City of West Palm Beach Internal Auditor s Office

Transcription

1 AUDIT OF BUSINESS, RENTAL AND SPECIAL EVENTS TAXES Report No. AUD November 3, 2014 City of West Palm Beach Internal Auditor s Office Roger Strout, Internal Auditor, CIA, CRMA, CFE, CICA Connie Tory, Sr. Internal Auditor, CFE, CGAP, CRMA Elena Georgiev, Sr. Internal Auditor, CPA, CGMA Roseanne Visone, Administrative Assistant

2 Internal Auditor s Office P.O. Box 3366 West Palm Beach, Florida Tel: 561/ Fax: 561/ The Capital City of the Palm Beaches November 3, 2014 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: AUDIT OF BUSINESS, RENTAL AND SPECIAL EVENTS TAXES REPORT NO. AUD Dear Audit Committee Members: Attached is the City of West Palm Beach Internal Audit Department's report on the City s collection of business, rental and special events taxes. Although the Development Services Department (DSD) has done a commendable job collecting new revenues, additional opportunities for improvement are presented in this report. We thank the management and staff of the Development Services, Parks and Recreation, and Support Services Departments for their cooperation and assistance during this audit. Respectfully Submitted, /s/ Roger Strout City Internal Auditor cc: Jeri Muoio, Mayor Jeff Green, City Administrator Dorritt Miller, Deputy City Administrator Scott Kelly, Assistant City Administrator Richard Greene, Director of the Development Services Department Christine Thrower, Director of the Recreation and Strategic Innovations Carlos Cabrera, Fire Chief Kathleen Fernandez, Director of Information Technology Kimberly Rothenburg, Interim City Attorney

3 Table of Contents Background... 4 Noteworthy Accomplishments. 5 Statement of Objective.. 6 Statement of Scope 6 Statement of Methodology 6 Statement of Auditing Standards.. 6 Audit Conclusions and Summary of Findings.. 7 Opportunities for Improvement & Management Responses 8 1. Logging in Checks Printing Outstanding Inspection Reports Timely Examination of the Business Tax Review Completion Report Timely Examination of the Audit Trail Reports Communicating the Requirements of City Code Obtaining Updated Inventory Values from Business Tax Licensees Sending a Reminder Notice to Delinquent Business and Rental Tax Licensees Applying Payments to Prior Years Balances First Performing a Thorough Examination of a Business Tracking of Unlicensed Businesses and Rental Properties Tracking of Unlicensed Special Events Organizers Appendix A And Memo from the Development Services Department Appendix B from the Dun & Bradstreet Representative 28

4 Background The City of West Palm Beach s Development Services Department, more specifically, the Building Inspections Division is currently responsible for levying and collecting local business taxes. The business tax collection staff within the Building Inspections Division is comprised of a License and Permit Supervisor and four License and Permit Specialists who interact with the members of the business community on a daily basis. However, only 30% of their time is currently available for Business Tax activities due to the significant increase in permit activity at the City. Permit activity has doubled year over year. Per definition, a local business tax means the fees charged and the method by which a local governing authority grants the privilege of engaging in or managing any business, profession, or occupation within its jurisdiction. The local government in turn utilizes the funds to provide essential services, including, but not limited to education, public safety, street, sidewalk, and other like improvements, etc., to the entire community, including the businesses that paid the local business tax. This audit was initiated as a result of an annual risk assessment and included in the Audit Department s approved FY2014 Audit Plan. $2,900, $2,800, $2,700, $2,600, $2,500, $2,400, $2,300, $2,200, FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Business Tax Licenses Revenue Page 4 of 29

