HARRIS COUNTY PROPERTY TAX REFUNDS...Harris County Hospital District. Taxable property consists of...

–––-–

AUDITOR’S REPORT

HARRIS COUNTY PROPERTY TAX REFUNDS TWELVE MONTHS ENDED MARCH 31, 2016

February 10, 2017

Barbara J. Schott, C.P.A.

Harris County Auditor

1

Why the County Auditor Performed this Engagement The objective of the engagement was to obtain an understanding and document the critical controls relative to the recording and disbursing of property tax refunds.

Summary of Results

Based on procedures performed, access to the ACT system is commensurate with assigned duties, and ACT provides an adequate separation of duties. In addition, property tax refunds were adequately supported, accurately calculated, appropriately authorized, and timely paid. However, matters related to ensuring refunds are issued to the proper recipient, monitoring for timely processing of refunds, and ensuring user access to the ACT system is removed timely, among others, were identified and can be reviewed in detail in the attached report.

COUNTY AUDITOR’S HIGHLIGHTS

An Audit Report on

Harris County Property Tax Refunds

Barbara J. Schott, C.P.A. Harris County Auditor

Mike Post, C.P.A. Chief Assistant County Auditor Accounting Division

Mark Ledman, C.P.A., M.P.A. Chief Assistant County Auditor Audit Division

BARBA RA J. SCHOTT , C.P.A.

HARRIS COUNTY AUDITOR

1001 Preston, Suite 800 Houston, Texas 77002-1817

(713) 755-6505

FAX (713) 755-8932 Help Line (713) 755-HELP

2

February 10, 2017

Ms. Ann Harris Bennett

Harris County Tax Assessor & Collector

1001 Preston, 1st Floor

Houston, Texas 77002

RE: Harris County Property Tax Refunds for the 12 month period ended March 31, 2016.

The Audit Services Department performed procedures relative to Harris County Property Tax

Refunds. Although you were not the office holder during the period of our procedures, we are

addressing the Auditor’s Report to you as the current office holder. The objective of the

engagement was to obtain an understanding and document the critical controls relative to the

recording and disbursing of property tax refunds. Our procedures included the following:

Evaluating the implementation status of our recommendations relating to refunds

reported to you in the Auditor’s Report for Tax Assessor and Collector Tax Office

Collections and Distributions dated May 10, 2010.

Selectively testing to determine whether access to the Assessing & Collecting

Technologies (ACT) system is commensurate with assigned duties and that ACT

provides an adequate separation of duties.

Selectively testing to determine whether property tax refunds were:

- Issued to the proper recipient

- Adequately supported

- Accurately calculated

- Appropriately authorized

- Timely paid

The work performed required our staff to exercise professional judgment in completing the scope

objectives. As the procedures were not a detailed inspection of all transactions, there is a risk

that error or fraud was not detected during this engagement. The Official, therefore, retains the

responsibility for the accuracy and completeness of their financial records and ensuring sufficient

controls are in place to detect and prevent fraud, errors and omissions.

The engagement process included providing you with engagement and scope letters and

conducting an entrance and exit conference with your personnel. The purpose of the letters and

Ms. Ann Harris Bennett

Harris County Tax Assessor & Collector

3

conferences was to explain the process, identify areas of concern, describe the procedures to be

performed, discuss issues identified during the engagement, and solicit suggestions for resolving

the issues. A draft report was provided to you and your personnel for review.

The enclosed Auditor’s Report presents the significant issues identified during our procedures,

recommendations developed in conjunction with your staff, and any actions you have taken to

implement the recommendations.

