad Car Tax Collection Cost

Real Estate Transfer Tax Collection Cost

Sales Tax for Educational Purposes 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

$

5,510,00

163,968,00

82,500,00

-10,663,193,93

1,020,00

1,838,423,11

237,160,25 $

Less: Refunds Through Office of Treasury and Fiscal Services

$ 85,440,00 14,823,02
-8,334,612,57 4,675,00

588,581,87 7,443,707,57 2,600,214,79
100,263,02 32,807,04 212,666,38 5,726,806,83 6,436,952,38
-8,339,287,57

$

14,802,712,31

Netto State Cash Balance
July 1,1997 June 30,1998

$

14,790,229,70

$

-104,013.43

116,496.04

12,482,61

$

14,802,712.31

See notes to the financial statements,

-45-

Total per Annual Supplement
Accruals June 30, 1998

DEPARTMENT OF REVENUE RECONCILIATION OF TRAVEL YEAR ENDED JUNE 30. 1998

SCHEDULE "6"
$ 1,272,819.57 1.251.88
$ 1.274.071.45

See notes to the financial statements.

-46 -

SECTIONn AUDlTEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF REVENUE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND OUESTIONED COSTS YEAR ENDED JUNE 30, 1998

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

474-96-02 474-96-03 474-96-04 474-96-05 FS-474-97-01 FS-474-97-02 FS-474-97-03 FS-474-97-04 FS-474-97-05 FS-474-97-06

Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented

CORRECTIVE ACTIONIRESPONSES

CASH AND CASH EQUNALENTS Inadequate Accounting Procedures Finding Control Number: FS-474-97-01

The Department has made additional resources available to the Central Accounting Section to implement the recommended corrective actions. All discrepancies, with the exception ofdeficiency five (5), have been resolved during fiscal year 1999. Bank accounts are monitored to assure they are reconciled with the accouilting records on a timely basis; cash journals are maintained on all bank accounts; and reconciling items are being identified and corrected. We are working with the appropriate banks to resolve deficiency five (5) of the finding. The projected completion date is by the end of fiscal year 1999.

REVENUE/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number: FS-474-97-02

The Department contracted with an outside CPA firm to evaluate current deficiencies and to

recommend the appropriate actions to resolve these deficiencies. Work has been started on

developing software and hardware specifications for replacing the existing Revenue Collections

system. The Department has established a task force and plans to issue an RFP within the next six

(6) months.

.

- 1-

DEPARTMENT OF REVENUE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 3D. 1998
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
REVENUEIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number: FS-474-97-03
1) The second phase of the withholding processing system is designed to have the functionality to interact with the planned rewrite of the individual processing system. The documented employer withholding will be systematically compared to the amounts claimed by taxpayers on the individual returns to assist in identifying inconsistencies.
The redesigned individual income tax system will include a program to compare the federal income tax master file tape to the Georgia returns file, to reconcile the federal adjusted income claimed on the Georgia return to the federal return. The Department is currently developing a plan that will include the time frames for the development of the new individual system.
2) The Department is redesigning Phase I of the individual income tax system to include an automated amended return process which will ensure that adjustments are processed in a timely manner.
3) Implementation ofPhase I ofthe withholding system relieved the Department from maintaining a hand-prepared log book. Printouts ofthe batch listings from the system are now maintained in lieu of the log. Phase II will provide an adequate system of accounting controls to utilize automated procedures to ensure that all batches are processed by the system prior to purging. The Department will begin implementing Phase II during 1999.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-474-97-05
1) Purchases made through the Department's installment agreement have been added to the equipment inventory listing during fiscal year 1998.
2) The Department will implement procedures to ensure that a reconciliation is performed and discrepancies are resolved monthly.
-2-

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
CASH AND CASH EQUNALENTS Inadequate Accounting Procedures Finding Control Number: FS-474-98-01
Our examination included a review ofthe internal accounting controls and accounting procedures utilized by the Department of Revenue (Department) to provide for adequate internal control over assets of the Department. The following deficiencies and inappropriate accounting practices were found to exist:
1) The Department did not provide for adequate separation of employees duties in the performance of maintaining and reconciling eighteen (18) bank accounts.
2) The General Fund Transfer Account was not reconciled to the appropriate accounts. Accounting errors, incorrect postings and bank statement cut-off dates not consistent with general ledger cut-off dates contributed to the discrepancies.
3) Bank reconciliations for five (5) of forty-eight (48) bank accounts were not prepared in a timely manner.
4) Reconciling items identified during the bank reconciliation process were not corrected in a timely manner. A review ofthe bank reconciliations indicates that there are $6,477,501.98 in reconciling items that have not been corrected as of June 30, 1998, dating from March, 1994.
5) Outstanding checks totaling $13,720,619.39 were outstanding in excess ofsix (6) months at June 30, 1998.
These deficiencies were a result of the Department's failure to adequately manage cash. assets of the Department.
The Department should examine the necessity ofeach bank account to reduce the number of bank accounts. The Department should establish internal controls to ensure that employees' duties are adequately segregated and monthly bank statements are reconciled with the accounting records on a timely basis.
REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number: FS-474-98-02
Our examination inchided a review ofthe internal accounting controls and accounting procedures utilized by the Department of Revenue (Department) in maintaining their State Revenue Collections Fund. This 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
- 1-

