[Audit Report on Assessment and Collection of Gross Receipts Taxes, Department of Revenue and Taxation, Government of Guam]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 98-I-570

Title: Audit Report on Assessment and Collection of Gross Receipts
       Taxes, Department of Revenue and Taxation, Government of
       Guam

Date:  July 17, 1998




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U.S. Department of the Interior
Office of Inspector General

AUDIT REPORT

ASSESSMENT AND COLLECTION OF GROSS RECEIPTS TAXES,
DEPARTMENT OF REVENUE AND TAXATION,
GOVERNMENT OF GUAM

REPORT NO. 98-I-570

JULY 1998




MEMORANDUM


TO:               The Secretary

FROM:             Richard N. Reback
Acting Inspector General

SUBJECT SUMMARY:  Final Audit Report for Your Information - "Assessment and
Collection of Gross Receipt Taxes, Department of Revenue and
Taxation, Government of Guam" (No. 98-I-570)


Attached for your information is a copy of the subject final audit report.  The objective of
the review was to determine whether the Government of Guam effectively assessed and collected
the gross receipts taxes applicable under Guam laws and regulations.

We found that the Department of Revenue and Taxation did not ensure that all delinquent
gross receipts taxes were collected and did not use available sources of information to
identify businesses (taxpayers) that had not filed gross receipts tax returns.  These
conditions occurred because the Department (1) had transferred Collection Branch personnel to
other divisions, which prevented the Collection Branch from initiating timely enforcement
actions to collect delinquent gross receipts taxes; (2) had not developed written procedures
for conducting an effective nonfiler identification program; (3) had not assigned a program
coordinator and personnel to conduct nonfiler identification programs; and (4) had not
entered income tax information into the Department's automated income tax system to
provide a method for comparing income reported on income tax returns with income shown
on gross receipts tax returns.  As a result, the Government of Guam lost gross receipts taxes
of $724,149 and risks losing additional taxes of at least $1.3 million if timely enforcement
actions are not taken.  In addition, based on our limited testing of taxpayer information
sources on Guam, we identified 47 nonfilers who may have owed the Government of Guam
at least $972,486 in gross receipts taxes and related penalties and interest.

To correct these deficiencies, we recommended that the Governor of Guam require the
Director of the Department of Revenue and Taxation to (1) use all available enforcement
methods to collect delinquent gross receipts taxes, including seizures and sales of taxpayer
property; (2) consider returning the previously transferred personnel to the Collection
Branch; and (3) develop and implement a written plan and assign a program coordinator and
personnel to conduct nonfiler identification programs.  The June 22, 1998, response to our
draft report from the Acting Governor of Guam concurred with all five recommendations.
Based on the response, we consider one recommendation resolved and implemented and one
recommendation resolved.  However, we requested additional information for the other three
recommendations.

If you have any questions concerning this matter, please contact me at (202) 208-5745.

Attachment




Honorable Carl T.C. Gutierrez
Governor of Guam
Office of the Governor
Agana, Guam  96910

Subject:  Audit Report on Assessment and Collection of Gross Receipts Taxes,
          Department of Revenue and Taxation, Government of Guam (No. 98-I-570)


Dear Governor Gutierrez:

This report presents the results of our review of gross receipts taxes at the Department of
Revenue and Taxation during fiscal years 1995, 1996, and 1997 (through
December 31, 1996).  The objective of our audit was to determine whether the Government
of Guam effectively assessed and collected the gross receipts taxes applicable under Guam
laws and regulations.

Our audit disclosed that the Department of Revenue and Taxation did not ensure that all
delinquent gross receipts taxes were collected and did not use available sources of
information to identify businesses (taxpayers) that had not filed gross receipts tax returns.
These conditions occurred because the Department  (1) had transferred Collection Branch
personnel to other divisions, which prevented the Collection Branch from initiating timely
enforcement actions to collect delinquent gross receipts taxes; (2) had not developed written
procedures for conducting an effective nonfiler identification program; (3) had not assigned
a program coordinator and personnel to conduct nonfiler identification programs; and (4) had
not entered income tax information into the Department's automated income tax system to
provide a method for comparing income reported on income tax returns with income shown
on gross receipts tax returns.  As a result, the Government of Guam lost gross receipts taxes
of $724,149 and risks losing additional taxes of at least $1.3 million if timely enforcement
actions are not taken.  In addition, based on our limited testing of taxpayer information
sources on Guam, we identified 47 nonfilers who may have owed the Government of Guam
at least $972,486 in gross receipts taxes and related penalties and interest.

