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OIO - Estate Tax Return and Refund Executive Summary

Office of the Chief Financial Officer

Executive Summary for Closed Reports

 

 

Original Report

Report No. IA:OTR:2810-C14: Final Report on the Review of Estate Tax Returns and Refunds at OTR, dated September 2, 2009.

 

Current Status

Closed.

 

Chief Risk Officer’s Risk Assessment

The OCFO recognizes risks associated with collection of estate taxes, such as financial risk with non-collection of monies due, fraud risk, and regulatory risk.  However, the size of the portfolio raises the Inherent Risk Rating to Medium.   Nonetheless, all OIO recommendations were considered.

 

Overview of Recommendations

OIO offered twenty-three recommendations.  Twenty-one were implemented to further strengthen existing internal controls.

 

  • In FY09, the backlog of estate tax cases was reviewed, and a determination was made as to which taxes, penalties, and interest could be collected.  The Estate Tax Unit referred the necessary cases to the Collection Division for action.  All such cases have been referred to Collection since FY09.
  • In FY09, audits were conducted of a sample of estate tax returns received during 10/1/2003 - 9/30/2008.  A determination was made as to which taxes, penalties, and interest could be collected.  The Estate Tax Unit referred the necessary cases to the Collection Division for action.
  • The Review and Conference Unit reviews all estate tax cases and signs off on the case file; the R&C Manager signs the tax certificates for issuance.  This process has been in place since FY09.
  • The Estate Tax Unit sends closing letters (tax certificates) to all taxpayers filing an estate tax return.  The closing letter notifies the taxpayer of refunds, including interest.  Refunds are processed within 2-4 weeks of issuing the closing letter.  This process has been in place since FY09.
  • Necessary action to facilitate the collection of all taxes, penalties and interest due to the District is mandated in the Individual Performance Plan for the Collection Division Chief.
  • The OCFO created the Office of the Chief Risk Officer which is responsible for designing and implementing an Agency-wide risk management infrastructure to include the risks, assessment of individual risk, steps that the OCFO, as a whole, will take to mitigate the risks based on resources, and who is responsible for mitigation of the risks that have been identified.  This work is on-going.
  • Standardized policies and procedures for the Estate Tax Unit have been developed in concert with the division's current policies and procedures, and address the specific operations of the unit.  These policies and procedures were finalized in FY12.
  • The Estate Tax unit has established a standardized system (case file layout) to document all files; i.e., audit report, returns, estate tax calculation sheet, etc.  This system was finalized in FY09.
  • Audit Division policies and procedures address processing times for estate tax returns and refunds.  Employee IPP's mandate adherence to the established guidelines.  The policies and procedures were finalized in FY12.
  • Estate Tax Unit operations and segregation of duties were reviewed.  The additional management review and oversight approach was implemented in FY11 and includes documented file review.  Policies and procedures for unit operations were finalized in FY12.
  • The Review and Conference Unit reviews all estate tax cases, and the R&C Manager signs the tax certificates for issuance.  This process has been in place since FY09.
  • The Audit Division has developed a return classification program that incorporates prior year information, new legislation, and other factors into a blueprint for the selection of returns for audit.  When new legislation is approved it is added to the workplan accordingly.  This program was developed in March of 2011.  The classification program, together with aspects of the workplan finalized in September of 2011, provide the Audit Division with a risk based audit plan that incorporates staff availability and risk assessments.  The estate tax unit also reviews all estate tax returns for accuracy.
  • The refund directive clearly identifies the documentation required for estate tax refunds.  RAA maintains copies of the submitted refund package for all those refunds that are approved.  Additionally, the Estate Tax unit has established a standardized system (case file layout) to maintain all estate tax documents; i.e., audit report, returns, estate tax calculation sheet, etc.  This system was finalized in FY09.
  • RAA works closely with the Estate Tax Unit each month to reconcile transactions posted in SOAR with the Unit’s manual records.  This begins with providing a report of transactions in SOAR in the relevant revenue objects.  Differences are documented and resolved, and copies of the reconciliations are retained for audit purposes.
  • Since FY10, the Estate Tax Unit has coordinated with RAA in performing monthly reconciliations.  Differences are documented and resolved, and copies of the reconciliations are retained for audit purposes.
  • Standardized policies and procedures for the Estate Tax Unit have been developed in concert with the division's current policies and procedures, and address the specific operations of the unit as well as internal controls.  These policies and procedures were finalized in FY12.
  • In FY09, the backlog of estate tax cases was reviewed, and a determination was made as to what taxes, penalties, and interest could be collected.  The Estate Tax Unit referred the necessary cases to the Collection Division for collection action.  All such cases have been referred to Collection since FY09.
  • RAA has established an estate taxes receivable account for the amount of estate taxes, penalties and interest for the uncollected amounts due to the District. It is used to record current and future receivable amounts.  The accounts are reconciled with the Audit Division on a monthly basis.
  • The practice of reviewing the list prepared by the Register of Wills, and determining whether estates that equal or exceed $1M have filed has been in place since FY09.  The Estate tax unit sends delinquent notices and/or assessments to those non-filers of estates totaling $1M or more.  The Estate Tax Unit refers cases to the Collection Division for unpaid estate tax, penalties and interest.  Cases are assigned to Collection Staff for collection action.  This process has been in place since FY09.
  • The Estate Tax Unit refers cases to the Collection Division for unpaid estate tax, penalties and interest.  Cases are assigned to Collection Staff for action.  This process has been in place since FY09.
  • The Audit Division has developed a return classification program that incorporates prior year information, new legislation, and other factors into a blueprint for the selection of returns for audit.  This program was developed in March of 2011.  The estate tax unit also reviews all estate tax returns for accuracy.

 

Two recommendations were not implemented.

 

  • The processing of estate taxes is a requirement for the tax system replacement project.  Developing or purchasing a separate system outside of this system is not cost effective.  Requirements were developed and finalized in FY12.
  • The Integrated Tax System does not support estate tax, and it is not possible to enter information into ITS for tracking purposes without the supporting background information.  It would not be cost effective to make a systemic change to a system that is being replaced, particularly when considering the small number of estate tax referrals to Collection.   Requirements for estate tax management are part of the ITS replacement system.

 

To view the full report, Click here : Estate Tax Return and Refund Full Report