[Audit Report on the Administration of Real Property Taxes, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-379

Title: Audit Report on the Administration of Real Property Taxes,
       Government of the Virgin Islands

Date:  March 30, 1999



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





AUDIT REPORT


ADMINISTRATION OF REAL PROPERTY TAXES,
GOVERNMENT OF THE VIRGIN ISLANDS



REPORT NO. 99-I-379

MARCH 1999






MEMORANDUM

             TO:  The Secretary

           FROM:  Robert J. Williams
                  Acting Inspector General

SUBJECT SUMMARY:  Final Audit Report - "Administration of Real
Property Taxes, Government of the Virgin Islands" (No. 99-i-379)

Attached for your information is a copy of the subject final
audit report.  The objective of our audit was to determine
whether (1) the Virgin Islands Tax Assessor's Office had adequate
resources and procedures in place to ensure that property values
were equitably determined, property taxes were assessed, and tax
exemptions were granted equitably and in an effective and
efficient manner and (2) the Virgin Islands Department of Finance
collected real property taxes efficiently and effectively.

We found that the Tax Assessor's Office, although it was
generally effective in determining the assessed value of real
property and computing real property taxes, inappropriately
granted property tax exemptions to taxpayers.  In addition, the
Department of Finance did not maintain accounts receivable
records for delinquent real property tax bills and did not
effectively enforce the collection of delinquent taxes.  Further,
improvements were needed with regard to the internal controls for
collecting and recording property taxes by the Department and for
processing tax appeals by the Board of Tax Review.  As a result
of these deficiencies, 102 taxpayers received farmland,
nonprofit, and industrial exemptions that were a total of
$300,000 more than the exemptions to which they were entitled,
and almost 3,200 other taxpayers received homestead, veterans,
and senior citizen exemptions that were a total of almost
$210,000 less than what they should have been.  Additionally,
taxpayers owed at least $15.4 million in delinquent property
taxes.

We made 10 recommendations to the Governor of the Virgin Islands
to correct these deficiencies.  However, since we did not receive
a response to the draft report, the recommendations are
unresolved.

If you have any questions concerning this matter, please contact
me at (202) 208-4252.

Attachment






March, 1999                                       V-IN-VIS-003-98



          Honorable Charles W. Turnbull
          Governor of the Virgin Islands
          No. 21 Kongens Gade
          Charlotte Amalie, Virgin Islands 00802

Subject:  Audit Report on the Administration of Real Property
          Taxes, Government of the Virgin Islands (No. 99-i-379)


Dear Governor Turnbull:

This report presents the results of our audit of the
administration of real property taxes by the Tax Assessor's
Office and the Department of Finance, Government of the Virgin
Islands.  The objective of the review was to determine whether
(1) the Tax Assessor's Office had adequate resources and
procedures in place to ensure that property values were equitably
determined, property taxes were assessed, and tax exemptions were
granted equitably and in an effective and efficient manner and
(2) the Department of Finance collected real property taxes
efficiently and effectively.

Based on our audit, we found that improvements were needed in the
administration of real property tax exemptions and the collection
of real property taxes.  Specifically:

- The Tax Assessor's Office, although it was generally effective
in determining the assessed value of real property and computing
real property taxes, did not ensure that property tax exemptions
were granted to taxpayers in accordance with established
requirements.  As a result, at least 55 ineligible taxpayers
received farmland exemptions totaling $65,317, 39 taxpayers who
did not have valid applications received nonprofit exemptions
totaling $75,888, and 8 ineligible businesses received industrial
exemptions totaling $159,024.  In addition, 3,188 taxpayers
received homestead, veterans, and senior citizen exemptions for
tax year 1996 that were $209,942 less than what they should have
been.

- The Department of Finance did not maintain accounts receivable
records for delinquent real property tax bills and did not
effectively enforce the collection of delinquent taxes.  In
addition, improvements were needed with regard to the internal
controls for collecting and recording property taxes by the
Department and for processing tax appeals by the Board of Tax
Review.  As a result, we estimated that delinquent property taxes
totaled at least $15.4 million, the Government's revenue accounts
were not up to date because of delays in the posting of property
tax collections, and taxpayers were not afforded timely hearings
of their appeals of real property tax assessments.

The Governor of the Virgin Islands was requested to provide a
written response to the draft report by February 26, 1999, and
the Lieutenant Governor requested an extension to March 19.
However, a response to the draft report has not been received.
Therefore, this report is being issued without the benefit of
your comments, and all of the recommendations are considered
unresolved (see Appendix 2).

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 April 30, 1999.  The
response should be addressed to our Caribbean Office, Federal
Building - Room 207, Charlotte Amalie, Virgin Islands 00802.  The
response should provide the information requested in Appendix 2.

We appreciate the assistance provided by the Office of the Tax
Assessor and the Department of Finance during the conduct of our
audit.