To correct these conditions, we recommended that you, as the Governor of Guam, require
the Director, Department of Revenue and Taxation, to  (1) use all available enforcement
methods to collect delinquent gross receipts taxes, including seizures and sales of taxpayer
property; (2) consider returning the previously transferred personnel to the Collection
Branch; and (3) develop and implement a written plan and assign a program coordinator and
personnel to conduct nonfiler identification programs.

On April 8, 1998, we discussed the preliminary draft of this report with the Department's
Director, the Tax Enforcement Administrator, and the Taxpayer Services Administrator, all
of whom expressed agreement with the findings and recommendations.  In addition, the
Director stated that our report provided him "useful information" that he planned to use as
support for obtaining additional resources needed by the Department to carry out its tax
collection and enforcement activities.

On April 29, 1998, we transmitted a draft of this report to you, requesting your comments
by June 19, 1998.  The June 22, 1998, response (Appendix 2) from the Acting Governor
indicated concurrence with all five of the recommendations.  Based on the response, we
consider one recommendation resolved and implemented and one recommendation resolved
but not implemented, and we requested additional information for three recommendations
(see Appendix 3).

The Inspector General Act, Public Law 95-452, Section 5(a)(3), as amended, requires
semiannual reporting to the U.S. Congress on all audit reports issued, the monetary impact
of audit findings (Appendix 1), actions taken to implement audit recommendations, and
identification of each significant recommendation on which corrective action has not been
taken.

In view of the above, please provide a response, as required by Public Law 97-357, to this
report by August 18, 1998.  The response should be addressed to our Pacific Office,  415
Chalan San Antonio;  Baltej Pavilion, Suite 306; Tamuning, Guam 96911.  The response
should provide the information requested in Appendix 3.

We appreciate the assistance of the staff of the Department of Revenue and Taxation during
the conduct of our audit.


                            Sincerely,

                            Richard N. Reback
                            Acting Inspector General



cc:  Director, Department of Revenue and Taxation
     Acting Director, Bureau of Budget and Management Research




CONTENTS



                                                             Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . .  1

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . .  1
OBJECTIVE AND SCOPE. . . . . . . . . . . . . . . . . . . . . .  1
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . . . .  2

FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . .  3

A.  COLLECTION OF GROSS RECEIPTS TAXES . . . . . . . . . . . .  3
B.  NONFILER IDENTIFICATION PROGRAM. . . . . . . . . . . . . .  7

APPENDICES

1.  CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . . . . . . 10
2.  ACTING GOVERNOR OF GUAM RESPONSE . . . . . . . . . . . . . 11
3.  STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . . . . 20




INTRODUCTION


BACKGROUND

The  Department of Revenue and Taxation is responsible for enforcing all Guam tax laws,
including the gross receipts tax law.  Title 11, Chapter 26, of the Guam Code Annotated
provides the authority for imposing gross receipts taxes, and  Section 26202(a) of Chapter 26
states that businesses (referred to in this report as taxpayers) selling goods and services
will be taxed at a rate of 4 percent on the gross proceeds of sales.  The Director of Revenue
and Taxation is appointed by the Governor of Guam and confirmed by the Guam Legislature and
is responsible for managing the operations of the Department of Revenue and Taxation.

