May __, 2009 Lawrence D. Rusconi Budget Director City of New Haven 165 Church Street New Haven, Connecticut 06510 ‘Dear Mr, Rusconi: We are pleased to submit this report of our operational review of certzin aspects of the Office of the Tax Collector (the “Office"), Pursuant to our arrangement letter with you dated November 25, 2008, the specific objectives of our engagement were as follows: + Review the alias tax warrants dated October 3, 2008 (personal property) ta assess the propriety of their administration and ofthe colletions thereon, + Review tax refund payments issued since June 30, 2008 to determine whether any accounts had been included on tax warrants, = Evaluate internal controls and business processes of the Office as directed by you, and + Prepare suitable documentation of our results for use by the City, In conjunction with this engagement, the following worksteps were performed: Phase! 1. Met with City personne io gain an understanding of the current business practices related to the administration of alias tax warrants. Reviewed the alias tax warrants dated October 3, 2008 (personal property) and developed a program to contact taxpayers and request information related to the documents provided to each by the City, and the application of payments made, Reviewed all tx refund payments made since June 30, 2008 and identified any accounts that had been included on an alias tax warrant for personal property. For those accounts so identified, developed a program to contact taxpayers and request information related to the documents provided to each by the City, and the application of payments made. ‘Analyzed all documents provided by taxpayers in the preceding two worksteps, and communicated any findings to the Cityae Rusoonl [PRELIMINARY DRAFT ~ May __, 2008 : : 5, Prepared suitable draft documentation of the results of the operational review for review by the ity 6, Based on the City’s review of draft documentation and any additional information obtained, prepared final documentation of the results of the operational review for use by the City. Phase I 4. Based upon the preliminary results of the worksteps performed in conjunction with Phase | ofthis operational review, we wil perform an evaluation of intemal controls and other business processes in the Office as directed by you; and 2. Prepare a final report of findings and recommendations. ‘A. ADMINISTRATION OF OCTOBER 2008 ALIAS TAX WARRANTS 1. Background ‘This review was inflated because of a series of complaints by taxpayers to the City related to the administration of alias tax warrants by the Office of the Tax Colletor (the “Offce’), and the execution of those warrants by the State Marshal retained by the Office for that purpose. ‘The Office issued 339 allas tax warrants for personal property on October 3, 2008. Following the practice established by the Tax Collector, a query was developed to identify al personal property counts with an outstanding and delinquent balance greater than $100. The City’s tax bling and collections software (‘HTE") is used to perform this query and generate the warrants. The warrants detail the amount of tax and inlerest due by grand fist year, and include the form and language required by Connecticut General Statutes ("C.G.S.") §12-162, The City is entitled to make jeopardy collection of taxes when aocounts are delinquent, meaning that all taxes due for the fiscal year may be demanded in advance of normal bling due dates. AS such, the October 3 warrants included any taxes due in January 2008. The City has utilized the services ofa single State Marshal to serve alas tax warrants for personal property for more than five years. In certain timited circumstances, warrants are served by the Tax Collector, or the Assistant Tax Collector, who is a sworn Constable. The October 3 warrants were forwarded fo State Marshal Peter Criscuolo for execution. Shortly thereafter, the City received complaints from several taxpayers concerning the warrants, It was discovered that a number of accounts that had been adjusted 2s the result of audits were erroneously included on warrants, Erroneous warrants were being served on accounts with balances that were due, bul that were not Gelinquent {several of these so-called “add-on* accounts had been biled on October 2). To compound matters, complainants characterized the conduct of the State Marshal 2s overly aggressive, and that ofthe Office as unresponsive in dealing with the error.{Lawrence D. Rusconi Page 3 May __, 2009 ‘The City had received similar complaints of erroneous tax warrants and other matters on occasion prior to October 2008, and as a result, commissioned this operational review. B, REVIEW OF TAX REFUND PAYMENTS Some erroneous tax warrants issued by the Office resulted in refunds to taxpayers. As an initial mater, we reviewed all refund payments on personal property accounts from July 1 through November 30, 2008 as a means of identifying overpayments due to erronaous warrants. We reviewed a file of 233 refund payments provided by the City. Only one payment was @ refund of personal property taxes, We contacted the taxpayer, who explained thal they are a tax-exempt organization. ‘The Office issued a warrant on February 25, 2008, and the taxpayer made payment of taxes and interest, No fees were paid to the State Marshal who served the warrant. Once the taxpayer established their tax-exempt status with the Assessor's Office, the taxes that had been paid were refunded. C. CONFIRMATION OF WARRANT PAYMENTS: For purposes of collecting additional data about the administration of the tax warrants, we developed @ program fo contact taxpayers that records indicate were issued warrants, Confirmation letters. were mailed on 214 warrants, some of which were issued on the same delinquency at different points in time, Table 4 below summarizes the population that was tested and our results. Table 1 ‘Summary of Alias Tax Warrants Issued ~ Personal Property Warrant No.of-—Warrants__- Responses Date Warrants _Confimed_ Received’ gas 413 +v2008 137 : - 121308 323 0 2 22007 362 3 1 32907 175 : og0a07 1 102407 sit 12907 2 : : ‘120907 us 3 5 022508 448 1" 8 ogta08 410 : 2 100308 389 101 3 4 Includes cxnfimationsretumed by US.P.. as undalveratleLawrence D. Rusconi Page 4 May _, 2009 The responses to several confirmation leters revealed problems associated with the Office's firmees for additional information and ‘administration of the warrants. We contacted several of the conf Conducted interviews of some of the taxpayers who were served warrants in error. Exhibit + of this report presants several account historias which reveal weaknesses in the Offoe's administrative procedures as well as its internal conros. In the section which follows, we present our findings based bn these account histories es well as other information developed during the course of our operational review. D. EVALUATION OF INTERNAL CONTROLS & BUSINESS PROCESSES in the preceding sections, we have interviewed the Tax Yfice for purposes of gaining an understanding of current and to confirm and verify information obtained from our are detailed in the sections which follow. In addition to the procedures described Collector and other employees of the Of policies, business processes, and controls; review of records related to alias tax warrants. Our finding Our findings were reviewed with the Tax Collector for purposes of validating their accuracy and completeness, The Tax Collector noted the folowing circumstances as factors beyond his contol hich he feels have contributed to the weaknesses noted in our findings «The limitations in the functionality of the HITE tax system, particularly with respect to the administration of alias tax warrants. The limited staff resources of the Office of the Tax Collector including: the vacancy and elimination (in FY 2010) of the Assistant Tax Collector position, and increasing use of student interns to perform routine functions, and A lack of consistently effective communication with the Assessors Office, particularly during the past two years. 4. No Documented Procedures ‘The Tax Collector has developed and documented an internal policy addressing the administration of alias tax warrants, The policy is broadly written mainly to apply the requirements of Connecticut General Statutes to the program administered by the Office. There are no documented policies or procedures addressing the folowing areas which are areas of weakness based on findings noted during our review: + Ciileia for selecting personal property accounts to be warranted + Policies and procedures for selection and oversight of State Marshals Procedures for controling and tracking the status of warrants issued Procedures and documentation requirements for State Marshals remiting funds collected pursuant to alias tax warrants