5 Noteworthy Accomplishments During our audit several revenue enhancement opportunities were identified and related recommendations were presented that could potentially add significant dollars to the City s General Fund. Recently improved economic conditions have helped the Development Services Department (DSD) exceed most of their revenue budget projections for the year. It is important to recognize the significant accomplishments achieved by Development Services Department this year and below is a list of the notable achievements: 1) For the fiscal year ended 09/30/14, the department has already collected $2.82 million in business taxes compared to the budgeted amount of $2.5 million, resulting in a more than $322,000 increase to the City's General Fund. Last year, the department collected a total of $2.46 million. Including penalties and certificates of use, the total revenue collected is in excess of $3.2 million. Over the past fourteen (14) years, revenues had exceeded $3 million only one other time and that has been accomplished again this fiscal year. 2) The entire department is transitioning from the Community Plus software system to the OneSolution system which is a paperless system resulting in greater efficiencies with regard to plan reviews, collections, code enforcement and inspections. It is scheduled to go live in the spring of ) The department is utilizing the services of Vacant Registry to track the ownership of bank owned property within the City. Approximately 2,600 properties have registered with the City through June 2014 resulting in income to the City of more than $193,500. 4) As a department, Development Services collected in excess of $13.7 million in revenue compared to the $8 million budgeted for the year and the $9.4 million collected last year. 5) In an effort to better educate the West Palm Beach business community, the department implemented a quarterly "outreach" meeting to inform business and development interests about changes within the department, the City, approved or pending ordinance changes and updates with development projects, among other topics. More than 150 persons are on the invitee list and the meeting helps to foster a public-private partnership with persons interested in doing business within the city. In addition, other presentations have been made to the Realtors Commercial Alliance, the Florida Atlantic Building Association and the Business Development Board. Page 5 of 29

6 Statement of Objectives The objectives of this audit were to determine: 1) Whether selected internal controls relating to the assessment and collection of business, rental, and special events taxes were adequately designed and operating effectively; 2) Whether business/groups were properly assessed and that the money was collected timely and deposited into the City s accounts; 3) Whether renewal due dates (for the business and rental taxes) are monitored and delinquency penalties are assessed for non-renewal upon expiration; 4) Whether the Code Compliance Division of the Development Services Department monitored businesses operating within the City to verify that they possess valid licenses prior to operating; and 5) Other audit procedures determined necessary. Statement of Scope The audit period was October 1, 2012 through September 30, However, based on the work performed during the preliminary survey and the assessments of risk, the audit period varied depending on the audit objective. The audit included examinations of procedures, controls, transactions and records associated with business, rental and special events taxes. Statement of Methodology We utilized several audit methodologies to achieve the objectives. These evidence-gathering techniques included, but were not limited to: Reviewing applicable local, state and federal regulatory requirements; Interviewing Development Services, Parks and Recreation and Support Services Department employees; Performing walk-throughs, and observing processes; Examining the internal control systems and identifying any material weaknesses; Using analytical review procedures for purposes of planning substantive testing and confirming the reasonableness of audit conclusions and findings; Performing substantive testing consistent with the audit objectives as stated above; Drawing conclusions and developing recommendations based on the substantive testing. Statement of Auditing Standards We conducted this audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Page 6 of 29

7 Audit Conclusions and Summary of Findings Based upon interviews, test work performed, analytics, and the audit opportunities for improvement noted below, we conclude that: 1. The Development Services Department (DSD) should strengthen the internal control environment. a. The DSD staff does not always log all checks received. b. The DSD and Fire Department staff has not followed up on inspections and instead waited for business license applicants to contact them in regards to required inspections. c. The DSD staff is not examining the Business Tax Review Completion Report in a timely manner. d. The DSD staff is not consistently examining the Audit Trail Reports, which is a record of the changes that have been made to a database or file, in a timely manner. e. The DSD staff should make communicating the requirements of City Code to the appropriate community a priority and a part of its standard process. f. The DSD does not consistently obtain updated inventory values from licensees. g. The DSD does not consistently send delinquent notices to licensees. h. The Community Plus system used by the DSD applies payments in alpha numeric order instead of applying them to older balances first. i. The DSD staff does not have the staff needed to perform a thorough examination of each business. 2. The Development Services Department (DSD) does not have an all-inclusive system in place to track unlicensed businesses, rental properties, and special events organizers. Although resources are deployed to identify unlicensed businesses, third party data bases should be more fully leveraged to help increase revenues. As part of our examination, we noted that the DSD may benefit from using Dun & Bradstreet, a database of over two hundred and thirty five (235) million companies, and the Palm Beach County Property Appraiser s database to compare against their records and uncover unlicensed activity. Page 7 of 29