The Department of Revenue and Taxation has three branches that are responsible for
administering Guam's gross receipts tax law: the Business Privilege Tax Branch and the
Accounting Branch, which are under the Taxpayer Service Division, and the Collection
Branch, which is under the Tax Enforcement Division.  The Business Privilege Tax Branch
is responsible for receiving, processing, and verifying the accuracy of information on
Monthly Gross Receipts Tax Returns.  The Accounting Branch is responsible for processing
payments of gross receipts taxes and assessing any gross receipts taxes that may be due the
Government of Guam.  The Collection Branch is responsible for initiating collection actions
to collect any unpaid or past-due gross receipts taxes.  During fiscal year 1997, the Business
Privilege Tax Branch (9 positions), the Accounting Branch (10 positions), and the Collection
Branch (38 positions) were authorized a total of 57 full-time positions.

Revenue and Taxation's records indicated that during fiscal years 1995, 1996, and 1997
(through December 31, 1996), the Business Privilege Tax  Branch processed 448,288 gross
receipts tax returns with taxes totaling $389 million.  During fiscal year 1996, gross receipts
tax revenues totaled $180 million, which is about 34 percent of the Government of Guam's
total General Fund revenues.  Gross receipts taxes receivable increased from $6.7 million at
the end of fiscal year 1994 to $14.9 million at the end of fiscal year 1996.

OBJECTIVE AND SCOPE

The audit objective was to determine whether the Government of Guam effectively assessed
and collected the gross receipts taxes applicable under Guam laws and regulations.  The
scope of the audit covered Revenue and Taxation's assessment and collection of gross
receipts taxes that occurred during fiscal years 1995, 1996, and 1997 (through December 31,
1996).  However, by letter of April 1, 1997, the Inspector General amended the scope of the
audit to include a review of income tax returns and any other records that were necessary to
complete the audit of gross receipts taxes.

Our audit was conducted at Revenue and Taxation's offices from January to
September 1997.  In addition, we obtained information relating to gross receipts taxes from
officials at the Department of Administration, the Guam Housing and Urban Renewal
Authority, the Guam Legislature, and the Guam Finance Commission.   In addition, we
visited officials of the Contracting Services Office at Andersen Air Force Base on Guam to
obtain information related to payments made to contractors that perform work for the
military.

The audit was made, as applicable, in accordance with the "Government Auditing
Standards," issued by the Comptroller General of the United States.  Accordingly, we
included such tests of records and other auditing procedures that were considered necessary
under the circumstances.

As part of the audit, we evaluated the system of internal controls relating to processing gross
receipts tax returns, assessing and collecting gross receipts taxes, maintaining taxpayer case
files, and operating nonfiler identification programs to the extent that we considered
necessary to accomplish our audit objective. We found that the Department had adequately
assessed gross receipts tax returns filed by taxpayers.  However, significant internal control
weaknesses were identified in the areas of collecting gross receipts taxes, maintaining
taxpayer case files, and conducting a nonfiler identification program.  These weaknesses are
discussed in the Findings and Recommendations section of this report.  Our
recommendations, if implemented, should improve the internal controls in these areas.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the General Accounting Office nor the Office of Inspector
General had audited the Government of Guam's assessment and collection of gross receipts
taxes.  However, on May 2, 1989, the Office of Inspector General issued the report "Gross
Receipts Tax Billing and Collection Practices, Department of Revenue and Taxation,
Government of Guam" (No. 89-70).  The report noted deficiencies in tax operations that
resulted in (1) the loss of $118,000 because the 3-year statute of limitation had expired on
various tax cases and (2) the risk of loss of $628,000 in unbilled and undocumented taxes
and $3 million in uncollected delinquent taxes.

In addition, an independent public accounting firm issued single audit reports on the
Department of Revenue and Taxation's operations for each of fiscal years 1994, 1995, and
1996.  These reports showed that (1) account balances were not reconciled at Revenue and
Taxation and at the Department of Administration for checks which were returned by banks
for insufficient funds, (2) about 85 percent of  receivables for these checks were more than
120 days past due,  (3)  the allowance for doubtful accounts could not be verified, and (4)
abatements of taxes receivable were generally not reported to the Department of
Administration.


