Pursuant to §§ 39-9-103 (1) and (8), C.R.S., the State Board of Equalization has the authority to order reappraisals of property classes that are found to be out of compliance. Originally the State Board of Equalization required the audit of 20 percent of all non-residential personal property accounts within a county on an annual basis in order to ensure compliance. In 1994, the State Board of Equalization implemented an alternate plan in place of the 20 percent audit requirement. This plan, which became effective beginning in the 1995 tax year, requires assessors to develop written criteria as part of a personal property audit plan for determining which personal property schedules and/or businesses will be audited each year. The personal property audit plan must be updated and adopted by each county assessor each year.
Chapter 5 is intended to guide county assessors in personal property compliance regarding the audit plan by providing the procedures for conducting an annual personal property audit and review program.
Purpose of Analysis
Two of the most important reasons for implementing an effective annual personal property audit and review program are:
- Valuation equity, including confirming the accuracy of valuation data
- Equal taxpayer treatment, from both an appraisal and an administrative standpoint
Valuation Equity
The county assessor is responsible for ensuring that valuations of property are just and equalized. This means that all taxpayers are being fairly treated and similar property is being equitably valued.
A formal personal property review ensures that values are just and equalized as affirmed in Nuttal v. Leffingwell, 193 Colo. 137, 563 P.2d 356 (1977). In order for the reviews to be effective, the assessor should ensure that the following steps are completed:
- All personal property in the county is inspected on a regular basis to account for all taxable personal property.
- The valuations of like personal property are reviewed to ensure that similar property is comparably valued so that taxpayers pay only their fair share of the property tax burden.
Equal Taxpayer Treatment
Assessors must never show favoritism or bias toward taxpayers. The laws and procedures governing property assessment must be correctly applied to all properties.
A formal personal property review allows assessors to check their work and helps them eliminate errors that may occur in the valuation of personal property.
A good personal property review program will also help personal property taxpayers to recognize the assessor’s efforts to ensure that taxpayers are being treated fairly.
Benefits of Review
The two most significant benefits for assessors and taxpayers, that come from good personal property reviews include:
- Verification of data
- Promotion of accuracy
Verification of Data
During personal property valuation reviews, the assessor and the taxpayer have an opportunity to verify all information used in the appraisal. This helps ensure that taxpayers have correctly filed their personal property declaration schedule(s) with the assessor and that the assessor is appropriately assessing only the property owned by the taxpayer.
Promotion of Accuracy
Taxpayers are more likely to accurately file declaration schedules when they understand that the assessor is regularly reviewing and conducting field audits of personal property accounts.
Assessors are more likely to keep clear, accurate, and organized valuation records when they know taxpayers have the opportunity to regularly review such records.
Types of Review
The three types of personal property reviews commonly used by county assessors in Colorado include:
- Office review
- Field audit/physical inspection
- Examination of accounting books and records
Office Review
Definition
An office review is completed using the personal property records as they exist within the assessor's office and are usually completed between January 1st and June 15th of each year because this is the period of time when new declaration schedules are being submitted by taxpayers.
Overview
An office review consists of checking the current personal property declaration schedule against existing assessor records which are collectively referred to as an "account." One important part of the office review is the comparison of valuations of similar property to ensure there is equalization between similar types of property. This also is the time when the assessor makes additions to or deletions from the property list supplied by the taxpayer.
The assessor reviews the account and may contact the taxpayer to clarify information found on the current or past declaration schedules. In addition, if significant questions arise, the assessor can flag the account for a field audit/physical inspection of the property.
Review Objectives
The main objectives of the office review are to check and update the property appraisal records and select accounts that may need additional review through physical inspection and analysis of books and records.
Procedures for Office Review
All personal property schedules are reviewed in the office on a yearly basis as part of the valuation process. The review is in preparation for the yearly appraisal of personal property actual values which are listed on the Notices of Valuation (NOV's).