8 Opportunities for Improvement & Management Responses 1) Logging in Checks The Development Services Department staff does not log all checks received. Criteria Best practices for payment processing suggest that any checks received in the mail should be logged. Logging checks in helps avoid misplacing them and/or the opportunity for tampering with them. Condition The License and Permit Supervisor occasionally receives mail addressed to the supervisor instead of to the City s DSD. Such mail may contain checks, which are not logged prior to turning them into the cashier. Cause Logging checks received by the supervisor prior to turning them in to the cashier has not been a part of the business tax process. Effect The current check collection process presents an opportunity for lapping, which is an improper process involving taking the proceeds from one check for personal or other inappropriate use and replacing it with a subsequent receipt. This process would have to be repeated to replace the subsequent receipts indefinitely. Recommendation We recommend that persons sending payments to the DSD be directed to address it to the DSD and not to a named individual. Mail should be opened by an employee who either does not have access to Community Plus or has view only access and any checks received should be logged (including name, amount, and date), and totaled for the day. Checks should be stamped For Deposit Only, a deposit slip should be created and the checks should be transmitted to the cashiers in batches (rather than as applications are processed). Finally, the License and Permit Supervisor should receive a copy of the log and, at the end of each day, compare it to the deposit slip, and ensure that all payments are reflected in Community Page 8 of 29

9 Plus system. Management Response We agree. The Development Services License and Permit Supervisor will coordinate with Finance Cash Management to acquire the appropriate stamp and to institute an approved process and procedure for stamping, logging and processing the checks in question. We plan to have instituted these changes by November 1, ) Printing Outstanding Inspection Reports The DSD and Fire Department staff has left it up to the business license applicant to contact them in relation to scheduling inspections. Criteria It is best practice for the Code Compliance Division, the Fire Department, and the Planning and Zoning Division to print a report of any outstanding inspections and proactively address completing them. Condition It is left to the applicant s discretion whether or not to contact the Code Compliance Division, the Fire Department, and the Planning and Zoning Division regarding scheduling an inspection. Cause This control has not been implemented due to severe shortness of staff. In addition, according to the Fire Marshal, the practice of leaving it to the applicant to make the initial contact has been established by necessity. In the Fire Marshal s experience, sometimes an employee would go out for an inspection and the business would be unprepared, closed, or a number of other reasons would be given resulting in a non-inspection. Effect Not printing outstanding inspection reports and proactively addressing them could result in an opportunity for late inspections, unsafe conditions and/or loss of revenue to the City. Timely inspections should result in timely issuance of business tax receipts. In addition, these inspections, except for the ones done by Code Enforcement, present an opportunity to create additional revenue for the City. Page 9 of 29

10 Recommendation We recommend that the Code Compliance Division, and the Planning and Zoning Division print the report available in Community Plus at least weekly. Then, the inspectors may contact the businesses and arrange for a mutually convenient time to conduct an inspection. If the inspector appears on the business site and the business is not prepared for the inspection, resulting from the business s conduct, a fee may be charged to discourage similar behavior in the future. The DSD, being responsible for the assessment and collection of Business, Rental, and Special Events Taxes, should communicate this requirement to all parties and assess appropriate fees for missed inspections when warranted. Management Response We agree. The Development Services Department will require its employees to print the report on a weekly basis and follow up with the business owners. We plan to have instituted these changes by November 1, ) Timely Examination of the Business Tax Review Completion Report The DSD staff is not examining the Business Tax Review Completion Report in a timely manner. Criteria It is best practice that the DSD runs a Business Tax Review Completion Report, which is a listing of all businesses/properties/special events, whose files cannot be finalized. Condition The Business Tax Review Completion Report is currently run every 3 to 4 weeks by the License and Permit Supervisor, when ideally it should be run daily or at least weekly. Cause Currently the report is not being completed in a timely manner due to shortness of staff. In addition to running the report, it requires additional research and contacting the applicant and/or the appropriate Code, Fire, and Zoning officials. Page 10 of 29