FINDINGS AND RECOMMENDATIONS

A.  COLLECTION OF GROSS RECEIPTS TAXES

The Department of Revenue and Taxation did not ensure that delinquent gross receipts taxes
were collected or collected in a timely manner.  Title 11, Chapters 15 and 26, of the Guam
Code Annotated provides time frames for initiating enforcement actions to collect delinquent
gross receipts taxes. However, Collection Branch personnel said that they were not always
able to initiate enforcement actions in a timely manner because the Collection Branch did not
have a sufficient number of revenue officers to manage the delinquent taxpayer caseload.
As a result, during fiscal years 1995, 1996, and 1997 (through December 31, 1996), the
Government of Guam lost gross receipts tax revenues of at least $724,149 and may be at risk
of losing another $1.3 million of delinquent gross receipts taxes if timely enforcement
actions are not taken.

Enforcement Practices

Title 11, Chapter 15, Section 15101(a), of the Guam Code Annotated states that "in all cases
of unpaid gross receipts taxes, demand for payment shall be made in writing within  thirty
(30) days of filing unpaid gross receipts tax returns, and liens and levies shall be filed on
such unpaid amounts not later than sixty (60) days of filing unpaid gross receipts tax
returns."  Also, Section 15102(a) states, "Repayment may be made over a period of sixty (60)
months or less."  However, Section 15102(d) states, "Upon default of the delinquent taxpayer
in all or all [sic] of the agreement terms and conditions, the entire amount owed shall be
immediately due and payable, and collection procedures shall be immediately instituted
against the defaulting taxpayer's property or properties unless the Director of Revenue and
Taxation, on his discretion, finds that the default was excusable, and the taxpayer promptly
(within 30 days) cures the default."  In addition, Title 11, Chapter 26, Section 26205, of the
Guam Code Annotated states, "The statute of limitations for collections of unpaid taxes due
on gross receipts tax returns shall be seven (7) years after the return is filed."  Finally,
Chapter 15, Section 15101(b), "Collection of Delinquent Taxes," states, "Nothing herein
shall affect the power of the Department of Revenue and Taxation to levy, seize and sell
property at public auction."  However, we found that Revenue and Taxation did not always
comply with these requirements.

Based on Revenue and Taxation's December 31, 1996, Collection Branch Monthly Activity
Report, the Collection Branch had an outstanding inventory of 5,206 demand for payment
notices that had been issued to 1,415 delinquent taxpayers who owed gross receipts taxes
totaling $14.9 million.  Of the 1,415 taxpayer case files, we selected a judgmental sample of
129 taxpayer case files, which contained 1,007 payment notices totaling about $3.3 million,
to determine whether Revenue and Taxation had complied with statutory requirements for
collecting the delinquent taxes.  Of the 129 delinquent taxpayer case files selected for
review, Revenue and Taxation was not able either to locate case files or to produce complete
case files for 35 taxpayers who owed taxes of $145,465.  Therefore, based on our review of the
94 available case files, we found that Revenue and Taxation generally issued notices to
delinquent taxpayers within the 30-day period prescribed by the Guam Code and had
followed statutory requirements for collecting delinquent taxes from 30 taxpayers who owed
taxes of $1.2 million.  However, Revenue and Taxation (1) did not comply with statutory
requirements for using liens and levies and enforcing payment agreements against 54
delinquent taxpayers who owed taxes of $1.3 million and (2) did not use available
enforcement actions to collect delinquent taxes from 10 other taxpayers, which resulted in
the loss of gross receipts taxes of $724,149.

Of the 54 delinquent taxpayers that had a total of $1.3 million of past-due taxes, we
determined that Revenue and Taxation had not filed any liens and/or levies against the
property of 20 taxpayers that owed taxes of $219,882 and had not filed liens and/or levies
timely against the property of 24 taxpayers that owed taxes of $694,182.  Furthermore, we
found that for five taxpayers that owed delinquent taxes of $179,679, Revenue and Taxation
had not initiated followup collection actions subsequent to filing liens and/or levies against
the taxpayers' property to ensure that the Government of Guam's interests in the delinquent
gross receipts taxes were protected.  As a result, Revenue and Taxation had not collected
delinquent taxes of $1.1 million from these 49 taxpayers.

