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Independent audit of ASG’s FY2019 finances — Findings and questionable costs

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Part 2 of FY2019 audit

Pago Pago, AMERICAN SAMOA — “Deficiency in Internal Controls” exist when it comes to tax assessment and collection, as well as “control deficiency” in excise tax documentation, were some of the findings and questionable costs, identified by independent auditors, during their audit of the government’s fiscal 2019 financial statements.

Released in April this year, the Utah-based certified public accountant firm, Larson & Company PC, noted that assessment and collection of taxes represent a significant process of the territorial government. And tax revenues, refunds and receivables each represent significant accounts in ASG’s financial statements.

“The tax system continues to operate largely as a stand-alone system that does not interface with [ASG’s] general ledger accounting system,” the auditors reported, saying that there is limited interface between the Tax Office and Treasury Department. “This results in material entries being posted to the general ledger, and significant estimates made regarding the collectability of tax accounts.”

During the audit, the auditors found that there are a number of assessments that are significantly past due, and the allowance accounts contain large balances. It also found that receivable accounts decreased during FY 2018, however, allowance accounts remained virtually the same.

Furthermore, accounts with balances past the statute of limitations should be removed from the receivable accounts and allowance accounts in order to reflect a more accurate financial picture at any given point during the fiscal year.

“Tax receivable accounts, revenue accounts, liability accounts, and refund accounts should be reconciled on a monthly basis,” according to the auditors, who also noted that ASG “appeared to have been more aggressive at collecting outstanding taxes during the period, however, there is little communication between the Tax Office and the Treasury, resulting in a lack of monitoring controls, review controls, and reconciliation controls.”

The cause of this problem, said the auditors, is that the ASG still utilizes the “MOANA” tax system, which does not integrate with the accounting software and appropriate reconciliations and monitoring of taxes receivables, uncollectible accounts, liabilities, and refunds is not done on a monthly basis. Adjustments to revenue and receivable accounts were made to the general ledger several months after the end of the fiscal year.

The auditors acknowledged that there have been significant improvements in this area, and there are significant controls that could be implemented.

Auditors recommend that the Comptroller and management review and reconcile tax related accounts on a monthly basis. Additionally, there should be open and frequent communication with the Tax Office, and if the tax software and the general ledger system are not integrated, then extra mitigating controls should be implemented to review, reconcile, and monitor these accounts.

Auditors also recommend that the government review accounts that are close to the statute of limitations and aggressively collect if possible. If they are past the statute of limitations, management should write the balances off as uncollectible and remove them from the accounting records.”

“This will clean up the tax related accounts and provide more accurate and reliable financial reporting. Management should also review the estimates for uncollectible accounts on a periodic basis, as these estimates may change over time,” the auditors explained.

In response, ASG agrees with the finding and noted the Tax Office forwarded its approved reorganizational plan by ASG Treasurer Tonumaipe'a to the governor for approval.  This plan mitigates all the findings as listed by auditors except for the Moana tax system.

The reorganization plan would include a new post of Deputy Tax Manager-Enforcement & Administration and a new Chief of Collections. These positions, according to the auditors, would “devise and revise” policies and procedures on mitigating findings of “reconciliations and monitoring” of accounts receivables on a monthly basis and report to the Tax Manager who in turn reports to the Treasurer.

Also included in the reorganization plan is a new post for Deputy Tax Manager-Operations, who will be responsible for reconciliation, monitoring and review of tax refunds and report to the Tax Manager, who'll in turn report to the Treasurer.

As for the Moana tax system, ASG is currently looking for a new tax system with capabilities to interact with the current financial system.


“During our audit we noted several supporting documents related to the collection of excise tax could not be found,” the auditors reports.  “Based on our sample size and the number of samples that were missing documentation, we were still able to validate with reasonable assurance the balance of excise tax reported in the financial statements.”

 However, “with the number of lost documents noted in our sample, there appears to be a control deficiency that should be corrected,” they said.

As to the cause of this problem, the auditors said that based on inquiries and review of procedures, “we were unable to determine how or why the documents were not available to be reviewed. With the amount of paper files, it is possible that the documents were misfiled, attached to other documents, or were misplaced and lost.”

Auditors recommend that management and staff review the procedures for processing the paperwork related to excise taxes. “Specifically looking for areas where mitigating controls should be adjusted or implemented. We also recommend that the territory consider an electronic filing system with unique identifiers contained in the documents that would allow them to be searched for if misfiled or misplaced,” according to the auditors.

In response, ASG agrees and provided actions, which will be taken to improve records management at Treasury Customs’ Division under the Corrective Action Plan — which include:

• Each supervisor will conduct bi-annual self-assessments to ensure their sections are maintaining documents efficiently.

• Customs will procure five 4-drawer standing filing cabinets to mitigate misfiling, misplaced, and lost documents.

• Customs will look into the feasibility of having an electronic filing system and present a plan to the Treasurer.