Sincerely,



Robert J. Williams
Acting Inspector General


CONTENTS


                                                   Page

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

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

FINDINGS AND RECOMMENDATIONS .....................  4

A. ASSESSMENT OF PROPERTY TAXES.................... 4
B. COLLECTION OF PROPERTY TAXES....................11

APPENDICES

1.CLASSIFICATION OF MONETARY AMOUNTS...............16

2.STATUS OF AUDIT REPORT RECOMMENDATIONS...........17

INTRODUCTION


BACKGROUND

The requirements for the administration of real property taxes
are contained in Title 33 of the Virgin Islands Code as follows:
Chapter 81 defines the real property tax rates and various tax
exemptions that are available to taxpayers, Chapter 83 defines
the administrative responsibilities of the Tax Assessor, Chapter
85 defines the procedures to be used to assess the value of real
property,  Chapter 87 defines the responsibilities of the Board
of Tax Review in handling appeals of property tax assessments,
and Chapter 89 defines the responsibilities of the Tax Assessor
and the Department of Finance with regard to billing and
collecting real property taxes.  In general, the Tax Assessor's
Office (a branch of the Office of the Lieutenant Governor) is
responsible for determining the taxable (or assessed) value of
real property, calculating the amount of the property taxes,
granting property tax exemptions, and printing the property tax
bills.  The Department of Finance is responsible for the
collection of real property taxes, including collection
enforcement actions for delinquent taxes.

Real property is taxed at 1.25 percent of the assessed value of
the property, which is defined as 60 percent of the actual value
of the property as determined by the Tax Assessor.  Unimproved
real property (land) of up to 5 acres that was acquired through
inheritance is taxed at 0.25 percent of the assessed value until
the value of improvements reaches or exceeds $5,000.  The
following property is exempted from property taxes: property
owned by Federal and local governments and property used
exclusively for religious worship; property used for educational,
literary, scientific, or charitable purposes; and property on
which cemeteries are located.  In addition, the Virgin Islands
Code provides for varying levels of real property tax exemptions
for homesteads, veterans, senior citizens, farmlands, and certain
types of nonprofit organizations.  Further, commercial
establishments participating in the Virgin Islands Industrial
Development Program may be granted varying levels of real
property tax exemptions by the Virgin Islands Industrial
Development Commission.

For tax year 1996, 28,223 real property tax bills were issued in
the St. Thomas/St. John district, and 26,700 bills were issued in
the St. Croix district.  For the same tax year, 7,711 property
tax exemptions (5,687 homesteads, 1,621 veterans and senior
citizens, 159 nonprofits, 108 farmlands, 8 inheritances, and 128
industrial firms) were granted to 7,580 taxpayers in the St.
Thomas/St. John district, and 9,276 exemptions (6,409 homesteads,
2,399 veterans and senior citizens, 68 nonprofits, 318 farmlands,
82 industrial firms, and no inheritances) were granted to 9,276
taxpayers in the St. Croix district.  In accordance with existing
policy, taxpayers can receive multiple farmland or industrial
exemptions based on the number of parcels of real property used
for approved farming and industrial purposes.

According to records at the Department of Finance, real property
tax collections totaled $50.5 million during fiscal year 1995,
$20.1 million during fiscal year 1996, and $45.9 million during
fiscal year 1997.  Property tax collections during fiscal year
1996 decreased as a result of Hurricane Marilyn in September
1995.  Unpaid real property tax bills on file at the offices of
the Department of Finance as of July 28, 1998, totaled $15.4
million ($6.7 million for St. Croix, $6.3 million for St. Thomas,
and $2.4 million for St. John).  The Tax Assessor's Office had a
total of 41 employees on all three islands, and the Revenue
Collection Branch of the Department of Finance had a total of 24
employees on all three islands.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether (1) the Tax
Assessor's Office had adequate resources and procedures in place
to ensure that property values were equitably determined,
property taxes were assessed, and tax exemptions were granted
equitably and in an effective and efficient manner and (2) the
Department of Finance collected property taxes efficiently and
effectively.  The audit was conducted from March through October
1998 at the offices of the Tax Assessor's Office and of the
Department of Finance on all three islands.

Our review was 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 our audit, we evaluated the internal controls over the
assessment of real property taxes, including the granting of
property tax exemptions, and the collection of real property
taxes to the extent necessary to achieve the audit objective.
The internal control weaknesses identified in these areas are
addressed in the Findings and Recommendations section of this
report.  Our recommendations, if implemented, should improve the
internal controls in these areas.

PRIOR AUDIT COVERAGE

The Office of Inspector General has not conducted any audits of
real property tax administration during the past 5 years.
However, our April 1990 report "Followup of Recommendations
Concerning Property Tax Administrative Activities, Government of
the Virgin Islands" (No. 90-67) stated that (1) the Department of
Finance could enhance efficiency, increase revenues, and reduce
the risk of property tax losses by improving collection
procedures and (2) the Tax Assessor's Office needed to document
and monitor the eligibility of taxpayers for property tax
exemptions and monitor building permits for property improvements
that were subject to increased taxes.  The report also stated
that the Board of Tax Review had not acted promptly on tax
appeals because the Governor had not appointed a sufficient
number of members to form a quorum.  We  considered 5 of the
report's 10 recommendations unresolved, and based on our current
audit, we found that the reported deficiencies still existed.