We also found that Revenue and Taxation did not follow statutory requirements when
enforcing payment agreements with five delinquent taxpayers who owed $234,134.   In one
instance, we determined that Revenue and Taxation had entered into a payment agreement
with a delinquent taxpayer who owed taxes of $60,192.  However, the payment agreement
allowed the taxpayer to extend payments over a 363-month period, which exceeded the
60-month payment period allowed by law.  In addition, we found that four taxpayers, who
owed taxes of $173,942, had defaulted on their payment agreements with Revenue and
Taxation.  However, Revenue and Taxation had not taken any action to seize and sell
taxpayer assets to collect the delinquent taxes from these four taxpayers in accordance with
Title 11, Chapter 15, Section 15101(b), of the Guam Code.

Based on our review of the remaining 10 delinquent taxpayer case files, we also determined
that the Government of Guam lost gross receipts tax revenues of at least $724,149 because
Revenue and Taxation had not used available enforcement actions, such as seizures and sales
of property, to collect the delinquent taxes.  Specifically, we found that Revenue and
Taxation had not collected delinquent taxes of $40,545 from five taxpayers before expiration
of the 7-year statute of limitations.   In addition, we determined that the Government of
Guam lost delinquent taxes of $158,940  because three taxpayers declared bankruptcy and
Revenue and Taxation had not taken adequate steps, such as securing a claim against the
taxpayers' assets, to protect the Government's interests.  Finally, we found that Revenue and
Taxation had written off delinquent gross receipts taxes of $524,664 from two taxpayers
because one taxpayer had departed Guam and the other taxpayer no longer had any assets to
seize.

Based on Revenue and Taxation's budget documents for fiscal year 1997, we determined that
the Collection Branch was authorized a staff of 38 employees (35 revenue officers, 2 tax
auditors, and 1 support staff).  Of the 38 employees, we found that the Collection Branch had
seven vacancies (6 revenue officers and 1 support staff) and that 12 of its 29 revenue officers
had been reassigned by a former Director to cover shortages of staff in other Revenue and
Taxation divisions.  Therefore, during our audit, the Collection Branch had a staff of 19
employees.  According to the Administrator of the Tax Enforcement Division, the shortage
of staff in the Collection Branch had negatively impacted the ability of the Collection Branch
to initiate timely collection actions against delinquent taxpayers.  The Administrator also
stated that the Collection Branch would be able to reduce the backlog of delinquent taxpayer
cases (1,415 taxpayers as of December 31, 1996) if some of the reassigned employees were
returned to the Branch and the seven vacancies were filled.  Finally, Collection Branch
personnel and the Acting Collection Branch Supervisor stated that the insufficient numbers
of staff had prevented the Collection Branch from properly managing its delinquent taxpayer
caseload.

We also discussed with the Tax Enforcement Administrator the possibility of using seizures
and sales of property to collect delinquent gross receipts taxes.  The Tax Enforcement
Administrator stated that he did not want to use seizures and sales of property because he
believed that enforcement tools such as liens and levies were as effective as the use of
seizures and sales of property. However, during the exit conference on April 8, 1998, the Tax
Enforcement Administrator stated that seizures and sales of property should be used only as
a "last resort" to collect delinquent taxes.   Nevertheless, we believe that by delaying
enforcement actions against delinquent taxpayers, including the use of seizures and sales of
property, Revenue and Taxation risks the loss not only of additional gross receipts tax
revenues as a result of the expiration of the statute of limitations but also the opportunity
to collect tax revenues from taxpayers who may declare bankruptcy or leave Guam.  In addition,
we believe that the number of delinquent tax cases (1,415 taxpayers as of December 31,
1996) could be reduced if Revenue and Taxation aggressively pursued the collection of
delinquent gross receipts taxes through the use of seizures and sales of property.

Finally, as noted previously, Revenue and Taxation was unable to locate 35 (27 percent) of
the 129 delinquent taxpayer case files that we selected for review. Therefore, we believe that
Revenue and Taxation should develop written procedures to ensure that taxpayer case files
maintained by the Collection Branch are safeguarded and can be located when needed by the
revenue officers.

