DOF paid 11 firms tax rabates twice in FY 97

The CNMI government’s Fiscal Year 1998 income was overstated because portion of it was actually recorded as revenues when it was, in fact, collected from corporate taxpayers who received tax rebates twice in 1997.

Eleven companies were issued their 1995 corporate tax rebate checks twice in Fiscal Year 1997 because of the finance department’s failure to comply with existing control procedures, a report from the Office of the Public Auditor disclosed.

However, the Department of Finance was able to recover all overpayments amounting to $469,798, thanks to one of the taxpayers who reported receiving two checks for its 1995 corporate tax rebate.

The audit report also showed that the finance department failed to collect receivables from the 11 corporate taxpayers and correct the overstatement of rebate tax expense at the end of FY 1997 although operating accounts were still open when the finance officials discovered the double payments.

This resulted to the understatement by $469,798 of the FY 1997 assets, income and ending fund balance. Since the collection of the double payments was recorded as revenues in 1998, OPA said the government’s income was actually overstated.

According to the OPA, the finance department’s Accounts Payable failed to verify whether previous payments had already been made which resulted to the government actually paying 11 companies’ corporate tax rebates earned in FY 1995 twice.

The former supervisor of the Accounts Payable admitted that no verification procedures were conducted to determine whether the obligations created by the Division of Revenue and Taxation payment voucher listing had been paid.

The list of 12 companies had been prepared soon after the Industrial Bank of Japan, Ltd. complained that it has not received its corporate tax rebate check amounting to $281,128.

OPA said only the tax rebate payable to the Industrial Bank of Japan should have been processed, excluding those of the 11 companies totaling $469,798.

The companies who received tax rebate checks twice are EMC2 Electrical, FPA Pacific Corporation, Hotel Nikko Saipan, Kambarra Kisen Company, Mammy House, Inc., Microl Corporation, Pantrac Trading, S.H.A. Project, Inc., The Sakura Bank, Ltd., Tsuneishi Research & Development, and Tsuneishi Shipbuilding Company.

OPA said there is not enough control procedure in the DOF financial management system that would ensure only valid obligations are being processed for payment.

The OPA report also sounded the alarm that duplication in the payment of tax rebates or refunds is likely to happen again in the future unless the DOF sets up a system that would detect duplicate presentations of the revenue and taxation division’s payment voucher listing.

The public auditor report discovered that CNMI accounting records were nor adjusted accordingly to correct the errors brought about by the double payments.

In order to avoid repetition of similar mistakes, OPA recommended that DOF comply with the control procedures for processing complaints about non-receipt of corporate tax rebate payments.

OPA also called for the development and the implementation of control procedures in its financial management system which will recognize and flag potential duplicate processing of corporate tax rebate payments, and ensure that prompt and proper adjustments to the CNMI accounting records are made for the affected fiscal year in case any other double payment is found.