In addition, in June 1994, the  Virgin Islands Bureau of Audit
and Control issued the audit report "Billing and Collection of
Real Property Taxes," which stated that (1) the Department of
Finance did not have complete and accurate accounts receivable
records but that the amount of delinquent real property taxes was
estimated by the auditors at $17.7 million plus $6.1 million in
penalties and interest, (2) auctions of delinquent properties
were not properly scheduled or held and did not include all
delinquent properties, (3) controls were inadequate for accounts
where partial payments had been made, (4) unimproved land was not
always taxed, (5) tax appeals were not promptly scheduled or
heard, and (6) the Tax Assessor's Office and the Department of
Finance did not effectively and efficiently coordinate with each
other on the assessment and collection of real property taxes.
The report's 17 recommendations were considered unresolved.

FINDINGS AND RECOMMENDATIONS


A.  ASSESSMENT OF PROPERTY TAXES

Although the Tax Assessor's Office was generally effective in
determining the assessed value of real property and computing
real property taxes, the Office inappropriately granted property
tax exemptions to taxpayers.  Title 33, Chapter 81, of the Virgin
Islands Code contains the general provisions regarding the
eligibility for and the level of property tax exemptions.  The
deficiencies occurred because the Tax Assessor's Office did not
(1) ensure that annual applications were submitted for farmland
and nonprofit exemptions, (2) did not coordinate with the Virgin
Islands Department of Agriculture to develop joint policies and
procedures for the processing of farmland exemptions, (3) did not
coordinate with the Virgin Islands Industrial Development
Commission to develop joint procedures for ensuring that only
eligible firms received industrial exemptions, and (4) did not
implement procedures to verify that certain exemptions were
supported by valid applications.  Additionally, officials in the
Tax Assessor's Office said that they were not aware of recent
revisions to the Virgin Islands Code which increased the level of
certain exemptions.  As a result, at least 55 taxpayers who did
not have valid applications received farmland exemptions totaling
$65,317, 39 taxpayers who did not have valid applications
received nonprofit exemptions totaling $75,888, and 8 businesses
that were ineligible received industrial exemptions totaling
$159,024.  Additionally, 3,188 taxpayers received homestead,
veterans, and senior citizen exemptions that were $209,942 less
than what they should have been, which required credits to be
issued on subsequent property tax bills.

Tax Exemption Requirements

The Tax Assessor's Office did not ensure that property tax
exemptions were granted only to taxpayers who were eligible and
who had submitted required applications for exemptions.  The
Virgin Islands Code provides real property tax exemptions as
follows:

- Homestead exemptions of up to $20,000 of the assessed value of
real property used as the primary residences of taxpayers (Title
33, Section 2305, of the Virgin Islands Code).

- Veterans exemptions of up to $25,000 of the assessed value of
real property used as the primary residence of taxpayers who are
veterans or the widows of veterans and full exemptions for
veterans who have military service disabilities (Title 33,
Section 2305, of the Virgin Islands Code).

- Senior citizen exemptions of up to $30,000 of the assessed
value of real property used as the primary residence of taxpayers
who are 60 or more years of age and whose annual gross income
does not exceed $10,500 (Title 33, Section 2305, of the Virgin
Islands Code).

- Farmland exemptions of 95 percent of the real property taxes
imposed on property that is "used actively and solely for
agricultural or horticultural purposes" (Title 33, Section 2342,
of the Virgin Islands Code).

- Nonprofit exemptions of 100 percent of the real property taxes
imposed on property "owned by or held in trust for any nonprofit
organization" that is used (1) for recreational purposes; (2) to
preserve open spaces, greenbelt areas, buffer zones, or nature
preserves; (3) as historical sites or museums; or (4) for
scientific or educational purposes (Title 33, Section 2355a, of
the Virgin Islands Code).  Under Title 33, Section 2304, of the
Virgin Islands Code, real property used exclusively for religious
worship or as cemeteries is also exempt from real property taxes.

