New Steps to Help Ensure Local Governments Get Funds Due to Them
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In the past, finance officers in Indiana’s local governmental units had little way to determine if distributions from the State for local option income taxes (LOIT) and other taxes and fees were accurate. The distribution amounts they received from the State changed from year to year without much explanation.
When a couple of significant errors by the Indiana Department of Revenue (DOR) were discovered in early 2012, it raised concerns and made constituents wonder why these errors were not detected earlier. These errors unfortunately also lowered confidence in the entire system.
New measures are being put in place to assure a more accurate process. These measures should make local government financial officers feel more comfortable that the amounts they receive from the State are accurate.
The State hired an audit firm this summer to perform an independent risk assessment and audit of DOR internal controls and processes. The audit firm’s Financial Operations Risk Assessment report was issued in August. It identifies areas within DOR where there is a high likelihood of errors and prescribes measures to reduce the risk of future errors.
The State also formed an Ad Hoc Local Government Working Group to serve as a liaison between local officials and the audit firm.
The Ad Hoc group includes Goshen Mayor Allan Kauffman, representing the Indiana Association of Cities and Towns (IACT); Allen County Auditor Tera Klutz, representing the Association of Indiana Counties; fiscal analysts from the Indiana General Assembly; the deputy state auditor; and representatives from the Department of Revenue and the State Budget Agency. David Reynolds, fiscal analyst for the Senate Majority Caucus, serves as chairman, and Manny Mendez, director of audit and performance for the City of Indianapolis, is the group’s facilitator.
The Ad Hoc group is reviewing the processes for LOIT plus a long list of 31 other taxes and fees — including County Economic Development Income Tax, alcoholic beverage taxes and permits, innkeeper’s tax, riverboat wagering tax, motor vehicle excise tax and county wheel tax.
The Ad Hoc group began by “mapping” each of these taxes and fees to follow all the steps and formulas that apply from the time it is collected to the final distribution. Mapping for Motor Vehicle Excise Tax shows up to 36 steps at the agency, collection, state and county levels. Since this tax is just one of 32 distributions, mapping illustrates why calculating the total amount for each local government is so complex. By late September, the Ad Hoc group had completed mapping for 12 of 32 fees and taxes.
In addition to mapping the collection and distribution process, the Ad Hoc group is working to assure DOR procedures and processes appropriately reflect the statutes that prescribe the different taxes and fees and their distribution.
Once the mapping is complete and receives legal review, the Ad Hoc group will provide the Indiana State Budget Committee with its recommendations for improving the collection and distribution processes. The group plans to make its recommendations by December 1, 2012.
This detailed and complex review to clarify procedures should create far greater confidence for governments and constituents alike that each local government is getting a full and accurate distribution of what is due to them. Hopefully, it will also provide more information and transparency so local units are able to better plan future revenue amounts.
If you have question or would like more information, please contact us at footnotes@umbaugh.com.
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Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at footnotes@umbaugh.com.