Legislature(2013 - 2014)HOUSE FINANCE 519
04/06/2013 04:30 PM House LEGISLATIVE BUDGET & AUDIT
| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Executive Session | |
| Release of Audits | |
| Overview: Oil and Gas Production Tax Audits - Department of Revenue | |
| Audit Request | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
April 6, 2013
4:33 p.m.
MEMBERS PRESENT
Senator Anna Fairclough, Chair
Senator Kevin Meyer
Senator Click Bishop
Senator Cathy Giessel
Senator Donald Olson
Representative Mike Hawker, Vice Chair
Representative Alan Austerman
Representative Bob Herron
Representative Kurt Olson
Representative Andy Josephson
Representative Scott Kawasaki (alternate)
MEMBERS ABSENT
Senator Mike Dunleavy (alternate)
Representative Bill Stoltze (alternate)
OTHER LEGISLATORS PRESENT
Representative Les Gara
Representative Mike Chenault
Representative Chris Tuck
Representative Beth Kerttula
Representative Jonathan Kreiss-Tomkins
Senator Bert Stedman
COMMITTEE CALENDAR
APPROVAL OF MINUTES
EXECUTIVE SESSION
RELEASE OF AUDITS
OVERVIEW: OIL AND GAS PRODUCTION TAX AUDITS - DEPARTMENT OF
REVENUE
AUDIT REQUEST
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BRUCE TANGEMAN, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during an
overview on the oil and gas production tax process.
MATTHEW FONDER, Director
Anchorage Office
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during an
overview on the oil and gas production tax process.
LENNIE DEES, Audit Master
Production Audit Group
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the DOR
presentation.
SENATOR HOLLIS FRENCH
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented a request for an audit to the
effectiveness of the Department of Revenue oil and gas
production tax audit process.
KRISTIN CURTIS
Legislative Auditor
Legislative Audit Division
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided information on the audit request.
ACTION NARRATIVE
4:33:47 PM
CHAIR ANNA FAIRCLOUGH called the Legislative Budget and Audit
Committee meeting to order at 4:33 p.m. Representatives
Austerman, Herron, Olson, Josephson, Kawasaki, and Hawker, and
Senators Fairclough, Meyer, Bishop, Giessel, and Olson were
present at the call to order. Also in attendance were
Representatives Chenault, Tuck, Gara, and Kerttula, and Senator
Stedman.
^Approval of Minutes
Approval of Minutes
4:34:29 PM
CHAIR FAIRCLOUGH announced that the first order of business
would be the approval of the minutes.
4:34:35 PM
REPRESENTATIVE HAWKER made a motion to approve the minutes of
March 28, 2013. There being no objection, the minutes from the
meeting of March 28, 2013 were approved.
^Executive Session
Executive Session
4:34:51 PM
CHAIR FAIRCLOUGH announced that the next order of business would
be to move into Executive Session.
4:34:56 PM
REPRESENTATIVE HAWKER made a motion to move to executive session
for the purpose of discussing confidential audit reports under
AS 24.20.301. There being no objection, the committee went into
executive session at 4:35 p.m.
4:35:13 PM
The committee took an at-ease from 4:35 p.m. to 5:16 p.m.
5:16:19 PM
CHAIR FAIRCLOUGH brought the committee back to order at 5:16
p.m. Representatives Austerman, Herron, Olson, Josephson,
Kawasaki (alternate) and Hawker, and Senators Fairclough, Meyer,
Bishop, Giessel, and Olson were present at the call back to
order. Also in attendance were Representatives Tuck, Gara,
Kerttula, and Kreiss-Tomkins, and Senator Stedman.
5:16:51 PM
REPRESENTATIVE HAWKER asked to clarify that Representative
Chenault had left prior to the meeting being called back to
order.
^Release of Audits
Release of Audits
5:17:04 PM
REPRESENTATIVE HAWKER made a motion for the final audit for the
Department of Transportation & Public Facilities, Knik Arm
Bridge and Toll Authority, Knik Arm Crossing Project to be
released to the public for response. There being no objection,
it was so ordered.
^Overview: Oil and Gas Production Tax Audits - Department of
Revenue
Overview: Oil and Gas Production Tax Audits - Department of
Revenue
5:17:30 PM
CHAIR FAIRCLOUGH announced that the next order of business would
be an Overview on Oil and Gas Production Tax Audits by the
Department of Revenue (DOR).