We appreciate the time and attention provided by you and your staff during this engagement.

cc: District Judges

County Judge Ed Emmett

Commissioners:

R. Jack Cagle

Rodney Ellis

Jack Morman

Steve Radack

Kim Ogg

Vince Ryan

William J. Jackson

4

TABLE OF CONTENTS

OVERVIEW ...................................................................................................................................5

RESULTS .......................................................................................................................................7

RISK ASSESSMENT AND SUMMARY OF RECOMMENDATIONS ................................13

Processing Tax Refunds .............................................................................................................8

Monitoring for Timely Processing ............................................................................................9

Outstanding Refund Checks ...................................................................................................10

ACT User Accounts ..................................................................................................................11

Removal of User Roles .............................................................................................................12

5

OVERVIEW

The Tax Assessor-Collector is the elected County official responsible for assessing, collecting,

recording, depositing and disbursing property taxes for the County and other taxing jurisdictions

such as Independent School Districts, Harris County Flood Control District, Port of Houston and

Harris County Hospital District. Taxable property consists of real property (land and

improvements) and tangible personal property used for the production of income. For the 2015

tax year, the Tax Assessor-Collector’s Office (Tax Office) processed approximately $6.5 billion

for almost 1.5 million tax accounts as reflected below.

Harris County uses ACT's Tax Collection System to achieve complete property tax system

functionality, including records maintenance, billing, collections, disbursing and reporting.

TaxLedge is ACT's financial accounting system and allows the Tax Office to manage

jurisdiction remittances, taxpayer refunds, and check writing.

The Harris County Appraisal District (HCAD) is responsible for determining the appraised value

of property and tax exemptions. Property taxes are levied based upon the HCAD appraised

valuation and the tax rates and exemptions adopted by each taxing jurisdiction. In August of

each year, HCAD provides the Tax Office with a certified appraisal roll for the current tax year.

In addition, monthly-certified updates to the tax roll and late certified accounts are also provided.

$1,608,815,732

25%

$2,515,897,159

39%

$101,646,976

1%

$49,906,243

1%

$632,274,524

10%

$1,321,795,044

21%

$132,074,152

2%

$57,429,864

1%

Tax Collections for Tax Year 2015

Harris County (HC) ISDs & Colleges HC Flood Control HC Port of Houston

HC Hospital District Cities HC ESDs Other

Source Data: ACT Report 298C for the period 7/1/2015-6/30/2016

6

Once the certified tax roll is loaded into the ACT system, the Tax Office will assess the amount

due, prepare statements (invoices) and mail them out.

The Tax Office accepts property tax payments online, by mail or in person. Persons paying

property taxes may use multiple credit cards or multiple e-checks to pay their taxes. Any

combination of credit cards and/or e-checks also may be used for payment. Partial payment is

accepted and will reduce any penalty and interest which might be owed on delinquent accounts.

Current taxes that remain unpaid on February 1st of the following year become delinquent and

are assessed penalty and interest. Taxes that remain delinquent on business personal property

may incur an additional collection fee of 15-20% after April 1st. Delinquent taxes on real

property incur the additional collection fee on July 1st. These dates could vary based on the

certification date of the account.

There may be instances where a refund becomes due on a taxpayer account. Overpayment

refunds include duplicate payments, overpayments and payments made in error (customer fault).

Requests for refunds of these types over $5,000 must be submitted in writing. Adjustment

refunds result from various types of corrections or changes made to the HCAD tax rolls and can

often be processed automatically if there has been no name or ownership change on the account.

Requests for refunds are logged into a centralized database and assigned to a refund clerk for

processing. Prior to processing a tax refund, designated Tax Office clerks verify that there is a

payment due and that the requestor is the appropriate recipient. A second clerk and/or supervisor

reviews the refunds before check processing begins. In addition, all refunds greater than $5,000

are reviewed by the Tax Office Accounting Department and sent to Commissioners Court for

approval. During the audit period, the Tax Office processed almost $7 million in refunds for

approximately 2,400 taxpayer accounts.

7

RESULTS

Based on procedures performed, access to the ACT system is commensurate with assigned

duties, and ACT provides an adequate separation of duties. In addition, property tax refunds

were:

Adequately supported

Accurately calculated

Appropriately authorized

Timely paid

However, internal controls could be further developed for the following areas:

Ensuring refunds are issued to the proper recipient.

Monitoring for timely processing of refunds.

Addressing checks which have been outstanding for excessive periods of time.