To conduct an effective review in the assessor's office, the following steps are completed during the review of each personal property account:
- All existing personal property records on file in the assessor's office are reviewed. The most current declaration schedule data are compared to the additions and deletions from the prior two years' data to determine if there has been consistency in the pattern of reporting personal property additions and deletions.
- The current assessment status of all equipment listed as leased or loaned equipment is checked. All taxable property is verified as to having been assessed to the proper owner.
- Any additional information necessary to explain discrepancies is requested from the taxpayer.
- All description and value data are reconciled and a final estimate of value is completed.
- Like properties are compared, with typical standards or with similar properties, to verify that all property has been correctly valued.
The office review is typically conducted while processing the declaration schedule for the current year and is performed in conjunction with the current appraisal of personal property. The office review usually occurs before June 15 and is helpful in determining which accounts may need special attention during the physical inspections conducted later in the year.
Field Audit/Physical Inspection
Definition
The field audit/physical inspection involves a representative of the assessor's office visiting and inspecting property at the taxpayer's place of business.
Overview
The field audit/physical inspection may be conducted at any time of the year, but usually begins after the NOV's have been mailed. There are, however, instances in which the assessor may find it necessary to visit the taxpayer's place of business prior to the setting of final values. The usual cause of this early inspection is a need to verify information considered to be doubtful or incomplete, especially in the case of Best Information Available (BIA) assessments from the prior year, or to establish an accurate list of property under a new ownership as in the case of a business sale or a new business.
The field audit is one of the best ways for the assessor to accurately estimate the condition of each piece of personal property.
Objectives
There are several objectives of the field audit which can be described as obtaining answers to the following questions:
- Does the listed taxable personal property exist?
- Who owns the property?
- Has the correct original cost been reported to the assessor?
- Have personal property dispositions, such as sales or scrapping, been reported to the assessor?
- Has all leased equipment been reported?
- Has all leased equipment ownership been reported?
- Will any leased equipment become the property of the lessee during this year? This property can be flagged to be assessed to the lessee the following year.
- Is there any taxable personal property on the premises that has not been declared by this taxpayer or by any other taxpayer? Is there any personal property reported by the taxpayer, but not located on the premises?
- What economic life should be assigned to property not specifically listed in Chapter 4, Personal Property Tables?
- What is the overall physical condition of the property? Should additional functional or economic obsolescence be considered?
- Is movable equipment apt to be located in more than one county during the year and, if so, where and for what periods of time?
- Is Special Mobile Machinery (SMM) listed? If SMM does not leave the real property location owned or leased by the equipment owner, it may not be subject to specific ownership tax, and if not, it is subject to ad valorem tax. SMM which is subject to specific ownership tax, but for which no current SMM plates, Z-tabs, or lease decals are visible should be added to the taxpayers list of personal property.
- To enhance the discovery, listing, and classification process, have all leasehold improvements been declared, listed and assessed, but not double assessed by the real property appraiser, to the lessee of the real property?
- Is there any personal property that was acquired during the previous calendar year, but not placed into service as of the current assessment date?
- Does the taxpayer have more than $52,000 in total actual value of personal property in this county?
Field Audit/Physical Inspection Planning
The personal property review program can be more effective if the personal property schedules designated for field audit and review are grouped geographically. This allows for a concentration of effort in one area of the county and reduces travel expenses.
In addition, this approach provides for taxpayer understanding of the personal property review program because several taxpayers in an area will be analyzed at the same time.
Many assessors target all the accounts for specific types of businesses for field audit and review in a given year. For example, the assessor may select all attorneys, physicians, accountants, and appraisers during the current year. Analyzing similar business during the same year aides the assessor in identifying inconsistencies within like businesses.
The following types of accounts should be analyzed each year:
- Best Information Available (BIA) valuations
- Incomplete declarations and taxpayers who have failed to file
- Returns that are inconsistent with historical information
- Specific suspected discrepancies
The appraiser assigned to the geographical area prepares a preliminary schedule so the course of the personal property review program may be planned and the most convenient time for the taxpayer appointments may be determined.