Farmland and Nonprofit Exemptions.  In the case of farmland and
nonprofit exemptions, the Virgin Islands Code requires that
taxpayers file annual applications for exemption on or before
October 1 of the tax year for which an exemption is sought.
However, we found that the Tax Assessor's Office did not enforce
this legal requirement as follows:

- Based on our review of the files for 71 farmers (45 on St.
Thomas and 26 on St. John), who had 108 parcels of taxable land,
we found that 55 taxpayers received exemptions totaling $65,317
without complying with the annual application requirement.  For
example, one taxpayer on St. Thomas received a farmland exemption
of $22,457, although he had not submitted an application for
farmland exemptions for tax year 1996.  We also found that
although the Virgin Islands Code requires that applicants for
farmland exemptions be certified as eligible by the Virgin
Islands Department of Agriculture, such certification was not
obtained in at least two instances where farmland applications
had been filed.  Additionally, the informal (unwritten) criteria
used by the Department of Agriculture in determining eligibility
for farmland exemptions were different from the informal
(unwritten) criteria used by the Tax Assessor's Office in
granting the farmland exemptions.  For example, although the
Department of Agriculture had informal criteria regarding the
number of farm animals per acre and the level of income generated
from farming activities, the Tax Assessor's Office did not use or
apply these criteria and did not have any similar criteria.  In
our opinion, the Tax Assessor's Office and the Department of
Agriculture should therefore coordinate the establishment of
formal written policies regarding the eligibility requirements
for farmland exemptions and the procedures for processing
applications for farmland exemptions.

- Based on our review of the files for 69 nonprofit taxpayers (25
on St. Thomas and 44 on St. Croix), we found that 39 of the
taxpayers received exemptions totaling $75,888, although they had
not submitted applications for nonprofit exemptions for tax year
1996.  At the December 22, 1998, exit conference on the
preliminary draft of this report, officials of the Tax Assessor's
Office stated that they had not required annual applications from
long-established nonprofit organizations, such as the Boy Scouts
and the Girl Scouts, but that they would implement procedures to
remind such organizations of the annual application requirement.

Industrial Exemptions.  Under the Government's Industrial
Development Program, the Virgin Islands Industrial Development
Commission may approve real property tax exemptions as part of an
incentive package to attract businesses to the Virgin Islands.
However, because the Tax Assessor's Office and the Industrial
Development Commission did not have formal procedures to ensure
that the Tax Assessor's Office was informed of the tax-exempt
status of firms participating in the Industrial Development
Program, eight ineligible businesses received industrial
exemptions totaling $159,024 for tax year 1996 as follows:

- In the St. Thomas/St. John district, 3 of 19 businesses
reviewed received exemptions totaling $131,656 to which they were
not entitled.  One business had ceased operations in September
1995, another business had assets that were transferred from
another company and was not eligible for the exemptions, and the
third business had never been a participant in the Industrial
Development Program.

- In the St. Croix district, 5 of 24 businesses reviewed received
exemptions totaling $27,368 to which they were not entitled.  One
business had ceased operations in March 1995, another had ceased
operations in September 1995, and the other three businesses had
never been participants in the Industrial Development Program.

We also found that a participant in the Industrial Development
Program that was eligible to receive real property tax exemptions
through the year 2004 was not granted such an exemption by the
Tax Assessor's Office in tax year 1996.  We believe that the Tax
Assessor's Office and the Industrial Development Commission
should coordinate to establish formal written procedures to
ensure that the Tax Assessor's Office is promptly notified of
changes in the tax-exempt status of businesses participating in
the Industrial Development Program.  At the December 22, 1998,
exit conference on the preliminary draft of this report,
officials of the Tax Assessor's Office stated that they had met
with Industrial Development Commission officials to develop joint
procedures to ensure accurate application of industrial tax
exemptions.

Homestead, Veterans, and Senior Citizen Exemptions.  For tax
years 1994, 1995, and 1996, the Tax Assessor's Office awarded
incorrect amounts of tax exemptions for homestead, veterans, and
senior citizen tax exemptions.  This occurred because officials
of the Tax Assessor's Office were not aware that the section of
the Virgin Islands Code related to these classes of exemptions
had been revised in 1994 and 1995.  Based on our review of 105
exemptions (55 homestead exemptions and 50 veterans and senior
citizen exemptions), we found that the homestead exemptions were
based on the prior limit of $15,000 of assessed value instead of
the revised limit of $20,000 and that the veterans and senior
citizen exemptions were based on the prior limit of $20,000
instead of the revised limits of $25,000 for veterans and $30,000
for senior citizens.  After we informed officials of the Tax
Assessor's Office of these inaccurate tax exemption amounts, they
recalculated the exemption amounts for tax year 1996, which
resulted in credits totaling $192,255 being given to 3,117
taxpayers on their 1997 property tax bills and credits totaling
$17,687 to be given to 71 taxpayers on their 1998 property tax
bills.

Inheritance Exemptions.  Three families (two on St. Thomas and
one on St. John) received inheritance exemptions from real
property taxes for a total of eight parcels of land.  However,
the amount of the exemptions was based on assessments of the
value of the properties that were 9 to 17 years old and therefore
may not have reflected the current value of the properties.
Additionally, the amount of the applicable tax was calculated on
the basis of 75 percent of the assessed value (60 percent of the
actual value) of the property times the standard 1.25 percent tax
rate instead of on the basis of the assessed value times the
special 0.25 percent tax rate specified in Title 33, Section
2301, of the Virgin Islands Code.  Further, because very few
descendants of deceased taxpayers had taken advantage of the
inheritance exemption (including none on St. Croix), we believe
that many Virgin Islands residents may not be aware of the
inheritance exemption.