11 Effect These delays can result in an opportunity for loss of revenue to the City. Timely examination of the Business Tax Review Completion Report and timely addressing of issues will help result in timely issuance of business tax receipts. In addition, the completion of the process results in revenue to the City not only for the current period, but if the business/rental is successful, for the future periods as well. Recommendation We recommend that the Business Tax Review Completion Report be examined on a weekly basis. In addition, whereas the DSD is in the process of implementing a new system, One Solution, and the list of businesses cannot be easily transferred from the old system due to the volume of businesses. Due to the time and effort required to set each one up from scratch, any outstanding issues should be resolved by the time the new system goes live. Management should consider a follow-up mechanism for any business licenses that remain open at the time of system conversion. Management Response The Development Services License and Permit Supervisor has instituted a policy and procedure that entails running the Business Tax Review Completion Report on a weekly basis with timely notification to Code, Fire, Police and Planning of required inspections. However, the report was designed and intended that it should be run and monitored by each of the responsible Divisions. Therefore it is our recommendation that Code Enforcement, Planning, Police and Fire delegate the responsibility for running, timely examination and corrective action as identified by this report. 4) Timely Examination of the Audit Trail Reports The DSD staff is not examining the Audit Trail Reports in a timely manner. Criteria The Community Plus system provides an audit trail, which is a record of the changes that have been made to a database or file. Best practices suggest that it should be examined regularly to identify any irregularities including, but not limited to issuing licenses to individuals without requiring payment. Page 11 of 29

12 Condition The clerks entering the applications have the ability to override the system by zeroing out the amounts due, and issuing a license without payment. The auditor noted that the audit trail report is only examined if an issue is brought up. Cause The License and Permit Supervisor is not involved in this due to severe shortness of staff. Effect There is a risk that a clerk could issue licenses to others without the City collecting the required fees. Recommendation We recommend that the audit trail report be examined regularly for anomalies by an employee removed from the daily responsibility for entering data in Community Plus. This would be an appropriate responsibility for the License and Permit Supervisor, who by definition, should be supervising and following up on issues rather than performing day-to-day operations. Management Response We agree with this finding and feel that with adequate staffing levels, this goal can be achieved. We are in the process of hiring a Fiscal Coordinator to assist with this. We plan to have instituted these changes by December 15, ) Communicating the Requirements of City Code The DSD staff has not made communicating the requirements of City Code to the appropriate community a priority and a part of its process. Criteria It is a best practice that the requirements of chapter 82 of the City of West Palm Beach Code of Ordinances, which specifies which businesses are required to obtain licensure, specifies due dates and any additional requirements related to the issuance, renewal, transfer of licenses, etc., should be communicated to the community at large. Page 12 of 29

13 Condition The requirements of chapter 82 of the City of West Palm Beach Code of Ordinances are not communicated to the community. At present the Code officers rely primarily on in-person inspections to identify businesses in violation of chapter 82. Cause Communicating the requirements of chapter 82 has not been a part of the business tax process. Effect Not communicating the requirements of chapter 82 of the City Code to the community can result in a loss of revenue to the City. Recommendation We recommend that the DSD develops a comprehensive program to communicate to the appropriate community the requirements of chapter 82. This could include any or all of the following: Announcement on the City s and the DSD s web sites; Brochures/posters placed in conspicuous places such as auto tag agencies, banks, driver s license offices, post offices, public buildings, technical schools, and other public places as determined appropriate; Brochure included with the Palm Beach County s Property Appraiser s notices; Forms sent with the renewal letters requesting that the licensee reports any changes to the licensee s business operations that could impact the amount and basis for the fee. This form should include a list of criteria and/or examples; Educating local realtors. Management Response We agree with the recommendation. As we mentioned in (1), the Business Tax Division will begin to utilize the recommended methods. In addition, we plan to do the following in order to communicate the requirements of Chapter 82 to the Community at large and to Business owners and owners of rental properties that do not have active Business Tax Receipts and Certificates of Use. Page 13 of 29

