California Controller Betty T. Yee on Wednesday announced that her team’s detailed review of the state Board of Equalization’s accounting and administrative controls identified material weaknesses in how the board allocates retail sales and use tax.
In some cases, this led to state revenue being deposited in the wrong accounts, Yee reported.
The review team also discovered weaknesses in the board’s oversight of its internal revolving fund used for salaries, travel, and vendor payments.
“The board is entrusted with making sure tax dollars get to the right places,” Controller Yee said. “I am deeply concerned that the board is falling short in this crucial mission. The board must implement more internal controls, train staff, and break down silos that are detrimental to sound administration.”
Before being elected controller – the state's chief fiscal officers – Yee had served two terms on the Board of Equalization, representing part of Northern California that included Lake County.
In response to the controller’s findings, BOE Executive Director Cynthia Bridges wrote that the board is committed to strengthening fiscal controls and communication.
An internal review, dated June 30, led board staff to develop an action plan to address weaknesses, Bridges wrote.
The controller’s review team noted that the board did not describe improvements that were under way before they saw the controller’s report. As a result, the controller’s team could not assess the board’s action plan.
Other Board of Equalization members also responded to the findings Wednesday.
“This is the board's highest priority right now. We are developing a strategy with the executive director and management team to resolve these issues rapidly. California taxpayers should always have confidence that the state is managing their taxes efficiently,” said Vice Chair George Runner.
Fiona Ma, who now represents Lake County on the Board of Equalization, noted that Yee's audit raises a number of disappointing and troubling issues.
“As a Certified Public Accountant, it is unacceptable to me that a tax and auditing agency would fail to perform and carry out its basic responsibilities and functions,” Ma said.
Ma said that, based on the 11 months she's served on the state Board of Equalization, she believes the issues arose from a lack of transparency and oversight in agency operations.
“At our next board hearing, I will be introducing a motion to create a standing Auditing and Oversight Committee of the state Board of Equalization to ensure that these issues not only get corrected but stay corrected,” she said.
Ma also commended Yee for her leadership and diligence in conducting the audit, and added that she is “committed to working with Controller Yee and my colleagues on the board to correct these glaring problems immediately.”
The Board of Equalization was established by a state constitutional amendment in 1879 to ensure uniformity of property tax assessments throughout California.
Today, the board collects the retail sales and use tax, property taxes, and special taxes, as well as handling appeals of tax cases.
In the 2013-14 fiscal year, the board collected $48.5 billion in retail sales and use tax revenue, accounting for more than 24 percent of all state revenue.
Among the review’s findings:
· The board lacks adequate controls over the retail sales tax fund, rendering it unable to timely detect errors. In one case, the controller’s team found that the state general fund – the source of most spending – got $47.8 million too much, while other funds were shortchanged that amount.
· The board suffers from a lack of reliable information and communication among its staff units. As a result, revenue collection staff may be unaware of what is included in statistical reports used to determine tax allocations or the effects of new laws and regulations on allocations.
· In quarterly reconciliations of tax revenue allocations, the board improperly counted items that should have been left out, and made incorrect adjustments, leading to misallocations of funds.
· The board’s Office Revolving Fund (ORF) did not collect debts in a timely manner, including travel advances, salary advances, and payments due from various vendors. Vendor payments through the ORF – which should have gone through a normal claims process – opened the door to misuse of state funds. Employees did not sign forms requesting salary advances, and the controller’s reviewers could find no evidence advances were approved by managers or supervisors.