Maintenance and Security of Exemption Applications

Title 33, Section 2305, of the Virgin Islands Code requires that
property owners who desire to receive a homestead, veterans, or
senior citizen exemption submit a notarized application for such
exemption to the Tax Assessor's Office.  Taxpayers applying for a
veterans or a senior citizen exemption are also required to
submit specific supporting documentation with their applications,
for example, a copy of Military Form DD214 ("Report of Transfer
or Discharge") for veterans and a copy of an identification card
for senior citizens.  The Virgin Islands Code also requires that
organizations which desire to receive a nonprofit exemption
submit certified applications annually.

Despite these requirements, we could not find, at the Tax
Assessor's Office, approved applications for 67 homestead, 87
veterans and senior citizens, and 39 nonprofit exemptions.  An
official at the Tax Assessor's Office told us that the prior
applications for homestead, veterans, and senior citizen
applications, which do not require annual renewals, were placed
in storage at the Lieutenant Governor's Office when the Tax
Assessor's Office moved to its current location.  The official
stated that all tax exemptions are legitimate because an
exemption could not be granted without an application.  However,
we could not verify the accuracy of that statement because,
despite our repeated requests, the applications were not
retrieved from storage for our review.  With regard to nonprofit
exemptions, another official of the Tax Assessor's Office stated
that because some nonprofit organizations had been in existence
for a long time, annual exemption applications were not
necessary.  However, Title 33, Section 2355b, of the Virgin
Islands Code states that eligibility for nonprofit exemption
"shall be determined by the tax assessor for each and every year
for which such exemption is sought" on the basis of applications
filed "on or before October 1 of the tax year for which such
exemption is sought."

Additionally, based on a review of 394 exemption applications
(271 homestead, 42 veterans, and 81 senior citizen) on St. Thomas
for tax year 1998, we found that 95 applications did not contain
one or more of the required supporting documents, such as a
Military Form DD214 or a senior citizen identification card.
Based on our review of 50 homestead exemption applications on St.
Croix, we found that 3 applications did not have valid addresses
or the names of the current property owners.

Because ownership of real property changes frequently, we believe
that the Tax Assessor's Office should maintain the tax exemption
application files at a location where the eligibility of
taxpayers can be better verified for the various classes of tax
exemptions.  If storage space is limited, the Tax Assessor's
Office should consider the use of microfiche or computerized
document storage and retrieval systems to maintain the exemption
application files.

Computerized Operations

In 1996, the Tax Assessor's Office implemented a computerized
property assessment system based on software developed by a firm
in Florida.  However, because the software did not incorporate
some features that exist in the Virgin Islands property tax
system, many operations had to be performed manually.  For
example:

- The property assessment software provided only for the use of
one schedule for construction costs and did not incorporate the
lower construction costs present on St. Croix.  Therefore, the
Tax Assessor's Office adjusted St. Croix property assessments
before the property tax bills were printed.

- The property assessment software did not include a module for
printing the property tax bills.  Therefore, the Tax Assessor's
Office had to develop an in-house database into which the
property assessment data was input and from which the bills were
printed.

- Neither the property assessment software nor the in-house
database provided a mechanism to identify property tax exemptions
for which a valid application was not on file.  Therefore,
taxpayers with farmland and nonprofit exemptions in the prior tax
year were automatically given the same exemptions in the current
tax year, even if they did not file the required annual
applications.

We believe that the Tax Assessor's Office, in coordination with
the Department of Finance, should perform a study of Virgin
Islands property tax policies and procedures and develop the
specifications for a comprehensive computerized property tax
system which minimizes the need for manual intervention in the
process of preparing annual property tax bills.  To the extent
possible, such a computerized system should also provide the
capability to maintain current and accurate records of
outstanding real property tax bills (see Finding B).  At the
December 22, 1998, exit conference on the preliminary draft of
this report, officials of the Tax Assessor's Office stated that,
subsequent to the audit, additional modules of the overall
property tax assessment system had been implemented and that
those modules had corrected some of the deficiencies noted during
our review.

Undelivered Property Tax Bills

The Tax Assessor's Office did not have procedures regarding
undelivered real property tax bills.  Based on our review, we
found that 339 "land only" property tax bills, totaling $147,350,
for 1995 and 1996 and about 3,360 "land and improvements"
property tax bills (amount not readily determinable) for 1997
were returned to the Tax Assessor's Office as undeliverable.  The
reasons for the returns, according to the U.S. Postal Service
annotations on the envelopes, were incorrect or incomplete
addresses, no forwarding addresses, and insufficient postage.
The addresses used by the Tax Assessor's Office to mail property
tax bills were obtained from the property deeds at the Recorder
of Deeds Office (another branch of the Office of the Lieutenant
Governor).  However, those addresses were often the physical
addresses of the property involved in the deeds, not the property
owners' mailing addresses.  Therefore, we believe that the
Recorder of Deeds Office should implement procedures which ensure
that valid mailing addresses for new property owners are obtained
when the deeds are presented for recording.  At the exit
conference on the preliminary draft of this report, the
Lieutenant Governor's representative stated that the Lieutenant
Governor had directed the Recorder of Deeds Office to ensure that
property owners' mailing addresses were recorded on all new
property deeds.