Ensuring access assigned to user accounts is appropriate.

Ensuring user access to the ACT system is removed timely.

These issues are discussed further in the Issues and Recommendations section.

ISSUES AND RECOMMENDATIONS

8

Processing Tax Refunds

Background When a refund request is submitted, Tax Office Personnel research account activity to determine

if a refund is actually due and who the recipient of the refund should be. In some cases, a power

of attorney or a Designation for Tax Refund has been submitted so that another party other than

the property owner can engage in the transaction on their behalf.

Issue The Tax Office does not have written procedures in place to consistently verify that the powers

of attorney submitted with refund requests for amounts less than $5,000 are valid and

appropriate. As a result, 1 of 126 (.8%) for approximately $2,370 was issued to an inappropriate

recipient.

Not validating powers of attorney submitted could result in a financial loss.

Recommendation Tax Office Management should consider implementing a procedure to validate powers of

attorney by confirming with the individual who completed the document. In addition, Tax

Office Management should research the appropriate action to be taken in order to resolve any

legal requirements with respects to the property tax refund which was sent to an inappropriate

recipient.

Management Response We agree with the Auditors’ comments. The Tax Office is under a new administration and will

address and implement each recommendation within the recommended time period, or as soon

thereafter as practicable, as part of the administration’s office-wide compliance and risk

mitigation review process. All appropriate staff will be advised of any necessary revisions to

policy and procedure.


9

Monitoring for Timely Processing

Background The Tax Office periodically runs queries in ACT to identify accounts which have refunds due. If

a recipient for a refund cannot be determined, a confirmation letter is sent to the property owner

requesting a response. Refund requests or taxpayer inquiries are logged into a database for

tracking and monitoring. In order to have a check reissued, the taxpayer must complete and

submit a Request for Replacement Refund Check.

Issue The Tax Office does not have a procedure in place to monitor for timeliness of processing

refunds for applications received, check reissue requests or following up on confirmation letters

which were sent notifying taxpayers of refunds due. In addition, the database is not consistently

updated to reflect when a refund request has either been completed due to issuance or closed

because a refund is not due to the requestor.

Not monitoring for timeliness of refund processing could result in failure to meet statutory

requirements as well as financial loss due to interest charges.

Recommendation Tax Office Management should consider incorporating the database functionality of monitoring

refund requests and applications into ACT during the system upgrade. In addition, a procedure

for tracking and monitoring confirmation letters which are sent to property owners should be

developed and implemented.







10

Outstanding Refund Checks

Background Harris County Accounting Procedure D.14, Unclaimed Property, requires that any unclaimed

property that has been abandoned for more than three years is subject to escheatment to either the

County Treasurer or the Texas State Comptroller. Unclaimed funds greater than $100 are

escheatable to the state and those under $100 are escheatable to the County Treasurer. The Tax

Office has procedures in which outstanding checks are evaluated annually for potential

escheatment.

Issue The Tax Office does not monitor for unclaimed refund checks outside of the annual escheatment

process, which only evaluates checks at least 3 years of age. As a result:

6,148 checks for $2,317,874.51 were outstanding for more than 365 days.

1,633 checks for $408,857.84 were outstanding for more than 3 years.

Maintaining a large number of outstanding checks for excessive periods of time could result in

financial loss.

Recommendation The Tax Office should consider implementing a procedure which monitors outstanding checks

and notifies refund recipients prior to becoming eligible for escheatment.







11

ACT User Accounts

Background System access rights must be carefully planned and communicated for internal control purposes,

taking into account the following:

Granting of rights only for specific user's assigned responsibilities.

Maintaining segregation of duties among employees.

Distinguishing between clerical and management functions.

Not maintaining generic accounts.

Audit logs should be able to provide the ability to trace transactions not only to a user account,

but to an individual who utilizes the account.

Issue Of approximately 300 internal user accounts tested the following exceptions were noted:

23 accounts (7.6%) appeared to have more access roles assigned to the user account than

necessary.

3 accounts (1%) appeared to be generic user accounts not associated with one specific

user.

