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3 golden objects Minnesota Legislature

Office of the Legislative Auditor - Financial Audit Division

Report Summary

Special Review

Department of Revenue

Non-filer and Tax Compliance Initiatives

Overall Conclusions

The Department of Revenue accurately reported the amounts collected as a result of the non-filer and the two tax compliance initiatives. In its January 15, 2003, report to the Legislature, the department reported that, as of November 30, 2002, it had collected $57.3 million for the three initiatives. The department has met the $52 million target for the non-filer and first tax compliance initiative and appears on track to meet the $7.6 million target for the second tax compliance initiative by June 30, 2003. During our testing of initiative transactions, we identified two cases where the department recorded an incorrect amount of revenue for the initiative. The department corrected the errors and included the proper amounts in its report to the Legislature. Based on our review of the department's control procedures, we think these were isolated errors.

As of November 30, 2002, the Department of Revenue had spent about $5.3 million on the non-filer and tax compliance initiatives. In general, the department accurately reported initiative expenditures in the accounting records and processed the expenditures in compliance with applicable legal provisions and management's authorization. However, we noted two instances where costs related to the initiative programs were not properly charged to the special appropriations. The department intends to process expenditure transfer transactions to properly record costs related to the initiatives.

Background Information

Laws of Minnesota 2001, First Special Session, Chapter 10, Article 1, Section 16 appropriated $7.672 million to the Department of Revenue to fund new non-filer and tax compliance initiatives. This law also established the amount of additional tax revenue the department was expected to collect under each initiative. For the 2002-2003 biennium, the law set target amounts of $20 million for the non-filer initiative and $32 million for the tax compliance initiative. Laws of Minnesota 2002, Chapter 377, Article 12, Section 17 appropriated $7.6 million for a third initiative. This initiative was an effort by the department to restore about $5 million in previous budget cuts in tax compliance areas and to provide an additional $2.6 million in funding for new compliance efforts. This law anticipated that the department would generate at least $7.6 million in additional General Fund revenue during the 2002-2003 biennium as a result of the appropriation.

Pursuant to the previously cited 2001 and 2002 appropriation laws, the objective of this special review was to compare actual revenue collections with the estimates of new revenue collections submitted by the Department of Revenue to the Legislature.