Personal Property Audit Plan
Each county should establish a personal property audit plan. Included in this plan is a twelve month audit time frame which will allow assessors to plan an annual personal property review program and monitor efforts by personal property staff. The goal of this program is to complete office reviews, field audits/physical inspections, and examination of accounting books and records according to the adopted county plan. The county should keep track of all accounts completed according to the plan for review by the state assessment auditor. A Personal Property Audit Plan Template is included as Addendum 5-A, Audit Standards.
Accounts to Be Analyzed
All personal property accounts are to be included in the personal property audit plan developed by the county assessor. Refer to Addendum 5-A, Audit Standards.
Initial Telephone Call
It is very important that the assessor spend adequate time on preliminary personal property review research and the initial taxpayer telephone contact before conducting the field audit. An appointment should be made with the taxpayer, if possible.
A time of day for the appointment does not necessarily need to be specified, unless the taxpayers so request, but the taxpayers at least should be informed that an appraiser will be in their area reviewing and inspecting accounts on a particular day or days. This prepares taxpayers for the field audit and allows them time to review and to gather all necessary records before the assessor arrives.
The following recommendations are made to assist assessors in the initial contact with the taxpayers:
- The public should be notified of the purpose and procedure of the field audits through public notices, news releases, and other public relations efforts. The audit program should be explained as to how it will be conducted and the purpose of field audits.
- The taxpayer should be contacted in advance of the field audit to enable convenient appointment scheduling.
- The taxpayer should be put at ease by assurances that the field audit is routine and that it will benefit all taxpayers.
- The appointment should be kept. Since a county employee is both a professional and a representative of county government, it is necessary to be punctual in keeping scheduled appointments. The appointment should be re-scheduled as soon as it becomes apparent that it cannot be kept.
Appointment Verification Letter
If possible, an appointment verification letter is mailed to each taxpayer whose property is scheduled for field audit. This begins the written record of the field audit. A copy of the original public notice or news release can be enclosed with the letter. A copy of the letter should be filed with the personal property valuation records of the taxpayer.
Taxpayers should be contacted either by phone or by letter. An example taxpayer contact letter is included in Addendum 5-B, Sample Letters.
Conducting the Field Audit
General Demeanor
Taxpayers deserve to be treated with courtesy and respect. Discourteous or argumentative behavior makes the field audit more difficult and reflects negatively on the entire assessor's office staff.
Getting the Taxpayer to Cooperate
The following recommendations are made to help the assessor obtain the taxpayer's
cooperation and respect:
- A courteous, cooperative, and professional attitude should be displayed, along with appropriate professional attire. All questions asked by the taxpayer should be addressed.
- All offers of gratuities should be declined.
- Political, religious, or other potentially argumentative topics should be avoided.
- Premature conclusions should not be drawn.
- During the course of the field audit, the assessor will request several types of information from the taxpayer. This information includes data about the business enterprise, as well as the methods used by the taxpayer to account for the acquisition or disposition of personal property.
- All pertinent questions should be asked of the taxpayer during the field audit. However, the taxpayer should be informed that additional questions may need to be answered once the collected data has been reviewed.
Conduct Field Audit
In cases where no itemized listing of personal property has been furnished by the taxpayer, the assessor creates one during the field audit. If the taxpayer has submitted an itemized list, the assessor verifies the listed property while auditing the business location.
While conducting the field audit, the assessor should note high and low dollar value personal property not listed by the taxpayer on the declaration schedule.
A field audit not only allows the assessor to see how personal property is used, but also allows the assessor to observe and rate physical condition.
The assessor verifies that all property appearing on the personal property account is still being used in the business. Any personal property that is no longer used in and located at the business location is flagged for removal from the taxpayer's account.
The assessor should pay particular attention to real property that has been reported with personal property, to ensure that they are not double assessed as both real and personal property. This is particularly important for property described as "leasehold improvements." Classification guidelines are located in Chapter 2, Discovery, Listing, and Classification.