Recommendations

We recommend that the Governor of the Virgin Islands direct the
Tax Assessor to:

1.Coordinate with the Virgin Islands Department of Agriculture,
the Virgin Islands Industrial Development Commission, and other
Government agencies, as appropriate, to establish and implement
formal written procedures regarding the eligibility requirements
for real property tax exemptions and the processing of
applications for such exemptions.  For industrial development
exemptions, the procedures should ensure that the Tax Assessor's
Office is promptly notified of changes in the tax-exempt status
of businesses participating in the Industrial Development
Program.  For homestead, veterans, and senior citizen exemptions,
the procedures should incorporate the latest revisions to the
level of tax exemptions, as provided in Title 33, Section 2305,
of the Virgin Islands Code.

2.Provide public notification of the existence of the inheritance
exemption and the eligibility and application requirements.

3.Implement a filing system for tax exemption applications that
provides the staff of the Tax Assessor's Office with easier
access to such files for the purpose of verifying taxpayers'
eligibility for exemptions.  Consideration should be given to
using either microfiche or computerized document storage
technology to minimize the need for physical storage space.

4.Coordinate with the Virgin Islands Department of Finance to
develop specifications for and to implement a comprehensive real
property tax administration system which minimizes the need for
manual processing and also provides the capability to maintain
current and accurate records of outstanding real property tax
bills.

5.Coordinate with the Recorder of Deeds Office to establish and
implement procedures which ensure that valid mailing addresses
for new property owners are obtained when deeds are presented for
recording.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The Governor of the Virgin Islands did not provide a response to
the draft report.  Therefore, the five recommendations are
considered unresolved (see Appendix 2).

B.  COLLECTION OF PROPERTY TAXES

The Department of Finance did not maintain accounts receivable
records for delinquent real property tax bills and did not
effectively enforce the collection of delinquent taxes.  In
addition, improvements were needed with regard to the internal
controls for collecting and recording property taxes by the
Department and for processing tax appeals by the Board of Tax
Review.  The basic requirements for the collection of property
taxes and for controls over collections are contained in Title
33, Chapter 89, of the Virgin Islands Code; the Collection
Enforcement Section Procedure Manual of the Department of
Finance; and the Government of the Virgin Islands Accounting
Manual.  However, the deficiencies occurred because the
Department's Enforcement Section was under consideration for
restructuring or transfer to another agency and was not
adequately staffed.  Additionally, the Department did not provide
adequate oversight of cashiers.  As a result, we estimated that
delinquent property taxes for bills on file at the Department's
offices totaled $15.4 million, the Government's revenue accounts
were not up to date because of delays in the posting of property
tax collections, and taxpayers were not afforded timely hearings
on their appeals of real property tax assessments.

Collection Activities

The Department of Finance did not have accounts receivable
records to show the status of outstanding real property tax
bills.  Therefore, we manually tabulated the outstanding bills at
the Department's offices and determined that, as of July 28,
1998, at least 24,169 property tax bills (for tax years 1971
through 1994), totaling $15.4 million, were delinquent, as shown
in Table 1.

Table 1.  Delinquent Real Property Tax Bills

                             Number    Outstanding
   Island                   of Bills     Amounts

St. Thomas                   11,688     $6,300,888
Christiansted, St. Croix      8,605      6,191,465
Frederiksted, St. Croix       1,052        560,549
St. John                      2,824      2,363,757

Total                        24,169    $15,416,659


We found that the absence of accurate and up-to-date accounts
receivable records hampered the Department's efforts to carry out
effective collection activities because enforcement officers did
not have easy access (without searching through filing cabinet
drawers filled with outstanding bills) to information on who owed
real property taxes and the amounts owed by individual taxpayers.

We also found that, at least since September 1995, the Department
had not aggressively pursued the collection of outstanding real
property taxes.  The Supervising Enforcement Officer told us that
after Hurricane Marilyn in September 1995, the Commissioner of
Finance stopped field collection efforts by the Department's
enforcement officers and subsequently discontinued efforts by the
enforcement officers to contact delinquent taxpayers by telephone
because the Commissioner did not believe that it was appropriate
for the enforcement officers to be contacting delinquent
taxpayers at their places of work.  The Commissioner of Finance
told us that he was considering "re-engineering" the Department's
Collection Enforcement Section.  The Supervising Enforcement
Officer said that one option being considered was to transfer the
collection enforcement function to another government agency.  As
a result, the collection enforcement officers were performing
such tasks as providing security to the cashiers when making
daily deposits, issuing tax clearance letters for business
license applications, processing payments received by mail, and
posting payments to the property tax rolls instead of executing
collection efforts.