Maintaining generic user accounts or user accounts with more access rights than necessary could

result in a financial loss and/or a loss of accountability should transactions associated with errors

or misappropriation occur.

Recommendation Tax Office Management should evaluate the user accounts identified and determine whether

roles assigned are appropriate. In addition, generic accounts should be removed, and required

access rights should be assigned to user accounts where the ability to monitor account activity

can be traced to a specific individual.







12

Removal of User Roles

Background The Tax Office performs annual verifications of employee ACT assigned roles with department

managers and also receives notification from Human Resources (HR) about transfers or

departures so user roles can be adjusted or removed accordingly.

Issue There is no process in place to ensure appropriate action is taken to adjust or remove user roles

upon receipt of HR notifications. As a result, 3 of 307 (1%) users tested were not removed

timely (up to 10 months after transfer or departure) from the system. Not removing access

timely could result in inappropriate access to the system and/or misappropriation of assets.

Recommendation Tax Office Management should implement a process in which follow-up is performed to

determine whether user roles were removed or adjusted timely.






13

RISK ASSESSMENT AND SUMMARY OF RECOMMENDATIONS

The risk matrix below presents the assessed level of risk or exposure identified during our procedures. Inherent risk relates to factors

that because of their nature cannot be controlled or mitigated by management. Inherent risk includes factors such as legislative

changes, number and dollar amount of transactions processed and/or complex nature of transactions. Control risks relate to factors

that can be influenced or controlled by management. Controls such as policies and procedures, electronic or manual approvals, system

security access, and separation of job responsibilities may be instituted by management in order to mitigate control risk. Control risk

is assessed during the planning phase in order to establish the nature, timing, and extent of testing and at the conclusion of the

engagement in order to incorporate actions taken to implement our recommendations. The overall risk considers a combination of

inherent and control risks.

Inherent Risk: Control Risk: Overall Risk: High Prior to Procedures After Procedures High

Moderate Needs Improvement Adequate

Moderate

Low Low

Type of Procedures: Audit

Purpose: To obtain an understanding and document the critical controls relative to the recording and disbursing of property tax

refunds

Priority

Rating: Audit Recommendations: Tax Office

1

1

Tax Office Management should consider implementing a procedure to validate powers of attorney by confirming with

the individual who completed the document. In addition, Tax Office Management should research the appropriate action

to be taken in order to resolve any legal requirements with respects to the property tax refund which was sent to an

inappropriate recipient.

Tax Office Management should consider incorporating the database functionality of monitoring refund requests and

applications into ACT during the system upgrade. In addition, a procedure for tracking and monitoring confirmation

letters which are sent to property owners should be developed and implemented.

14

1

1

1

The Tax Office should consider implementing a procedure which monitors outstanding checks and notifies refund

recipients prior to becoming eligible for escheatment.

Tax Office Management should evaluate the user accounts identified and determine whether roles assigned are

appropriate. In addition, generic accounts should be removed, and required access rights should be assigned to user

accounts where the ability to monitor account activity can be traced to a specific individual.

Tax Office Management should implement a process in which follow-up is performed to determine whether user roles

were removed or adjusted timely.

Priority Rating 1. Implement immediately (30 – 90 days) – Serious internal control deficiencies; or recommendations to reduce costs, maximize

revenues, or improve internal controls that can be easily implemented.

2. Work towards implementing (6 – 18 months) – Less serious internal control deficiencies, or recommendations that can not be

implemented immediately because of constraints imposed on the department (i.e., budgetary, technological constraints, etc.).

3. Implement in the future (two – three years) – Recommendations that should be implemented, but that can not be implemented until

significant and/or uncontrolled events occur (i.e., legislative changes, buy and install major systems, requires third party cooperation,

etc.).

HARRIS COUNTY PROPERTY TAX REFUNDS...Harris County Hospital District. Taxable property consists of...

Documents

Transcript of HARRIS COUNTY PROPERTY TAX REFUNDS...Harris County Hospital District. Taxable property consists of...