The assessor should document all findings and conclusions in such a manner that anyone can review and understand what occurred during the field audit.
Examination of Accounting Books and Records
During the initial contact with the taxpayer, it should be explained which records are to be reviewed and over what periods of time. Unnecessary records should not be requested from the taxpayer. The appropriate individual to see for access to records and the location(s) where records are kept also should be determined. If the records are in the possession of an independent accountant the accountant should be contacted, after obtaining the taxpayer's permission. The actual owner of the property should always be contacted first, if possible.
Business Enterprise Information
Information about the business enterprise which is requested or verified during the examination of accounting books and records includes the following:
- Description of the business
- Products manufactured or sold or services offered
- Number of employees
- Hours of operation
The information requested here enables the appraiser to make judgments about the general operation of the business. The general operation of the business gives indications as to how well property is maintained and indicates the normal use of the property.
- The business's capitalization and expense practices for accounting purposes
- Rules concerning expensing equipment purchases which fall below a specified minimum amount above which equipment would be capitalized; expense equipment is still taxable, unless it meets the consumable personal property exemption criteria and is exempt pursuant to § 39-3-119, C.R.S.
- Rules concerning expensing or capitalizing freight to the point of use, installation, and sales/use tax; these costs should be included with the original cost of the equipment
- Rules concerning writing off fully depreciated personal property; this personal property may still be taxable until it is scrapped or sold, even if it is not in use or if the business is no longer operating
- Rules concerning writing off scrapped or sold personal property; these should be deleted from the personal property account
- Rules concerning capitalizing or expensing major equipment repairs; major equipment repairs may change the effective age of equipment, but should not be included with the original cost of the equipment
- Rules concerning recording trade-in allowances which some companies deduct from the original cost of the acquired personal property; original costs should include trade-in allowances as part of compensation for the purchased equipment
- Rules concerning residual value of leased property at “buy out” time; this is not the original cost of the equipment
The information regarding the methods used by the taxpayer to account for property acquisition and recovery is important to the assessor in reconciling the taxpayer's financial records, the physical inspection, and the personal property account. Companies that expense personal property with a value that is below a specified amount may not be reporting all of their taxable personal property to the assessor’s office.
Understanding the procedures used by taxpayers regarding personal property treatment and disposition allows the assessor to confirm the accuracy of personal property account listings.
- Reconciliation between the subsidiary ledgers original costs and the original costs reported on the declaration schedule
Comparisons should be made to reconcile original equipment or pooled personal property costs and the original costs listed on the declaration schedules. The assessor needs to ask the taxpayer, in the initial telephone contact, to provide this subsidiary ledger information or to give permission to contact the taxpayer's accountant, if necessary.
A thorough understanding of any differences between original book costs and original costs reported on the declaration schedule helps the assessor confirm the accuracy of the property listings and the appraised values of the personal property.
- Method of recording purchases
The company's policy on recording purchases gives information about the accuracy of the declaration schedule, and helps the assessor reconcile the declaration schedule and the taxpayer's accounting records.
- Methods of accounting for personal property at the subject location that are recorded on the books of a subsidiary or parent corporation
The taxpayer is required to file a listing of all personal property at the subject location. Any property listings carried on the accounting records of a parent or subsidiary company are usually not available to the assessor for reconciliation with the physical inspection or the personal property account.
- Method of accounting for property leased or rented from others
The way in which taxpayers account for leased or rented equipment is important to the assessor for the discovery of leased property and to reconcile the physical inspection listing with the taxpayer's accounting records.
Careful attention to the ownership of leased property helps avoid double assessments of this property.
- Access to the company's chart of general ledger accounts may be helpful in determining the company's accounting practices. Any questions which arise as to the appropriateness of an accounting practice, which affects personal property values, should be resolved in consultation with a professional accountant and according to Generally Accepted Accounting Principles (GAAP).
Financial Records
The financial records and sources that may be of interest to the assessor include the following.