14 The Division will utilize inserts in the City Utility Bills bi-annually to communicate the requirements of Chapter 82. The Division will coordinate with the Utilities Department to identify rental properties and to assure compliance with Chapter 82. The Division will coordinate with the Palm Beach County Business Tax office to identify those Businesses operating in the City without Business Tax Receipt and Certificate of Use where they are required by Chapter 82. The Division will utilize the Property Appraiser Parcel Data to compare with the City of West Palm Beach Business Tax Receipts database to identify rental properties that do not have a current Business Tax Receipt and Certificate of Use. We plan to have begun these initiatives by November 1, ) Obtaining Updated Inventory Values from Licensees The DSD does not consistently obtain updated inventory values from licensees. Criteria The requirements of chapter 82 of the City of West Palm Beach Code of Ordinances require that businesses whose license amount is calculated based on the amount of inventory, disclose any changes to inventory values yearly. Condition Presently if a business has inventory, its license payment is based on the inventory value, at cost. A notice is sent on April 1, asking such businesses to provide an updated inventory value on which to calculate the payment. This information is due on June 1. In the past, Code officers were dispatched to verify that the information provided is accurate; however, no one goes to the business to verify that the information is updated. Once received, it is entered into Community Plus. If the business does not respond, the payment is calculated based on the previous year s information available. Cause Obtaining updated inventory values from licensees has not been included as part of the business tax process. Page 14 of 29

15 Effect Not obtaining updated inventory values can result in a loss of revenue to the City. Recommendation We recommend that the DSD request the following of businesses in support of their annual inventory valuations instead of simply relying on the numbers provided even though the form must be notarized. When an inspector is dispatched, there are many inventories which require specific knowledge and may not be easily valued by an outsider. Potential sources of inventory value include: Sole-Proprietors Form 1040, Schedule C; Partnerships Form 1065, Schedule L; S-Corporations Form 1120S, Schedule L; and C-Corporations Form 1120, Schedule L. In addition, it should be communicated that businesses which do not update the information as required will be considered in violation of chapter 82 and that penalties may be applied. Management Response We will need guidance from the City Attorney on how to implement this recommendation. We plan to obtain such guidance by November 1, ) Sending a Reminder Notice to Delinquent Licensees The DSD does not consistently send delinquent notices to business and rental licensees. Criteria Best practices suggest that a delinquent client should be contacted and reminded of the license amount due. Condition A reminder notice may be sent to the delinquent business owners/property owners if the amount outstanding justifies such mailing. The total delinquent balance as of January 1, 2014 was $327,456, which in the opinion of the DSD staff did not justify a mailing. Page 15 of 29

16 Cause Mailings are not done due to staff s belief that the amount is immaterial or material and easily collectable. Effect The projected revenue from business tax receipts for FY 2014 was approximately $2.5 million. Therefore, the amount outstanding as of January 1, 2014 exceeded ten (10) percent. If a reminder letter is not mailed, the possibility exists that the amount outstanding may not be received or easily collected. Recommendation We recommend that a reminder letter be sent to all business owners/property owners with outstanding balances as of October 1, and again as of January 1. This letter should clearly indicate that it is an invoice and that the account is past due. Management Response We agree and propose to begin sending a 2 nd Notice on or about the 5 th of November and a 3 rd and Final Notice on or about the 5 th of January. We plan to have initiated these changes by November 5, ) Applying Payments to Prior Years Balances First The Community Plus system used by the DSD applies payments in alpha numeric order instead of applying them to older balances first. Criteria Best practices suggest that payments received should be applied to any older balances first before being applied to the current balance. Condition The DSD payments received are applied in alpha numeric order, meaning there is no distinction between current and prior year amounts, instead of being applied to any prior year balances first. Page 16 of 29