Recommendations

We recommend that the Governor of Guam require the Director, Department of Revenue and
Taxation, to:

    1.  Instruct the Tax Enforcement Administrator to comply with established procedures
for collecting delinquent gross receipts taxes, including the use of seizures and sales of
taxpayer property.

    2. Provide the necessary resources to ensure that the Collection Branch reduces its
backlog of delinquent taxpayer cases and collects delinquent gross receipts taxes in a timely
manner.

    3. Develop and implement written procedures and establish a records management
system to ensure that the Collection Branch controls and safeguards taxpayer case files.

Governor of Guam Response and Office of Inspector General Reply

The June 22, 1998, response (Appendix 2) to the draft report from the Acting Governor of
Guam concurred with all three  recommendations and indicated that corrective actions would
be taken.  Based on the response, we consider Recommendation 1 resolved and implemented
and request additional information for Recommendations 2 and 3 (see Appendix 3).

  B.  NONFILER IDENTIFICATION PROGRAM

The Department of Revenue and Taxation did not use available information sources to
identify potential nonfilers of gross receipts taxes.  Guam Public Law 19-10, Section 19,
authorized Revenue and Taxation to use various sources of information, such as the Guam
Telephone Directory, the Guam Waterworks Authority's water connection records, and the
Guam Housing and Urban Renewal Authority's and Guam Housing Corporation's listings
of landlords, to identify potential nonfilers.  However, Revenue and Taxation had not (1)
developed a written plan, including specific goals and objectives, to serve as a basis for
conducting an effective nonfiler identification program; (2) assigned sufficient personnel and
a program coordinator to conduct a nonfiler identification program; and (3) ensured that all
income tax return information was entered into Revenue and Taxation's automated income
tax system to provide a method for comparing income reported on individual and/or
corporate income tax returns with income shown on gross receipts tax returns.   As a result,
based on our limited testing of alternative sources of taxpayer information, we estimated that
gross receipts taxes and related penalties and interest of at least $972,486 may not have been
paid by nonfilers during calendar years 1995 and 1996.

Identification of Nonfilers

We tested several alternative sources of taxpayer information that Revenue and Taxation
could use to identify potential nonfilers, including the Guam Telephone Directory, the Guam
Housing and Urban Renewal Authority's listing of Section 8 (Federal Housing Assistance)
Program landlords, the Guam Legislature's logbook of personal services contracts, and the
military construction and service contract records at Andersen Air Force Base.   From these
sources, we selected 155 taxpayers to determine whether they had filed gross receipts tax
returns during calendar years 1995 and 1996.  In addition, for the taxpayers selected for
review from the Guam Housing Authority's listing, the Legislature's contract logbook, and
the Air Force Base's contract records, we compared the amount of taxpayer income shown
in these records with the amount of income reported on gross receipts tax returns to
determine whether all income had been reported by the taxpayers during calendar years 1995
and 1996.  Based on our review of the information obtained for the 155 taxpayers, we
determined that 108 taxpayers had filed gross receipts tax returns and had apparently reported
all of their income.  However, we found that the remaining 47 taxpayers either had not filed
gross receipts tax returns or had underreported their income, of which both actions resulted
in the nonpayment of gross receipts taxes estimated at $972,486, as shown in the following
table:


Summary of Taxpayers Tested and Results for
Calendar Years 1995 and 1996


Information Source


 Taxpayers
Reviewed


 Income
Reported by
Taxpayers


Nonfilers
and Under-
reporters


Income Not
Reported by
Taxpayers

Estimated
Gross Receipts
Taxes Not Paid
by Taxpayers*


Guam Telephone Directory
13
  $88,254,814
2
  $7,042,480
                       $384,944


Guam Housing Authority
57
  2,728,397
16
  241,451
                          13,175


Guam Legislature
71
  2,543,275
21
  114,322
                            6,211


Andersen Air Force Base
 14
    241,734,775
  8
    10,315,218
                         568,156


                         Totals
                         155
                         $335,261,261
47
  $17,713,471
                       $972,486


*Includes estimated interest and penalties computed as of December 31, 1996.