Periodic Financial Statements
Financial statements are documents which indicate the company's profit or loss and net worth. These are sometimes called balance sheets.
General Ledger
The general ledger is the immediate source from which financial statements are prepared. The general ledger provides the overall balances of all personal property, liability, and capital accounts of the company.
Subsidiary Ledgers
Subsidiary ledgers are ledgers that provide detailed, individual balances in support of the general ledger totals such as depreciation schedules for individual pieces of equipment or pooled personal property accounts for depreciating similar equipment purchased at one time.
Books of Original Entry
Books of original entry include sales, purchases, cash disbursements, and general journals from which ledger entries are made.
Primary Source Documents
Primary source documents include documents which serve as the basis for entry in the books of original entry. Examples include sales invoices and supplier's invoices.
Substantiating Documentary Evidence
Substantiating documentary evidence includes documents which support primary evidence. They frequently relate back to the origins of the transaction. Examples include the following:
- Sales orders
- Sales contracts
- Shipping records
- Purchase orders
- Bills
- Receiving records
External Evidence
External evidence includes documents filed with outside governmental or commercial agencies that require detailed information about the company. Examples include the following:
- Federal or state income tax returns
- Fire insurance policies
- Statements for credit reports
- Reports to the Securities and Exchange Commission (10K Report)
Other Company Records
Other company records include documents which outline company policy and practice such as the following:
- Annual reports
- Accounting procedures manuals
- Systems of internal control
Comparing Appraisal and Accounting Records
In comparing appraisal records to accounting records, the assessor verifies that the taxpayer is using original acquisition cost, plus installation, sales/use tax, and freight to the point of use, on the declaration schedule and not net book value, i.e., the cost minus depreciation to date. Net book value is commonly used when a business is sold and may be acquisition cost to the new owner. Refer to Bulk Sale of Personal Property under the Types of Cost topic in Chapter 3, Valuation Procedures. The amount and listing of fully depreciated personal property still owned is obtained or verified.
Property Classification List Reviewed
The property classification list can be reviewed to verify that property has been reported according to the statutory definitions for the following types of property.
- Real property
- Personal property
- Exempt property
- Lessor owned equipment
- Movable equipment
- Taxable property
- Works of art
Acquisition/Disposition Records Analyzed
The assessor compares the current personal property and leased equipment lists with the appraisal records and declaration schedules and notes any discrepancies which may result in either omitted property or double assessments. Analysis of acquisition and disposition records should reconcile with equipment listed in the declaration schedules as added or deleted. The assessor attempts to verify all information on the personal property records with taxpayer accounting records. Discrepancies should be brought to the taxpayer's attention for correction, clarification, or explanation.
Personal Property Review Tests Performed
Certain personal property review tests should be performed to verify the accuracy and completeness of information contained on the declaration schedule.
The goal of these tests is to examine the assessor's information and make certain the taxpayer and assessor are in agreement concerning the property which is listed and valued. The personal property review tests include the following:
High and Low Value Property Test
The assessor selects a few high cost personal property and low cost personal property in the taxpayer's accounting records and double-checks to assure that they are listed in the personal property account. The goal of this test is to verify whether or not all property has been listed in the assessor's records.
Property Category Test
The assessor scans the subsidiary ledgers to determine if the taxpayer has used the proper property categories, e.g., a desk is classified as furniture rather than machinery. This test will help to identify problems associated with use of improper cost factor tables.
Assessment Status Test for Property Owned by Others
The status of property leased or loaned to the business being analyzed should be checked. When a significant amount of leased equipment is listed, the accounts of the lessor need to be checked to assure that they are reporting the equipment as owned on their declaration schedule. If taxpayer records show a large decrease has occurred in the amount of leased equipment, there may be a corresponding increase in the equipment being purchased by the business.
Additional Information
Additional information, necessary to complete the personal property review documentation or to address any areas of concern, should be requested from the taxpayer.