Even if the enforcement officers continued performing field
collections, these efforts would have been hampered because the
number of enforcement officers had decreased significantly from
1994 to 1998.  Specifically, the number of enforcement officers
decreased from 12 to 2 on St. Thomas and from 8 to 6 on St. Croix
during the 4-year period.  This occurred primarily because eight
enforcement officers on St. Thomas and two enforcement officers
on St. Croix retired under provisions of an early retirement law
enacted by the Virgin Islands Legislature in 1994.  The remaining
two enforcement officers on St. Thomas transferred to other
government agencies.  Department of Finance officials told us
that the vacant positions had since been removed from the
Department's budget and that, if collection enforcement efforts
were to be reinstated, the existing number of enforcement
officers would not be sufficient for the Collection Enforcement
Section to function effectively.

Auction Sales.  Title 33, Section 2541, of the Virgin Islands
Code authorizes the Commissioner of Finance to attach and sell at
public auction the real property of taxpayers who are delinquent
in paying real property taxes.  As part of the process, as
described in Section 203 of the Collection Enforcement Section
Procedure Manual, enforcement officers are required to issue,
after making telephone or personal contacts with delinquent
taxpayers,  a series of delinquency letters to the taxpayers
followed by service of a Notice of Attachment.  After the Notice
of Attachment has been served, a Certificate of Attachment is
prepared by the Department of Finance and forwarded to the
Recorder of Deeds Office to record the lien against the property.
Based on our review of files for 819 Certificates of Attachment
issued during 1990 through 1995 and in 1997 and 1998, we found
that the corresponding Notices of Attachment to document that the
delinquent taxpayers had been served were not on file in 65
instances and that liens had not been properly recorded in 3
instances.

After the Certificates of Attachment are recorded, the Department
of Finance should follow the guidelines contained in Section 204
of the Collection Enforcement Section Procedure Manual to sell
the attached property at auction sales.  We found that during the
most recent auction sale, which was held by the Department of
Finance on St. Thomas in April 1997, 10 properties, valued at
over $290,000, were sold.  However, the liens related to these
properties had been recorded from 7 to 15 years prior to the date
of the auction.  On St. Croix, we found that none of the
properties in our sample of 25 (out of 738) recorded Certificates
of Attachment had been sold at auction.  The most recent auction
sales on St. Croix were conducted in March 1995 in Frederiksted
and in July 1995 in Christiansted.  We believe that if the
Department of Finance had been more aggressive in the use of
attachments and auction sales, as provided by the Virgin Islands
Code, the amount of delinquent real property taxes would have
been significantly less than $15.4 million for the 24,169 bills
that we found at the Department of Finance.

Tax Amnesty Program.  The Government of the Virgin Islands,
through laws enacted by the Legislature and approved by the
Governor, provided delinquent property owners with a 13-month
amnesty period (beginning on January 30, 1996) during which they
could pay outstanding real property taxes without being liable
for interest and penalties provided for in the Virgin Islands
Code.  Although the Government collected delinquent property
taxes of $12.1 million during this period, we believe that the
use of a program which forgives all penalties and interest for
property owners who do not routinely pay their taxes undermines
the integrity of the real property tax system.  That is,
taxpayers who do not pay their taxes for several years and then
are forgiven all penalties and interest through a tax amnesty
program are, in effect, rewarded for their nonpayment of taxes.

Revenue Collections

The Department of Finance needed to improve controls over
collections of real property taxes and other types of revenues
collected by the Department's nine cashiers on the islands of St.
Thomas, St. Croix, and St. John.  Specifically, we found that (1)
collections were deposited from 1 to 7 days after the date of
collection, although the Government Accounting Manual requires
that collections be deposited daily; (2) cashiers on St. Thomas
and at Christiansted, St. Croix, did not prepare Daily Summaries
of Collections and Deposits, as required by Section 310.5 of the
Government Accounting Manual, to record and reconcile the amounts
collected and deposited each day; (3) collections were not
recorded as revenues in the Government's Financial Management
System on a timely basis, with posting delays ranging from 3 to 6
months on the three islands; and (4) the Department did not have
adequate procedures to keep track of and control partial payments
received on outstanding property tax bills.  These conditions
existed because the Department did not provide an adequate level
of supervisory oversight of the collectors' activities.  For
example, Departmental officials told us that supervisors did not
periodically visit the collectors on St. Croix and St. John or
perform unannounced cash counts.  They also told us that the
preparation of Daily Summaries of Collections and Deposits was
discontinued in some offices because the collection process had
been computerized.

