Office of the Chief Financial Officer
Executive Summary for Closed Reports
10-1-02-OTR, Final Report: Audit of the Office of Tax and Revenue Audit Division’s Process for Selecting Tax Returns for Examination and Audit, dated November 8, 2010.
Chief Risk Officer’s Risk Assessment
The Office of the Chief Financial Officer assesses fraud risk as High. The audit function is a critical detective control used by OTR in its mitigation of fraud risk. Additionally, financial risk associated with revenue collections is also categorized as High. As such, particular attention is paid to opportunities to strengthen the audit process to reduce fraud risk and ensure the District collects all monies due.
Seventeen recommendations were provided. Thirteen have been implemented. Work done to strengthen existing internal controls included the following:
- 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 work plan accordingly. This program was developed in March of 2011.
- The Compliance Administration has developed a work plan based on IRS standards that requires the examination of returns across 14 tax types to ensure adherence to laws and regulations. This work plan was finalized in September of 2011.
- The classification program developed in March of 2011, together with aspects of the work plan finalized in September of 2011, provides the Audit Division with a risk based audit plan that incorporates staff availability and risk assessments.
- The revised Monthly Metrics Report was implemented in June of 2011, and includes all necessary tax types. The data gathered is reflected in the annual audit work plan.
- Experienced DS-12 and DS-13 Tax Auditors currently make up the team designated to screen returns selected for examination prior to assignment. The process includes documentation of the reasons for rejecting selected returns. This process was finalized in FY12. Continuing oversight is accomplished through reviews by division chief and senior manager.
- The Audit division has developed specific procedures for the preparation of work papers, indexing, and audit documentation. Revised documents were issued to employees in January 2010.
- The Audit Division implemented a post-audit review process during FY 2010. The Review and Conference group reviews closed cases to identify trends and patterns for training purposes. Policies and procedures were finalized in FY12.
- Since FY11, Compliance has conducted mandatory training for Audit employees developed, coordinated and facilitated by Senior Tax Auditors from Audit and Review and Conference. Training agendas have included policies and procedures, audit standards, preparation of work papers, monthly report preparation, and quality control standards.
- OTR is currently revising the document retention policy, which must be approved by the DC Archivist. This has been delayed due to transitions in the Office of the DC Archives. In the meantime, OTR has been directed by the Archivist to keep all records, which satisfies all retention requirements.
- Policies, procedures, and systems used to report labor distribution have been revised. The monthly distribution report has been developed and was implemented in June of 2011. Managers, the Senior Supervisory Tax Auditor, and the Division Chief conduct IPP-mandated reviews of the reports on a monthly and quarterly basis.
- A desk guide has been developed that contains standard definitions of the activities included in the monthly report, as well as the data appearing in the monthly summaries. All cells in the report are protected, with the exception of those that employees use to enter necessary data. This desk guide was completed in June 2011.
- All Audit Division employees are required to report labor distribution on a monthly basis. This requirement is included in FY12 employee Individual Performance Plans.
- Audit Managers, the Senior Supervisory Tax Auditor, and the Division Chief conduct mandated reviews of the labor distribution reports on a monthly and quarterly basis to determine accuracy, consistency, and reasonableness. Employee feedback is provided. This practice was implemented in June of 2011.
Four recommendations will not be implemented.
- The current computer system cannot support the proposed increase in the sensitivity to the items selected and the score that must be obtained for selections as a potential examination or audit. Requirements for this functionality are included in the plan for the replacement system which is currently being procured. Implementation of the new system is expected to begin in 2015. In the interim, Compliance uses a classification system to support audit case selection.
- Cases are assigned by managers and the Review and Conference Unit. An Independence Statement is a feature of GAGAS and is not enforceable. GAGAS applies to financial audits and is not applicable to tax audits. Therefore, the feature is not appropriate, thus OTR uses the OCFO Code of Conduct to cover the same idea.
- The Code of Conduct and division policies and procedures pertinent to the planning, execution and review of audits is reinforced during division staff meetings.
- For both the development of GAGAS-compliant policies and procedures as well as mandating compliance with these standards, it must be noted that GAGAS is applicable to financial audits and is not appropriate for tax audits. The Audit Division enhanced its policies and procedures for conducting examinations and audits during FY12, using the relevant IRS standards.
To view the full report, Click : OTR Audit Division’s Process for Selecting Tax Returns for Examination and Audit Full Report