Document Findings and Conclusions
A short written summary/narrative is a key feature of a personal property review program. This narrative documents significant findings and conclusions including areas of discrepancy, their causes, and corrective actions taken. The taxpayer's methodology in preparing personal property declaration schedules should be documented if there is a variance from prescribed standards.
The narrative logically follows the sequence of the working papers. It covers significant points in enough detail so that anyone reviewing the personal property review at a later date can follow the procedures used and the conclusions reached.
The narrative is a short summary of the findings, conclusions, and recommendations derived from the personal property review and field audit. Any opinions or recommendations must be documented. The narrative should be included in the information sent to the taxpayer at the conclusion of the field audit.
Any correspondence should be signed by the assessor, dated for future reference, and filed in the taxpayer's personal property account file.
Reconcile Approaches and Estimate Value
The assessor reviews all information received from the taxpayer and appraises the current actual value of the personal property. In addition, the assessor documents all approaches to value considered in the appraisal of the property and identifies the approach used in the final estimate of value.
Notify Owner of Field Audit Results
When a field audit or examination of accounting books and records is complete, the assessor should notify the taxpayer, in writing, of the results of the personal property review.
Letter Explaining Field Audit Results
The audit, other than an office review, is not complete until the taxpayer has received written notice of the results. The taxpayer should be thanked for the cooperation shown and be made aware of any action that may be taken as a result of the findings. An example results notification letter is included in Addendum 5-B, Sample Letters.
Special Notice of Valuation (SNOV) For Omitted Property
If the field audit results in the discovery of omitted property, the taxpayer is notified of the omitted property value. This is accomplished by using the Special Notice of Valuation (SNOV). Refer to ARL Volume 2, Administrative and Assessment Procedures, Chapter 9, Form Standards, for the SNOV form. The taxpayer is notified in order to preserve the taxpayer's administrative remedies even if the audit has been conducted subsequent to the initial notice of valuation deadline of June 15th.
The penalty for omitted property may be applied under certain circumstances. A complete discussion of this issue is found in Chapter 3, Valuation Procedures.
If the field audit reveals property that may have been scrapped or sold prior to January 1, or property that has been assessed twice, the assessor should inform the taxpayer that an abatement petition can be submitted for taxes paid on assessments for the two prior years. These are clerical errors and should be corrected whether the taxpayer protested the value of the property during the assessment year(s) in question or not. The taxpayer needs to provide documentation demonstrating that the property was scrapped, sold, or double assessed. The incorrect value also should be corrected for current and subsequent years.
It is important to note that the personal property review program is not designed to detect and correct prior errors. It is designed to verify the accuracy of current personal property listings for the taxpayer and to verify the accuracy of personal property valuations made by the assessor from those listings. The assessor should never make statements about valuation errors or changes until potential problems have been thoroughly investigated.
The assessor should develop a personal property audit plan such as the one described in Addendum 5-A, Audit Standards.
Addendum 5-A, Audit Standards
The purpose of this standard is to provide Colorado assessors with recommended topics and criteria for inclusion in the Colorado State Board of Equalization's mandated personal property audit plan. This plan must be updated each year as needed.
Questions regarding the contents of this standard and suggestions for revision are welcome and should be addressed to the Division of Property Taxation.
Topics for Inclusion in the Plan
The following topics should be included in the county audit plan:
- Purpose of the Plan
- Personal Property Account Characteristics
- Plan Time Frame and Interim Progress Review Points
- Listing of Office Resources Involved in the Audit Program
- Account Review Selection Criteria and Specific Audit “Triggers”
- Audit Work Paper and Documentation Guidelines
- Assessor Signature Page
Recommendations for specific information to be included under each of these topics is listed below.
Purpose of the Plan
This section includes the reasons for the development of the plan:
- To plan for a comprehensive review and audit program involving personal property accounts to ensure accuracy, equalization, and uniformity of taxpayer reporting, and
- To comply with the Colorado State Board of Equalization requirement to audit, through physical inspection, personal property accounts selected in accordance to criteria contained within a written plan in place on January 1 of each year.