Both the Tax Enforcement Administrator and the Taxpayer Service Administrator agreed that
Revenue and Taxation should develop and implement a program to identify nonfilers.
However, these officials stated that insufficient numbers of staff had prevented Revenue and
Taxation from having a nonfiler identification program.  In addition, the Taxpayer Service
Administrator cited the same reason for income tax information not being entered into the
automated income tax system.

As noted in Finding A, a former Director of Revenue and Taxation had reassigned 12
revenue officers from the Collection Branch to cover shortages of staff in other Revenue and
Taxation divisions.  In addition, the Collection Branch had seven unfilled positions.  In our
opinion, Revenue and Taxation needs to return at least some of the reassigned revenue
officers to the Collection Branch and fill the seven vacant positions to provide the Branch
with a sufficient number of personnel to conduct  nonfiler identification reviews and to
ensure that necessary income tax information is entered into the automated income tax
system (see Recommendation A.2).  In addition, we believe that the deterrent effect created
by maintaining an active nonfiler identification program will improve Revenue and
Taxation's collection efforts through voluntary taxpayer compliance with the gross receipts
tax law.

Recommendations

We recommend that the Governor of Guam require the Director, Department of Revenue and
Taxation, to:

    1.  Develop and implement a written plan, including specific goals and objectives, for
conducting a nonfiler identification program.

    2.  Initiate a review to determine why the 47 taxpayers either had not filed gross
receipts tax returns or had underreported income.  If this review determines that additional
taxes are due, actions should be taken to collect the amounts due.

Governor of Guam Response and Office of Inspector General Reply

The June 22, 1998, response (Appendix 2) to the draft report from the Acting Governor of
Guam concurred with the two recommendations and indicated that corrective actions would
be taken.  Based on the response, we consider Recommendation 1 resolved but not
implemented.  Accordingly, the recommendation will be referred to the Assistant Secretary
for Policy, Management and Budget for tracking of implementation.  Also based on the
response, additional information is requested for Recommendation 2 (see Appendix 3).


APPENDIX 1


CLASSIFICATION OF MONETARY AMOUNTS


                       Finding Areas

                          Unrealized
                          Revenues*
                          Potential
                          Additional
                          Revenues*


A. Collection of Gross Receipts Taxes

B. Nonfiler Identification Programs

          Totals
                                          $724,149


                                          $724,149

                                            $1,327,877

                                               972,486

                                            $2,300,363


*Amounts represent local funds.                    APPENDIX 2
                                                  Page 1 of 9


ACTING GOVERNOR OF GUAM RESPONSE

APPENDIX 3


STATUS OF AUDIT REPORT RECOMMENDATIONS


Finding/Recommendation
           Reference

A.1

A.2


A.3


B.1


B.2


     Status

Implemented.

Management
concurs;
additional
information
needed.


Management
concurs;
additional
information
needed.


Resolved; not
implemented.


Management
concurs;
additional
information
needed.

Action Required

No further action is required.

Provide the number of revenue officers,
tax auditors, and support staff currently
assigned to the Collection Branch and a
target date and title of the official
responsible for requesting funding for the
vacancies.

Provide a target date for developing and
implementing the written procedures and
establishing a records management system
for controlling and safeguarding taxpayer
case files.  When completed, a copy of the
written procedures should be provided to
our office.

The recommendation will be referred to
the Assistant Secretary for Policy,
Management and Budget for tracking of
implementation.  However, when
completed, provide us a copy of the
procedures for nonfiler identification
program.

Provide a target date for completing the
review of the 47 taxpayers.  When
completed, a report on the results of the
review should be provided to our office.




ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED TO THE OFFICE OF
INSPECTOR GENERAL BY:

Sending written documents to:



Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street,N.W.
Mail Stop 5341
Washington, D.C. 20240

Calling:

Our 24 hour
Telephone HOTLINE
1-800-424-5081 or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996



Outside the Continental United States


Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division- Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

Calling:
(703) 235-9221


North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. F'lores Street
Suite 807, PDN Building
Agana, Guam 96910


Calling:
(700) 550-7428 or
COMM 9-011-671-472-7279