17 Cause Community Plus software system is not designed as an Accounts Receivable system. Effect Applying payments received in an alpha numeric order may result in eliminating balances which would otherwise remain in the system and require a percentage penalty to be applied to them resulting in additional revenues to the City. Recommendation We recommend that the DSD staff ensure that the new system being introduced, One Solution, functions more like an Accounts Receivable system in these situations. Management Response We agree with this recommendation. Currently there is a limitation with the Community PLUS system design. This problem will be resolved with the implementation of the new One Solution system in the spring of ) Performing a Thorough Investigation of a Business The DSD staff does not have the means to perform a thorough investigation of a business. Criteria Per West Palm Beach City Code Chapter 82, article 5, Sec , the fact that a person is open for business shall be a prima facie evidence of engaging in trade, business, profession or occupation. This applies to rental tax since it is considered a type of business tax. Condition Presently if a Code Officer discovers a business/property without a business license, he/she is responsible to determine how long the business/property has been operating without a license. We noted the DSD has only charged back a business tax and Certificate Of Use (COU) fee (if required) for up to three years. Page 17 of 29

18 Cause A thorough investigation is not performed due to shortness of staff. Effect Not performing a thorough investigation can result in lost revenue to the City. In addition, it sends the message to the community that even if a business/property does not comply with requirements, the most it may pay is three years worth of fees. Recommendation We recommend that the Code Officers perform a more thorough investigation as to when a business became operational and/or a property became available for rent for the first time. We recommend that the DSD staff obtain a subscription to a service similar to Dun & Bradstreet, which can provide a wealth of information that could be used in the process. Management Response We agree with this recommendation, however, in order to implement these more exhaustive investigations, it will be necessary to have additional staff for Business Tax Code Enforcement duties both clerical and Code Enforcement Officers. 10) Tracking of Unlicensed Businesses and Rental Properties Numerous businesses and rental properties are operating without a business/rental license. Criteria City Code, Chapter 82, article 5, Sec states that: It shall be unlawful for any person, either directly or indirectly, to conduct business, profession, or occupation or to use in connection therewith any vehicle, premises, machine, or device, in whole or in part, for which a business tax receipt is required by any law of this city without a business tax receipt, license, or permit therefor being first procured and kept in effect at all times as required by this article or other law or ordinance of the city. This also applies to rental tax since it is considered a type of business tax. Page 18 of 29

19 Condition Our examination, which involved comparing the Palm Beach County business licenses data base with the City s business licenses data base, identified some businesses the County indicated were located in the City, which appear to not be in possession of a business license. After the DSD first received our finding and recommendation, and supported our recommendation (See Appendix A), the DSD subsequently informed us of inaccuracies in the County data, which we are investigating. In addition, as part of our testing, we compared the list of non-homesteaded residential properties located within the City of West Palm Beach limits (obtained from the Property Appraiser s office), to the list of licensed properties within the City of West Palm Beach City limits, obtained from the DSD. Our testing found approximately 18,000 non-homesteaded residential properties that did not appear on the City s list of rental properties. While many of these properties may not be rented, other cities have found many of the non-homesteaded properties are and have increased revenues with friendly reminder letters and follow up. Cause The DSD should begin the process of developing a comprehensive program to identify and communicate to the appropriate community the requirements of chapter 82 and more specifically the requirements for business licenses. In addition, shortness of staff has limited the Department s ability to perform a thorough examination of businesses and rental properties. Effect Business Licenses Revenue In order for us to remain conservative, we made the assumption that one business can have only one license, which is not always the case since one business may be involved in several distinct activities, each requiring a separate license. For example, a grocery store may require a Supermarket & Other Grocery license, a Pharmacies & Drug Stores license, a Beer Wine & Liquor Stores license, and an Other Depository Credit Intermediation/ATM license. We obtained a list from Palm Beach County of all businesses in possession of a County business license, which were also believed to be physically located within the limits of the City of West Palm Beach. We compared the two lists and eliminated any businesses that were already licensed with the City. Based on a sample of sixty (60) businesses selected we estimate that the potential yearly revenues could amount to approximately $9,000, or an average of $150 per business. However, in addition to the business license amount and the applicable penalties, a business also pays for fire and zoning inspections, and Certificates of Use (COU) (if applicable). Thus, the total potential yearly revenues increase to approximately $13,000, or an average of $217 per business, depending on whether the business has been registered with the City in the Page 19 of 29

