DENVER – The city is late in implementing tools and policies to help ensure better oversight of some aspects of its property tax system and processes, particularly related to waived interest and fees, according to a follow-up report released today from Denver Auditor Timothy M. O’Brien, CPA.
“The Department of Finance did work to address some of the risks we identified,” Auditor O’Brien said. “However, without documented policies and procedures for allowing and tracking fee waivers, I believe the city could be at risk of applying waivers inequitably.”
State law allows the Treasury Division to waive fees and interest on overdue accounts up to $50. However, our audit team noted in 2019 that the Treasury Division had not established or documented criteria under which interest and fees could be waived, nor did it establish a detailed process for documenting or reviewing waivers when they are granted.
At the time of follow-up, our team found updated policies and procedures did not fully address inconsistencies and incomplete tracking of waivers. Also, a new property tax assessment system is still not fully in place, leaving several other recommendations not fully implemented.
The new property tax assessment system also does not capture the total amount of taxes and interest due on accounts, the amount of interest waived, or the name of the employee who granted the waiver.
Because of the incomplete tracking of waived interest, supervisors and staff might not be held accountable for decision-making when it comes to waivers, and the city could lose revenue. Waivers could be approved above the legal threshold and the city may not be in compliance with state law. Without properly documented criteria for waivers, some Denver property owners might end up having to pay while others don’t.
“I believe this is an equity issue,” Auditor O’Brien said. “I’m sure employees have good intentions in waiving fees, but by failing to implement documented procedures, supervisors could apply waivers differently for different people.”
Another remaining risk is that the city’s waiver policy still conflicts with the state law that limits waivers of interest and fees to amounts less than $50. The Treasury Division initially interpreted the state law to mean they could waive up to $50 on accounts with any amount of interest owed. The division managers also believed they were able to waive fees over $50 with supervisor approval.
We asked that the Treasury Division get clarification from the City Attorney’s Office on the correct interpretation of what could and could not be waived. The City Attorney’s Office concluded state law limits the Treasury Division to waiving interest and fees on amounts of less than $50. However, when Treasury updated its policy, it continued to allow management approval of waivers over $50 because they misinterpreted the City Attorney’s Office opinion.
Overall, the Department of Finance fully implemented only two of our 10 recommendations related to the property tax assessment process. Treasury implemented procedures for monitoring state leases and corrected inaccurate weighted exemption percentages for state leases of Denver property.
Two other recommendations were partially implemented and four were not implemented. While the department did take steps to mitigate many of the risks in the original audit, the new property tax assessment system is still a work in progress — leaving some needed policies and procedures incomplete. The new system is also expected to better capture how the city tracks omitted properties, but this was not complete at the time of follow-up, which was after the date Finance gave for its expected implementation.
Two other recommendations to ensure correct and transparent financial accounting for pass-through funds from the state also remain outstanding risks. In 2019, we found the Department of Finance incorrectly records state reimbursements for the Senior and Disabled Veteran Property Tax Exemption, commonly known as the Senior Homestead Exemption. We recommended reclassifying the reimbursement from “property tax” to the more appropriate “government-mandated nonexchange transactions” to ensure compliance with accounting practices.
We also recommended the city make sure other government entities receiving funds are aware of the nature of the revenue and whether it is property tax or not.
The Department of Finance had disagreed with both of these recommendations. Finance officials said they believed the correct label is property tax.
“I remain disappointed in the department’s decision to disagree with these necessary changes to ensure transparency in accounting,” Auditor O’Brien said. “During the meeting of the Independent Audit Committee, management acknowledged these pass-through funds are not property taxes, but they still refused to change the accounting classification. These details matter on our financial statements.”