5:18:16 PM
CHAIR FAIRCLOUGH explained that, as there was an audit request
before the Legislative Budget and Audit Committee, she was
extending this opportunity to DOR to explain its processes and
"enlighten the committee why we would or would not" continue
with this request.
5:18:33 PM
BRUCE TANGEMAN, Deputy Commissioner, Office of the Commissioner,
Department of Revenue (DOR), declared that there were a lot of
misconceptions and confusions regarding the definitions for
financial and performance audits. He explained that statements
regarding the DOR audits for 2007 gave people the impression
that DOR had "absolutely no clue what happened in 2008, 2009,
2010, 11, and 12, and that could not be further from the truth."
He said there was a vast amount of tax information received
monthly by the department from the oil companies, which had
given DOR a great amount of information from 2008 to the
present. He stated that the information for the final audit was
"in-hand, has been analyzed, and we will proceed a lot quicker
once we're through 2007." He noted that the years of 2008 and
2009 would be combined, and he offered to discuss the internal
details for a financial audit, and examine the differences
between a performance audit and a financial audit.
5:20:09 PM
CHAIR FAIRCLOUGH asked if he would address the audit findings
from prior years, as there could be questions. She suggested
that the committee listen to the presentation before asking
questions.
5:21:14 PM
MATTHEW FONDER, Director, Anchorage Office, Tax Division,
Department of Revenue (DOR), presented a PowerPoint entitled
"Production Tax Audits." [Included in members' packets] He
reported that this would be a step by step presentation to share
the process for the review of oil and gas production tax
returns. He directed attention to slide 2, "Oil and Gas
Production Tax Processes," which was an overview of the monthly
process for auditors. He read: "Oil and Gas Producers are
required to make monthly installment payments of estimated taxes
and surcharges to the Department." He said that both explorers
and producers were required to submit monthly information
reports to DOR in accordance with statutes and regulations. The
economic group would then analyze this monthly information, and
use this information to answer any questions from the public or
the legislature. He reported that the tax technicians would
review and document all the monthly tax payer information and
would assist the accounting group to ensure the oil and gas
revenues were properly accounted for and recorded.
5:22:47 PM
MR. FONDER moved on to slide 3, "Oil and Gas Production Tax
Processes (continued)", and spoke about the annual processes.
He noted that by March 31, all the oil and gas tax returns and
other information had to be received by DOR. He declared that
this filing was a "true-up" of the twelve previously received
monthly payments. He explained that the March tax filings were
immediately reviewed by oil and gas production tax auditors, a
process which often took many months for verification of the
information. He noted that a full audit would take place at a
later date. He mentioned that the State of Alaska did not have
to pay any interest on overpayments of estimated tax, if the
overpayment was returned within ninety days.
5:25:06 PM
MR. FONDER pointed to slide 4, "Production Tax
Audits/Assessments." He explained that production tax audits
were not performance audits, and were not utilized to determine
if a statute was "working," as this was not a role of the Tax
Division. He declared that the purpose of the oil and gas
production tax audit was to ensure that the taxpayer had filed
and paid the appropriate amount of production tax as required by
the statutes and regulations. He noted that the amount of tax
must be assessed within six years after the tax return was
filed. He reported that DOR often received amended returns,
which would then start the clock for another six years on that
specific issue. He noted that amended returns for the 2007 tax
returns had been coming in until December, 2010. He said that
taxpayers had the right of appeal to an audit assessment, and
that the process began in the Tax Division. He said, "generally
speaking, our oil and gas production tax assessments have ranged
from a refund of $5 million to an assessment of $82.5 million
over the last five years. For comparison purposes, in the year
that we assessed $82.5 million, FY 11, we collected over $4.5
billion in production tax revenues. The assessments for FY 11
were less than two percent of the total production tax revenues
received for that year."
5:27:46 PM
MR. FONDER introduced slide 5, "Production Tax
Audits/Assessments (continued)." He explained that, due to high
interest and penalty provisions, there was an incentive for
taxpayers to be accurate on the estimated monthly payments and
tax return filings. He clarified that the department most often
issued an assessment because the taxpayer and DOR disagreed as
to how the statutes applied to a certain set of facts. The
assessment was then subject to the appeals process, which began
in the Tax Division, and could be appealed through the Alaska
Supreme Court, often taking months or years.