Additional reasons for inclusion under this section may be incorporated at the option of the county.
Personal Property Accounts Characteristics
The purpose of this topic is to give the reader a general idea of the types, numbers of accounts, and aggregate assessed values of personal property accounts found within the county. Specific totals of personal property accounts should be listed by abstract code along with total assessed values applicable to each code.
The following abstract codes of personal property accounts should be included within the scope of this plan:
1410 - Residential Personal Property
2405 - Gambling Personal Property
2410 - Commercial Personal Property
2415 – Renewable Energy Personal Property
3410 - Industrial Personal Property
54xx - Natural Resource Personal Property (all types)
64xx - Producing Mines Personal Property (all types)
74xx - Oil and Gas Personal Property (all types)
Also suggested for inclusion would be a list of the “top ten” personal property taxpayers, by assessed value, in the county.
Audit Plan Time Frame
Information required under this topic is:
- The assessment year covered by the audit plan
- The specific twelve month period in the audit plan cycle
Personal property audits accomplished within this time period will be analyzed by the state property tax auditor for compliance with the completed plan.
Suggested for inclusion in this plan should be at least two interim progress review points to ascertain that the plan is being timely completed and that adequate documentation is being developed.
Listing of Office Resources
Recommended information in this section would be the number of personal property appraisers, appraisal technicians, administrative personnel, and any other assessor office personnel involved in the completion of the audit program. Conversion of personnel resources to a "person-months" unit of comparison is suggested in order to compare resource allocation for this audit program to allocations for subsequent audit programs.
Types of Audit Analyses and Account Selection Criteria
This section includes a brief definition of the types of audits that will be conducted during the audit program, i.e., office review, field review (physical inspection), examination of books and records. In addition, general procedures for conducting each of these analyses may be included as well.
Also this section contains specific criteria for selection of accounts for the audit program and the estimated number of accounts that will be physically inspected in the current audit program. Criteria used to exclude any accounts from the audit program must be listed along with the numbers of accounts and assessed valuations assigned to those accounts.
Specific Program Triggers for Priority Selection
Included in the criteria should be specific "triggers" that would prescribe a high priority for review, such as:
- Non-filing taxpayers that resulted in Best Information Available (BIA) assessments placed on their property
- Accounts with omitted property discovered through the county's business discovery program
- Incomplete declarations or declarations having inconsistent information from year to year
- Accounts that were protested from the prior year where the taxpayer had substantial disagreements with the values assigned to the reported property
- Accounts showing greater than 10% change in the taxpayer's General Ledger account balances but with no additions or deletions
- New businesses filing for the first time
- Accounts having no additions or deletions for three continuous years
- Accounts where discrepancies were consistently found in prior audits
Account Selection Criteria
Suggested selection criteria for the balance of accounts scheduled for review are listed below:
- Analysis of accounts associated with same business type or use
- Accounts located in the highest and lowest quartile of actual value per square foot by business type
- Random sample of accounts not audited within the last five years
Selection of accounts by business types is an especially good method because it allows for review of values for equalization purposes as well as creating a basis for BIA assessments to be applied to non-filing comparable businesses.
Although auditing a minimum percentage of accounts is not required as part of the plan, account criteria should be established to allow for a cyclical review and inspection of all accounts, over a reasonable time frame. Use of a cyclical time frame is consistent with the purpose of the audit program to provide accurate and equalized values and uniform taxpayer reporting of personal property accounts in the county.
Audit Work Paper and Documentation Guidelines
This section should contain procedures for documenting how the audited accounts were selected, the number of accounts selected, and any problems encountered in completing the program.
Also recommended for inclusion are procedures for audit “paper trails,” audit work paper documentation, and any other documentation essential for a functioning audit program.
Assessor Signature Section
The assessor signs and dates the plan to certify that it is the official personal property audit plan for the current assessment year. The plan must be in place by January 1 of each year.