(The Center Square) — A Louisiana commission charged with collecting sales and use taxes for remote sellers lacked adequate assurance over internal controls and failed to perform timely bank reconciliations in 2021, the Louisiana Legislative Auditor reports.
Louisiana Legislative Auditor Mike Waguespack issued a report last week evaluating certain controls on financial reporting, compliance with applicable laws, and accountability of public funds at the Louisiana Sales and Use Tax Commission for Remote Sellers.
The commission is tasked with collecting and remitting sales and use taxes from remote sellers, or those selling online to Louisiana residents.
Auditors found the commission opted against an optional independent third-party review of the internal controls over critical functions performed by a contractor who provides an e-filing and pay portal, an administrative system of record, maintenance services, hosting infrastructure, and operational support.
The report notes that the commission’s contract with the service provider allows for the review, but “the commission did not properly evaluate the need for this report” before deciding against it.
“Inadequate assurance limits the commission’s ability to monitor the service organization’s performance and increases the risk of inappropriately changed or lost data and inaccurate or fraudulent financial transactions,” auditors wrote.
The LLA report also cited a failure to complete monthly bank reconciliations for the commission’s three bank accounts in fiscal year 2021.
“For one account, the commission did identify variances between the deposits per the bank statement and the commission’s monthly collection report, generated by its e-file system; however, these variances were not researched and resolved timely, resulting in undetected errors,” according to the LLA. “The subsequent research of variances between the bank deposits and the commission’s collections report identified a $1,556,697 liability at year-end, mainly from sales and use taxes inadvertently paid by a dealer and owed to (Louisiana Department of Revenue), or from overpayments due back to the remote seller.”
Auditors noted the commission lacked written policies and procedures for its primary financial and business functions, such as budgeting, contracting, collections, and bank reconciliations.
Despite the lack of controls and policies, the commission’s budget was better than expected in 2021, when “actual revenues exceeded budget by 11% and actual expenditures were less than budgeted by 24%.”
The better than expected outcome was “due to higher than anticipated collections and lower than expected cost related to information technology system development and delays in hiring personnel,” according to the LLA report.
Renee Ellender Roberie, the commission’s executive director, responded to the LLA audit in a letters to Waguespack on Aug. 12. Roberie disagreed with the LLA finding regarding inadequate assurance over the contractor’s internal controls.
“This business decision to dispense with this optional assurance review report was made in consideration of a statutory set deadline, significant resources of personnel and their experience in tax administration, and to ensure no interruption to the taxpayers served by the commission,” Roberie wrote.
Roberie also stated management worked with the contractor to test the records system and integrated controls, though LLA auditors wrote that provides only “limited oversight.”
“Without an independent third-party assurance report, the commission has no verifiable basis for asserting that the service organization continually maintains adequate controls to protect the commission’s data and correctly process its transactions,” auditors wrote.
Roberie also noted that the commission’s bank statements were reconciled for fiscal year 2021, though auditors countered that work was done months late. Roberie wrote that the commission is also working to hire staff, including an in-house accountant, to perform reconciliations, and to develop written policies.
“The commission expects to hire additional staff but in today’s environment that has proven challenging,” Roberie wrote. “The commission is discussing outsourcing the development of critical policies and procedures needed, however, that will be determined at a commission meeting in the future.”