5:28:38 PM
MR. FONDER presented slide 6, "Oil and Gas Production Tax Credit
Processes," and stated that, as there was no time frame for
filing credit applications, DOR was working on them throughout
the year. He declared that all the tax credit applications
underwent a due diligence review prior to granting the credit.
He emphasized that these reviews were often as detailed as a
full audit. He noted that all alternative credits for oil and
gas exploration underwent a full audit prior to being issued.
He observed that expenditures which supported credits applied
against a tax liability were audited at the time of the tax
return.
5:29:43 PM
MR. FONDER acknowledged slide 7, "Confidentiality," declaring
that the Tax Division was required to hold taxpayer information
confidential, and was unable to discuss any specific information
contained in any given audit or assessment. He shared that any
statistical information aggregated among three or more taxpayers
would be released for publication in the Revenue Sources Book
and the Annual Report. However, the Tax Division was allowed to
share taxpayer specific information with legislators in
executive session as long as the necessary confidentiality
agreements were signed. He offered his belief that this offer
for discussion in executive session had never been requested.
5:30:47 PM
MR. FONDER reviewed slide 8, "Audit Effectiveness," and stated
that the next slides addressed the points in the request for the
audit of DOR.
5:31:15 PM
The committee took a brief at-ease.
5:31:29 PM
CHAIR FAIRCLOUGH brought the committee back to order.
5:31:36 PM
MR. FONDER stated that this slide addressed audit effectiveness,
noting that the Tax Division conducted a full audit on every
production tax return filed with a tax liability. He noted that
a full audit was also performed on all exploration claims for
credit, before the credit certificate was issued. He offered
his belief that the timeliness for ACES audits was not an issue,
as DOR had six years to conduct the audit, and had not ever
missed a deadline. He explained that, in 2007, taxpayers had
agreed to extend the statute of limitations for the production
tax audits of filings. He offered his belief that low
assessments were good, as it signified a better understanding of
the tax system and better voluntary compliance by taxpayers.
5:33:07 PM
MR. FONDER explained slide 9, "Impediments of ACES/PPT Audits,"
directing attention to the formula and the necessary data to
arrive at the tax due under the economic limit factor (ELF)
taxation. He ascertained that the gross value at the point of
production (GVPP) was a result of taxable volume multiplied by
taxable value. He noted that the taxable value was defined as
the destination value after subtracting the marine tanker cost,
pipeline tariffs, and quality bank adjustments. The resulting
GVPP was multiplied by the ELF rate, which was less than one;
this result was multiplied by the tax rate, which equaled the
monthly production tax. After the credits were subtracted, and
the conservation surcharges were added, the result was the total
tax due.
5:34:11 PM
MR. FONDER commented on slide 10, "Impediments of ACES/PPT
Audits, (continued.)" He noted the amount of data received
under Alaska's Clear & Equitable Share (ACES), and explained the
tax calculation formula. He explained that the GVPP was again a
result of taxable volume multiplied by taxable value. The
taxable value was now defined as the volume of taxable oil and
gas produced times the wellhead value, which was the sales price
minus the transportation costs and quality bank adjustments.
From the resulting GVPP, one-twelfth of the total annual lease
expenditures, the combined capital expenditure (CAPEX) and
operating expenditure (OPEX), was subtracted and the result was
the monthly production tax value (PTV). The PTV was used to
calculate the monthly progressivity tax when the PTV was greater
than $30 per barrel. The monthly PTV was then multiplied by the
base tax rate to equal the base tax. The monthly progressivity
and the base tax were added to equal the monthly production tax
due. Credits were subtracted from the monthly production tax
due, resulting in the annual tax due. The conservation
surcharges were then added to the annual tax due resulting in
the total tax due under the ACES taxation system.
5:35:18 PM
MR. FONDER provided slide 11, "Impediments of ACES/PPT Audits,
(continued)" and explained some of the data that DOR received
for review during an ACES audit. He stated that lease
expenditures contained much of the information in an ACES audit,
and the expenditures included the Taxpayers Accounting System,
as all taxpayers had accounting systems where the information
necessary to file the tax returns was maintained. These lease
expenditures also included joint interest billings (JIBs), which
were detailed billings of all monthly expenditures made by the
unit operator and sent to each of the working interest owners.