20 past and pays a lower COU fee or not. Every one thousand businesses identified could contribute an additional $217,000 to the City s General Fund. Rental Licenses Revenue We obtained a list from Palm Beach County of all residential non-homesteaded single and multifamily properties with a PCN (property control number) beginning with 74, indicating it is located within the limits of the City of West Palm Beach. We also engaged the City s GIS Support Specialist to confirm that these properties are in fact located within the limits of the City, which he did (Exhibit A). We selected for examination a statistical sample of sixty (60) properties, thirty (30) single family homes and thirty (30) multifamily homes. Based on meetings we held with the property managers and additional research, our sample revealed that approximately fifty (50%) percent of the properties appear to be rented, eight (8) single family homes and twenty two (22) multifamily homes. Based on the above, it appears that nine thousand (9,000) properties, or fifty (50%) percent of the total population (Exhibit A) of eighteen thousand (18,000) properties, may be rented. The DSD could potentially collect up to approximately $2 million in retroactive fees from these properties, and it has been the DSD s practice to charge three (3) years back if it is determined that the property has been rented out for three (3) or more years. In addition, the DSD could potentially collect up to $1 million a year going forward. When combining the three (3) years of revenue in arrears with the going forward first year, the total revenue opportunity could reach as much as $3 million. In case of noncompliance, Section 205 of the Florida Statutes and the City of West Palm Beach Code of Ordinances, Chapter 26, and Section , allow the City to impose a lien against the property. Please note that the amounts presented above are an estimate only based on our confirmed analytical evaluations. These results will require significant efforts and are not likely to be achieved in a single year, but may require years of property owner education and cooperative efforts with other government agencies. Again, it is important to note that management has already taken positive actions to increase business tax revenues. This recommendation is intended to point out new tools that can be employed and result in additional revenues, not criticize DSD for inaction. The track record they have shown on page five of this report (Noteworthy Accomplishments) is impressive. Recommendation We recommend that the DSD develops a comprehensive program to identify and communicate to the appropriate community the requirements of Chapter 82. In addition, we recommend that the DSD utilize tools such as Dun and Bradstreet, one of the world s premier business tracking organizations, which identified over 26,000 businesses (Appendix B) with an address indicated as West Palm Beach, to help identify businesses that are operating without a business license. Of course these type of data bases may have some incorrect data, but can still be useful as tools to help identify businesses which should acquire a City business license. Page 20 of 29