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number: FS-474-98-02
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 ofthe 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 practices were found to exist:
1) The general ledger system consists ofthe "Revenue Ledger" and the "Refund Ledger". These ledgers do not provide for dual-entry accounting for the purpose ofrecognizing 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 ofrevenue 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. These deficiencies result in extensive time and effort being required to reconcile the fmancial 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 by 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 adj1istments in a timely manner to responsible persons within the Department can result in inaccurate financial records and possible financial loss to the State.
The Central Accounting Unit should develop and implement procedures to ensure that all adj1istments are communicated to the Divisions and individual tax units responsible for maintaining applicable subsidiary ledgers and associated records.
-2-

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number: FS-474-98-02
4) During the year under review, the Department established a Loose Check section to investigate unprocessed documents (including checks) discovered in the Mail Cash System that had certain missing or incorrect information. However, the checks returned to Tradeport from the Loose Check section were not adequately batch controlled. It is important to batch checks in order to ensure that all checks were received and properly controlled.
The Loose Check section should establish procedures to ensure that, after each payment has been resolved, a log of checks returned is maintained to ensure that the documentation is returned and received at Tradeport.
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 ofcontrols, which ensure a prompt reconciliation ofthe 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 ledgers and associated records through use of an integrated general and subsidiary ledgers 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.
6) The Department has not established an internal control system that requires cash receipts and disbursements to be posted to the "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.
-3-

DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30. 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the State Revenue Collections Fund (Overall) Finding Control Number: FS-474-98-02
6) 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 the posting dates in the subsidiary ledgers and associated records.
The deficiencies noted above are a result ofthe 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 ofthese deficiencies and take appropriate action to resolve these matters.
REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number: FS-474-98-03
Our examination included a review ofthe internal accounting controls and accounting procedures utilized by the Income Tax Division (Division) ofthe 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 of Georgia income tax. Only limited work regarding individual confirmation ofForm W-2 information is performed by the Department.
As a result ofthis 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.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number: FS-474-98-03
2) Tax examiners of the Individual Income Tax Unit and 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 and provide for regular management review of the report to assure that adjustments are made timely.
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 ofthis 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 ofall 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 automated 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.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUESIRECEIVABLESIRECEIPTS GENERAL LEDGER Deficiencies in the Income Tax Division Subsidiary Records Finding Control Number: FS-474-98-03
3) 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-474-98-04
Our examination included a review ofthe 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 a deficiency in that the Division does not maintain formally documented policies and procedures. This deficiency includes a failure by the Division to maintain in-depth descriptions of major functions, tasks and responsibilities. In the absence of formally approved policies and procedures, critical knowledge could be lost as experienced personnel transfer, retire or terminate.
The Division should initiate a program to formally document specific policies and procedures which include: (1) an overall description of the Division's key responsibilities; (2) key management policies; (3) primary communications and interfaces with external entities and (4) descriptions of the major functions, subfunctions and tasks performed by the Division.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation ofProperty Management System Finding Control Number: FS-474-98-05
For the year under review, our examination included a review ofthe internal accounting controls utilized by the Department ofRevenue (Department) 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 for equipment found to exist:
1) Equipment purchases totaling $1,508,807.77 were not promptly added to the property inventory system and were not included in the property inventory records at June 30, 1998. Many of these purchases were in excess of six months old.
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DEPARTMENT OF REVENUE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-474-98-05
2) The Procurement and ServicesDivision does not ensure that year end reports, additions, deletions, and the year end inventory balance reconcile. At fiscal year end, an unidentified variance of $34,560.81 existed.
3) Fourteen (14) additions to the property management records were selected to test for validity of additions to the property inventory records. These additions totaled $1,619,977.51 out of a population of $3,503,374.72. Appropriate documentation for two (2) additions to the property inventory records totaling $212,800.00 could not be located.
In addition, fifty (50) equipment items were selected to test the accuracy of the Department's property management records. These items contained a value of$2,034,514.36 out of a population of $13,224,752.85 and were selected for the purpose of locating the equipment as recorded in the inventory records. Four (4) items totaling $7,892.05 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.
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