These were also submitted by each owner and reviewed in the
audit process. He noted that each JIB could exceed 300 pages,
dependent on the size of the project.
5:36:47 PM
MR. FONDER addressed slide 12, "Impediments of ACES/PPT Audits,
(continued)" declaring that there were exclusions and
adjustments to the JIBs, as certain expenditures were not
allowed as lease expenditures under state statute. Often, these
adjustments to billed expenditures were made according to the
taxpayer's interpretation of the statutes, and, as these did not
always include detailed documentation for the exclusions, the
reconciliation could be a very time consuming process.
5:37:39 PM
MR. FONDER presented slide 13, "Impediments of ACES/PPT Audits,
(continued)," and discussed the Joint Account Data Exchange
(JADE), which could contain millions of lines of data for one
unit. He reported that this data was captured and sent
electronically by the unit operator to each working interest
owner, and it contained references to source documents, which
were sometimes used by the taxpayer in support of claimed lease
expenditures. He referred to the Authorization for Expenditure
(AFE), sharing that there could be hundreds of these documents,
also referred to as "Cost Center" projects, during an audit
period. He explained that the AFE's provided project
descriptions and helped the auditors determine where to focus
audit resources.
5:38:38 PM
MR. FONDER indicated slide 14, "Impediments of ACES/PPT Audits,
(continued)," and stated that invoices in support of claimed
expenditures, often in excess of one million transactions, were
examined to identify whether lease expenditures were allowable.
He confirmed that data was received from other state agencies
during the audit process, including plans of development and
plans of operation, and that this data was also reviewed.
5:39:42 PM
MR. FONDER assessed slide 15, "Impediments of ACES/PPT Audits,
(continued)," and stated that information from other state
agencies was manually incorporated into the audit work papers
and used by the auditors for cost and project analysis. He
noted that volume data was reported by the Alaska Oil and Gas
Conservation Commission (AOGCC) which would show swings in
production that would assist auditors in identifying conditions
to cause changes in expenditures.
5:40:20 PM
MR. FONDER declared that slide 16, "Impediments of ACES/PPT
Audits, (continued)" listed the complexity of this new tax in
2007, and had required training of the auditors, as there was
not any institutional knowledge. He pointed to the changes in
the tax laws since the implementation of ACES, and pointed out
that the audit staff also had additional projects, which
included: desk reviews, credit reports, due diligence reviews,
updates to processes, and support for annual legislative audits.
MR. FONDER introduced slide 17, "Audit Staff Qualifications and
Experience," which offered a snapshot of the production tax
audit group: 19 employees, with 3 supervisors, 8 auditors
dedicated to production tax audits, 6 auditors dedicated to
credit audits, and 2 tax technicians. He reported that the
average oil and gas production tax audit experience for this
group was 5.5 years for the production group, and 4.25 years for
the credit group, although many of the auditors had experience
outside of oil and gas production taxes.
5:43:53 PM
MR. FONDER indicated slide 18, "Audit Staff Qualifications and
Experience (continued)," which listed the minimum qualifications
for an oil and gas revenue auditor (OGRA) 1, and included a
bachelor's degree in accounting or finance, or a certified
public accountant certificate.
5:44:26 PM
MR. FONDER moved on to slide 19, "Audit Staff Qualifications and
Experience (continued)" which listed the minimum qualifications
for an oil and gas revenue auditor (OGRA) 4, and he stated that
there was no substitute for the required experience of at least
two years professional experience auditing and examining data
specific to the oil and gas industry.
5:45:17 PM
MR. FONDER offered a comparison to the audit group when ELF was
the tax program, slide 20, "Audit Staff Qualifications and
Experience (continued)." He noted that under ELF there were 9
full time employees, with 1 supervisor and 6 production tax
auditors, no credit auditors, and 2 tax technicians. He said
that the experience had been for more than 18 years of oil and
gas production tax audit experience. He reported that, in 2006,
the production tax audit group had nearly 100 percent turnover
due to attrition, retirement, and transfers.