21 Additionally, other business registering data bases, such as the State of Florida Sunbiz, could help with identifying businesses operating within the City of West Palm Beach without a business license and help further ensure equity in the collection of business taxes within the City. Management Response The Development Services Business Tax Division agrees with the basic findings and recommendations with respect to this area, although we have no independent analysis that would quantify the percentage of non-homesteaded properties that would be rented and the City could ultimately collect registration fees from. We agree that any significant expansion of revenues from rental registrations will require significant efforts and take many years to achieve. Effective enforcement of the requirements of Chapter 82 will necessitate the hiring of additional staff. At one time, the Business Tax Division had three (3) full time Code Enforcement Officers and two (2) full time Business Tax Clerks. All of the Code Officers were moved out of the Department when the Code Compliance Division was established. Shortly thereafter, the two (2) Business Tax Clerks and four (4) Permitting Clerks were reclassified as License and Permitting Specialists combining their duties. Subsequently the number of License and Permitting Specialists was reduced to three (3). Effectively, the Business Tax Division went from five (5) dedicated employees to virtually zero full time personnel. The Business Tax Division is in the process of adding personnel in order the make the Division more effective. In addition, the Business Tax Division will begin to utilize the recommended methods and other procedures as well to identify and communicate the requirements of Chapter 82 to the Community at large and to Business owners and owners of rental properties that do not have active Business Tax Receipts and Certificates of Use. The Division will utilize inserts in the City Utility Bills bi-annually to communicate the requirements of Chapter 82. The Division will coordinate with the Utilities Department to identify rental properties and to assure compliance with Chapter 82. The Division will coordinate with the Palm Beach County Business Tax office to identify those Businesses operating in the City without Business Tax Receipt and Certificate of Use where they are required by Chapter 82. The Division will utilize the Property Appraiser Parcel Data to compare with the City of West Palm Beach Rental Tax Receipts database to identify rental properties that do not have a current Rental Tax Receipt and Certificate of Use. Page 21 of 29

22 11) Tracking of Unlicensed Special Events Organizers Our examination revealed that numerous events took place without their organizers obtaining the appropriate special events license. Criteria Per the City of West Palm Beach DSD web site, any special event organizer, except not-forprofit, is required to obtain a special events license prior to holding the event. Condition Although the Community Events Division of the Parks and Recreation Department accepts and processes event applications, they are not applying the special events determination criteria (located on their web site) consistently. Due to the lack of readily available reports, our office obtained raw data and developed lists of private and public events held in the City of West Palm Beach during the period January 1, 2010 to December 31, We evaluated each to determine if an event qualified as a special event. This resulted in two (2) private special events and two hundred and ninety nine (299) public special events. As part of our testing, we examined the list of special events organizers that obtained a license from the DSD and noted that neither one of the private events and only two (2) of the public events obtained a special events license. In addition, we noted that there were payments made for events that did not qualify as special events, including not-for-profit and City organized events. Cause There has been inadequate communication between the DSD and the Community Events Division of the Parks and Recreation Department. Effect Based on testing, we noted that the potential revenues amount to approximately $28,000. However, in addition to the special events license amounts a special events organizer pays for COUs and zoning inspections. As a result, the yearly estimated revenue increased to approximately $37,000 to $46,000 depending on whether or not the organizer had been registered with the City in the past, and pays a lower COU fee. Recommendation We recommend that the Business Tax staff within the DSD work with the Parks and Recreation Department staff to help clarify and apply the taxing criteria consistently for all special events. Page 22 of 29

23 If an event meets these criteria, its organizer should be immediately directed to the DSD for payment of the special events license fee. In addition, we recommend that the Community Events Division collect the exact name of the organizer and the applicable Employer Identification Number, which would greatly assist in making determinations. Management Response We agree with the recommendation. We will work with the Parks and Recreation administration to clarify procedures that will coordinate the flow of information between our two groups regarding Special Events to help ensure all licenses and permits are obtained and payments received. We plan to have instituted these procedures by December 1, Page 23 of 29

24 APPENDIX A Page 24 of 29

25 Page 25 of 29

26 Page 26 of 29

27 Page 27 of 29

28 APPENDIX B Page 28 of 29

29 From: To: Cc: Date: Subject: "Bullington, Larry" "Bullington, Larry" 02/13/ :20 PM RE: Test message without attachments Elena, as we discussed I did a search for all businesses located in the City of West Palm Beach, Fl. The total number of active businesses is 26,526. I have attached a sample file of 50 in excel. I have also attached a document Why Hoovers. The investment for an online access to Hoovers is: Up to 3 seats Prospector and 30,000 downloads, your investment will be $ This a 12 month agreement. I will call and follow up after lunch. Thanks, Larry Bullington Relationship Manager Dun & Bradstreet S&L Government Solutions 2590 Hickory Bluff Lane, Jacksonville, Fl T: , ext F: M: bullingtonl@dnb.com Page 29 of 29