Okaloosa County BOCC — January 19, 2016 — Florida Department of Revenue Audit — agenda request — reading text

BOARD OF COUNTY COMMISSIONERS AGENDA REQUEST DATE: January 19, 2016 TO: Honorable Chairman and Members of the Board FROM: Tracy Stage SUBJECT: Florida Department of Revenue Audit DEPARTMENT: Airport BCC DISTRICT: 2 STATEMENT OF ISSUE: The Department of Airports requests the Board of County Commissioners approve a transfer from airport reserves for the payment of sales tax and interest due to the Department of Revenue from the parking concession at the Destin - Fort Walton Beach Airport (VPS). BACKGROUND: On December 29, 2015, Okaloosa County received the results of a routine Sales and Use Tax Audit performed by the Department of Revenue (DOR) for the period of August 2012 through July 2015. The audit was based on the 2015 Florida Statutes, Section 212.031, Tax on rental or license fee for use of real property. Upon receipt, the DOR report was transmitted to Warren Averett LLC for review and recommendations. This report addressed several areas including parking at the Airport. Though Warren Averett questioned the appropriateness and legitimacy of some of the assessments on the County’s behalf, they have recommended the County make payment to the DOR for the Airport’s liability associated with the Republic Parking contract. Republic’s position is that all of the revenues derived for parking, including any sales tax, was collected and remitted to the County. However, due to confusion regarding who was remitting the taxes to DOR, the taxes were not correctly reported. Among the contributing factors were Republic’s failure to itemize sales taxes collected on their monthly financial statements and Republic’s signage that stated taxes were “included” in the parking fees. The financial statements and signage were corrected in October, 2015. Additional assessments asserted by the DOR are under review and result from differences in interpretation between the DOR and the County regarding the applicability of sales and use tax on other transactions. We believe the DOR has been extremely aggressive in some of their interpretations. Penalties have been waived by the DOR as any errors were deemed unintentional; however, interest in the amount of approximately $45,000 cannot be waived. It is important to note that Republic Parking remitted all revenue collected to the County. What they failed to do was identify the portion representing sales tax collected. Upon immediate notification of the error, Republic refunded to the County approximately $48,000 in management fees that were overpaid due to the reporting error. This refund is sufficient to cover the approximate $45,000 interest fee assessed by DOR. It is also recommended that the County Attorney be directed to review and evaluate the contract to determine whether greater controls or clarifications should be implemented and to evaluate other options that the County might have. Over the past several months, staff has been taking proactive measures to improve financial activities throughout the county. During the last budget cycle, the Board approved an additional financial management position for the Airport along with limited additional administrative positions throughout the County. Rebuilding administrative oversight of financial activities is critical for the County, and those efforts are on-going. The Airport is making good progress as the financial division has recently seen significant changes in staffing and additional changes are forthcoming. Software to improve contract management at the Airport was also implemented this year. Further, the Clerk’s Inspector General was engaged by the Board on July 21, 2015, to audit the Airport’s financial operations, to include a review of contracts. The audit is still on-going. OPTIONS: Approve/Disapprove RECOMMENDATIONS: Staff recommends approval of the funds deposited into airport reserves be transferred from airport reserves and payment to the DOR in the amount of $402,902.04 plus any additional interest of $68.56 per day from December 29, 2015 until the date of payment postmark. Further, staff recommends the County Attorney be directed to review and evaluate the contract to determine whether greater controls or clarifications should be implemented and to evaluate other options that the County might have. RECOMMENDED BY: APPROVED BY: John Hofstad, County Administrator