5:46:12 PM
MR. FONDER said that production tax audit methodology under ACES
was unique, although it did bear similarities to the audit
methodologies that were utilized in other tax types, slide 21,
"Audit Methodology." He explained the process: first, the
auditors determined if producers and explorers had complied with
the monthly and annual reporting requirements for the tax year;
second, they would ensure that all the necessary monthly
installment payments were timely; third, they would verify that
each taxpayer liability was properly calculated; fourth, they
would confirm that documentation existed to support claims made
on the tax return; and, finally, they would issue audit
assessments well within the statute of limitations and in
accordance with the statutes and regulations.
5:47:12 PM
MR. FONDER introduced slide 22, "Status of Audits," and stated
that the Tax Division was finalizing the audits for the 2007 oil
and gas production tax returns. He pointed out that these
returns had initially been filed on March 31, 2008, and that
there had been numerous amended returns. He assessed the
complexity as only half of that tax year had been under ACES.
He expressed anticipation for the completion of the 2007 audits
by late summer or early fall, 2013, which was well within the
statute of limitations, and he reported that the staff had begun
work on the 2008 and 2009 tax years for those taxpayers whose
2007 audits were complete. He conveyed that, going forward, the
Tax Division would combine two tax years in one audit for
certain taxpayers.
5:48:22 PM
MR. FONDER concluded the PowerPoint with slide 23, "Summary,"
and declared that, as ACES was a unique and complex tax type
that consisted of both taxes and credits, the auditors were
split into groups to audit the tax and the credits. He reported
that the Tax Division was in the process of implementing an
integrated system, as everything was currently reviewed
manually. He disclosed that the Tax Division routinely
conducted in-house training and workshops to keep up-to-date on
the changes to the tax code. He informed the committee that the
Tax Division continued to refine its audit policies and
procedures.
5:49:49 PM
REPRESENTATIVE HERRON asked if the March 31 true up was on time,
as referenced on slide 3.
5:50:02 PM
MR. FONDER replied that it was on time.
REPRESENTATIVE HERRON asked if the six years currently allowed
for an audit to a tax return, slide 4, should be reconsidered or
renewed.
5:50:31 PM
MR. TANGEMAN replied that, although the six year time frame was
comfortable, a new revenue management system and more staff
experience would speed up the process.
5:50:53 PM
REPRESENTATIVE HERRON asked if the statutory requirement should
be reconsidered and possibly lowered.
MR. TANGEMAN suggested that it be reviewed sometime in the
future.
5:51:12 PM
REPRESENTATIVE JOSEPHSON, referencing slides 21 and 22, opined
that, currently, the entire six years for an audit assessment
were being used.
MR. FONDER replied that the 2007 tax audits would be finished
more than six months prior to the six year deadline, in contrast
to completion of the audit assessments during the ELF tax
system, which often took longer than the statute of limitations.
5:52:40 PM
MR. TANGEMAN explained that the state move from a gross tax to a
net tax was "a huge change in the way you do business." He
offered his belief that it was impressive to have completed the
audits within the six year deadline, as the processes had all
been manual; he stated that the new revenue management system
would make the process much quicker. He said the process would
always take at least a year.
5:54:00 PM
REPRESENTATIVE JOSEPHSON, reflecting on the litigation, dispute,
and complicated hearings during ELF, opined that the ELF returns
were not necessarily the easy route.
5:54:28 PM
MR. FONDER deferred to Mr. Lennie Dees.
5:55:04 PM
REPRESENTATIVE JOSEPHSON asked about the litigation and
administrative hearings for ELF during the time period from 1987
through the mid-1990s, offering his belief that it was not a
"perfect streamlined auditing process."
LENNIE DEES, Audit Master, Production Audit Group, Tax Division,
Department of Revenue (DOR), offered his belief that there was
disagreement surrounding specific issues for tariff rates and
the calculation of ELF. He said that ACES was much more complex
than ELF. He compared that ACES stacked a net tax component on
the ELF system and, with its many moving parts, added to the
complexity for the issues which could be contested during an
audit.
5:57:09 PM
REPRESENTATIVE JOSEPHSON asked if Mr. Fonder was comfortable
with the number of staff necessary to do the job.
MR. FONDNER offered his belief that more staff positions were
proposed in the governor's budget for FY14.