Regarding the partial payments received on outstanding property
tax bills, Title 33, Section 2494, of the Virgin Islands Code
authorizes the Commissioner of Finance to make arrangements for
installment payments when property taxes cannot be paid in full
when the taxes are due.  Departmental officials told us that
about 2 1/2 years prior to the time of our audit, the Department
used a Real Property Tax Installment Agreement to formalize such
installment payment arrangements.  However, we found that the
Department was no longer requiring the use of the agreement form.
Consequently, procedures varied among the Department's offices.
For example, at the St. Thomas, the St. John, and the
Christiansted (St. Croix) offices, partial payments were
documented on a Statement of Remittance, whereas at the
Frederiksted (St. Croix) office, partial payments were noted on a
copy of the property tax bill.  Additionally, at the two offices
on St. Croix, partial payments were deposited into the
Government's General Fund, while at the St. Thomas and the St.
John offices, partial payments were deposited into a Special Fund
holding account until full payment was received, at which time
the funds would be transferred to the General Fund.  We reviewed
the documents related to 48 transfers from the Special Fund to
the General Fund, totaling $135,000, and found that it took from
13 days to 8 years for partial payments to be completed and funds
to be transferred to the General Fund.

Property Tax Appeals

The Virgin Islands Board of Tax Review comprises seven members,
including the Commissioner of Finance, who serves as the
chairman.  The Board, as defined in Title 33, Section 2452, of
the Virgin Islands Code, is required to hold hearings within 60
days of receiving a written complaint from a taxpayer who wants
to appeal a real property tax assessment.  We found, however,
that the Board was not holding hearings as required because it
could not always obtain a quorum.  For example, during January
1994 to March 1998, the Board scheduled 25 hearings (for 403
individual taxpayer appeals); however, 15 of the hearings were
canceled because of the lack of a quorum.  Therefore, the
taxpayers did not have the rights afforded them by law.  Also,
the Government did not receive all of the revenues due related to
the property tax bills under appeal because taxpayers were
required to pay only the prior property tax amount upon filing an
appeal, and those amounts were held in escrow until the tax
appeal cases were decided. The Executive Director of the Board
told us that the terms of five members had expired but that it
was difficult to find individuals willing to volunteer their time
to serve on the Board.

Recommendations

We recommend that the Governor of the Virgin Islands:

1. Direct the Commissioner of Finance, in coordination with the
Tax Assessor, to review the existing policies, procedures, and
resources related to the collection of delinquent real property
taxes and develop a comprehensive plan to restructure the
Department of Finance's Collection Enforcement Section into a
more proactive and effective collection unit.  This plan should
include the establishment of complete and accurate accounts
receivable records for outstanding real property tax bills and
more aggressive actions by the Department of Finance to attach
and sell at auction the property of delinquent taxpayers who do
not agree to at least make installment payments to liquidate
their outstanding debt.

2. Provide the Department of Finance and, as appropriate, the Tax
Assessor's Office with the staff and other resources necessary to
effectively implement the collection enforcement program
developed in response to Recommendation 1.

3. Perform a thorough study of all pertinent factors, including
the potential lost revenues, the likelihood of repeat offenders
continuing to be delinquent, and the effect on the integrity of
the real property tax system, before implementing any future
amnesty programs.

4. Direct the Commissioner of Finance to ensure that his office's
collection personnel comply with existing policies and procedures
for the collection of property taxes and other amounts owed the
Government.  Specifically, collectors should make daily deposits,
the Daily Summary of Collections and Deposits should be used to
reconcile amounts collected and deposited, collections should be
posted to the Financial Management System in a timely manner, and
adequate control should be maintained over partial payments
received.  Additionally, operating procedures should be
standardized at all Department of Finance offices, and adequate
supervisory oversight should be provided for all collection
personnel.

5. Seek and nominate, for legislative confirmation, members to
the Board of Tax Review who will effectively carry out the
Board's mandated responsibility of addressing taxpayer appeals of
real property tax assessments.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The Governor of the Virgin Islands did not provide a response to
the draft report.  Therefore, the five recommendations are
considered unresolved (see Appendix 2).



                                                       APPENDIX 1


CLASSIFICATION OF MONETARY AMOUNTS


                             Unrealized
     Finding Area             Revenues*

A.  Assessment of Property Taxes
Tax Exemption Requirements     $300,229

B.  Collection of Property Taxes
Enforcement Activities       15,416,659

Total                       $15,716,888
___________
*The amounts represent local funds.



                                                       APPENDIX 2


STATUS OF AUDIT REPORT RECOMMENDATIONS


Finding/Recommendation
Reference

A.1, A.2, A.3, A.4, and A.5

B.1, B.2, B.3, B.4, and B.5

Status

Unresolved.

Unresolved.

Action Required

Provide a response to the recommendations indicating concurrence
or nonconcurrence.  If concurrence is indicated, provide an
action plan that identifies the target dates and the titles of
the officials responsible for implementation.  If nonconcurrence
is indicated, provide reasons for the nonconcurrence.

Provide a response to the recommendations indicating concurrence
or nonconcurrence.  If concurrence is indicated, provide an
action plan that identifies the target dates and the titles of
the officials responsible for implementation.  If nonconcurrence
is indicated, provide reasons for the nonconcurrence.



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TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



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