MR. TANGEMAN elaborated that an additional audit master, an oil
and gas auditor, and five part-time positions for revenue and
capital budget were in the budget request.
MR. TANGEMAN, in response to Chair Fairclough, said that they
were not yet funded equally on both sides, so that it could be
an issue for the conference committee to discuss.
5:59:17 PM
SENATOR BISHOP, expressing his understanding for the difficulty
of maintaining staff, pointed out that funding for auditors had
been increased and asked if this would work to keep the staff
longer.
MR. FONDER expressed his hope for staff longevity, noting that
staff did leave for different reasons. He noted that "state
government is often the training grounds for private industry."
MR. TANGEMAN added that the division was now fully staffed for
the first time in quite a while.
6:01:27 PM
REPRESENTATIVE HAWKER declared that the state auditor, while
conducting the Statewide Single Audit, had identified that,
since FY08, the internal accounting and audit controls over
production taxes in DOR had been identified for significant
deficiencies. He allowed that turnover "is usually a huge
indicator of larger systemic problems." He directed attention
to recommendation #5 of the Statewide Single Audit for 2013,
which reflected DOR agreement with the legislative audit report
of a need for implementation of controls to improve auditing oil
and gas severance tax revenues.
MR. TANGEMAN replied that he did concur with that assessment.
REPRESENTATIVE HAWKER, noting that his interest in auditing
procedures and the DOR were "probably 180 degrees from Senator
French's," declared that he had "personal, serious concerns with
both what it appears to be technical areas of, perhaps, less
than appropriate audit procedures." He cited that the
assessment of related audit files had revealed that supervisory
reviews by the audit tax master were not documented, and the
supervisor review check list was consistently incomplete. He
declared this to be a fundamental process and procedure for the
foundation of an audit process, and he expressed, "I have great
concerns." He asked if the audit team was peer reviewed by
other than the state auditor during the statewide single audit.
MR. FONDER offered his belief that there was not a peer review
by anyone outside of the Legislative Audit Division; however,
this review was conducted annually.
REPRESENTATIVE HAWKER recalled hearing absolute assurance in
2007, from the director of the Tax Division and the commissioner
of DOR at that time, that there was not a problem to meet the
obligations for writing regulations and completing audits on
schedule for ACES. He allowed that, although Mr. Fonder had
"inherited the job," the deficiencies had been identified as
ongoing for years and there was still not a peer review. He
expressed his concern for the inaccurate responses from DOR
auditors during a recent meeting of the House Resources Standing
Committee, and for the interpretation, implementation, and
utilization of JIBs in the audit process. He shared his concern
for the implementation of DOR regulations regarding
transportation costs in determining "wellhead net back." He
pointed to a lack of peer review, beyond that of the state
auditor, and the consistent problems in the agency. He
questioned whether a peer review should, indeed, be conducted.
MR. TANGEMAN directed attention "to the massive changes that
this state and this department undertook starting in 2006 and
2007 when we went from a gross tax to a net tax." He noted that
this had been a complete change for the process, and there were
not any regulations in place and the staff had never worked in
this system. He chronicled that, since that time, more than 70
regulations had been implemented, reports had been submitted
within the statutory window, and improvements had been made. He
questioned the expectation for corrections within a year,
pointing to the "huge strides" performed during that time frame.
He noted that this had all been accomplished while using manual
systems. He stated his acceptance of the recent analysis of
issues listed by the Legislative Audit Division, but he pointed
to the "light at the end of the tunnel" generated by the
automated revenue management system, which would alleviate "a
lot of these issues" with the millions of lines of data.
REPRESENTATIVE HAWKER offered his belief that the issue was with
audit procedures, resulting from high turnover and a lack of
staff experience. He stated "any business that is afraid of an
audit, quite frankly, probably needs to be audited."
6:09:01 PM
CHAIR FAIRCLOUGH summarized that DOR was in the process of
moving forward with the implementation of new automated
technology, although there were still concerns.
^Audit Request
Audit Request
6:09:32 PM
CHAIR FAIRCLOUGH announced that the final order of business
would be consideration of an audit request by Senator French.
She referenced the February 13, 2013 letter [Included in
members' packets] in which Senator French asked for approval of
an audit to the effectiveness for timeliness, levels of
assessment, and coverage from the audit function of DOR when
compared to the audit function under the ELF tax structure. She
pointed out that Senator French had also asked to identify the
impediments to the audit process of returns from ACES and the
petroleum production tax (PPT), with recommendations for
improvement. Senator French requested an examination of the
professional qualifications and experience levels of DOR's audit
staff, while determining if the resources were sufficient to
fulfill the audit requirements. Lastly, Senator French
requested an examination of the Tax Division's methodology for
conducting audits, and a determination whether the agency was
following "industry best practices." She asked that the
committee members identify any of these requests which remain a
concern.
6:10:49 PM
SENATOR HOLLIS FRENCH, Alaska State Legislature, opined that the
Tax Division "looks forward to an audit with the same degree of
enthusiasm that anyone of us would if we were being audited."
He declared that he did not have any suspicion or animosity for
the Tax Division, as the employees in the division were
"literally worth their weight in gold. They perform a hugely
important function, they serve as the nerve center of the
state's resources and revenues... ." He expressed his agreement
with the assessment by Representative Hawker that there had been
significant deficiencies in the division for quite some time.
He offered his belief that improvement could be accomplished
with peer reviews and recommendations by the Division of
Legislative Audit. He pointed to an $82 million assessment
adjustment as an example. He reminded the committee that he was
assisted by Kris Curtis, Legislative Auditor, in writing this
request, in order to target the report for the accuracy of the
process.
6:13:24 PM
SENATOR FRENCH, in response to Representative Hawker, confirmed
that he had worked with Ms. Curtis to develop the objectives for
the proposed audit. He shared that the idea to consult with Ms.
Curtis had resulted from an earlier Legislative Budget and Audit
Committee meeting he had attended in which it was revealed that
she had helped with another audit request.
6:14:14 PM
REPRESENTATIVE HERRON commented that it was a good point for the
auditor to review joint interest billings (JIB), as other
legislators were also concerned.
6:14:59 PM
CHAIR FAIRCLOUGH asked if the Legislative Audit Division was
currently able to accept this project, and how long it would
take to complete.
KRISTIN CURTIS, Legislative Auditor, Legislative Audit Division,
Alaska State Legislature, explained that, as the Statewide
Single Audit would be assigned to staff in the upcoming week, it
would be most efficient to conduct this proposed special
performance audit simultaneously. She was not sure if she had
the staff available, but would be able to report within a week.
CHAIR FAIRCLOUGH asked if the proposed audit could be completed
by February, 2014.
MS. CURTIS, in response, stated that it would be possible to
present the proposed performance audit at the beginning of the
next session, if it could be performed simultaneously with the
Statewide Single Audit.
CHAIR FAIRCLOUGH asked if the committee wanted to approve the
proposed audit request.
6:16:58 PM
REPRESENTATIVE HAWKER made a motion to approve the request by
Senator French for the performance audit on the effectiveness of
the Department of Revenue's oil and gas production tax audit
process in accordance with the accompanying letter outlining the
audit objectives.
CHAIR FAIRCLOUGH objected.
MS. CURTIS asked for more direction from the committee to
officially add the request to review joint interest billings
(JIB).
6:17:43 PM
REPRESENTATIVE HAWKER shared that this would be included under a
review of "best audit practices." He asked that there be a
review of the DOR policies and procedures for the utilization of
joint interest billings in accordance with statute. He
questioned whether the agency was "overstepping its bounds in
its interpretation of their responsibilities under statute."
6:18:45 PM
SENATOR FRENCH, in response to Chair Fairclough, expressed his
agreement that this request by Representative Hawker would be in
addition to his proposed audit request.
6:19:02 PM
CHAIR FAIRCLOUGH declared that the amendment by Representative
Hawker would be included with the original proposal. She
removed her objection, and there being no further objection, the
motion, as amended, was adopted.
6:19:31 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
6:19 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| LB&A Agenda 4.6.13.pdf |
JBUD 4/6/2013 4:30:00 PM |
|
| LB&A Meeting Minutes 3.28.13.pdf |
JBUD 4/6/2013 4:30:00 PM |
|
| Sen. French Audit Request 2.13.13.pdf |
JBUD 4/6/2013 4:30:00 PM |
|
| LB&A Presentation (4.6.13 Updated).pdf |
JBUD 4/6/2013 4:30:00 PM |