Audit Division

Audit Summary


Department of Taxation

Report LA00-06



Results in Brief

Weak management controls over the administration of the estate tax have led to poor taxpayer service, delayed collection of taxes, and inadequate methods for processing taxpayer information.  The Department has not developed policies, procedures, or regulations relating to the administration and enforcement of the tax.  Consequently, refunds and billings are often delayed and sometimes contain errors.  Some estates have been due refunds for years and have not received payment.  Similarly, estates owing thousands of dollars in tax are sometimes never billed or billed only once.  Furthermore, the lack of guidance through policies and procedures has contributed to interest and penalties on delinquent accounts not being assessed uniformly.


While control weaknesses have had the most significant effect on the estate tax, fuel taxes and short-term auto lease fees would also benefit from strengthened controls.  For example, methods for reviewing fuel tax filings do not ensure taxes due are efficiently identified and collected.  Additional weaknesses affecting all excise taxes exist in the areas of cash receipts and computer security


Principal Findings

·                 The Department has not established a system for tracking estate tax accounts.  As a result, billings and refunds were not always processed timely or accurately.  For example, the Department took an average of 120 days to bill eight of the receivables we tested; another four receivables were never billed.  In addition, it took an average of 5 months for the Department to process the 34 refunds we tested and another 7 had not yet been processed.  Finally, four of the accounts tested were either billed or received refunds that were incorrect.  (page 10)


·                 There are no estate tax policies or procedures for determining when to assess penalties and interest or the type of documentation required to waive penalties and interest.  As a result, we found several instances where penalties and interest were not assessed consistently among the accounts reviewed.  (page 10)


·                 The Department has not adopted regulations for the estate tax requiring sufficient documentation of the amount of tax due, as required by NRS 375A.150(2).  Consequently, the documentation submitted by estates varies and the Department must frequently request additional information.  (page 13)


·                 Procedures for processing payments of excise taxes do not ensure the payments are adequately safeguarded.  For example, checks received for excise taxes are not endorsed until after they have been handled by at least three persons.  In addition, duties for processing estate tax receipts are not adequately segregated.  (page 14)


·                 The Department did not always respond timely to taxpayers’ written requests for waivers of penalty and interest assessed on delinquent fuel taxes.  It took from 5 to 11 months for the Department to respond to six of the eight requests for waivers we reviewed.  NRS 360.293 requires the Department respond to written requests from taxpayers within 30 days.  (page 15)


·                 The Department needs to strengthen management controls regarding the efficient completion of desk reviews of fuel tax filings.  The purpose of a desk review is to ensure dealers accurately report gallons of taxable fuel sold in the State.  Department staff attempt to perform desk reviews of every tax form filed every month.  Our analysis of the information provided by the Department indicates only 16% of dealers filing a return with taxable activity had any findings from desk reviews during the first 6 months of calendar year 1998.  By using a risk-based approach to select tax filings for review, the Department could ensure adequate coverage and encourage dealer compliance, while limiting the amount of resources required to complete the reviews.  (page 16)


·                 While the Department has developed some policies related to computer network security, it could enhance controls over its network by adopting a comprehensive security plan.  In addition, some software applications used for excise tax administration were not adequately tested or documented.  (page 17)


Department of Taxation


Agency Response

to Audit Recommendations








Develop a system to monitor estate account activity and track pending account activity, such as refunds and receivables




Develop policies and procedures to ensure timely response to taxpayer requests and fair and uniform assessment of penalties and interest




Adopt regulations requiring sufficient documentation of the amount of estate taxes due




Develop procedures to restrictively endorse all checks received in the mail as quickly as possible and to eliminate tax examiner access to checks




Use a risk-based approach to select tax filings for desk reviews




Formalize and document a comprehensive network security plan




Ensure all software applications are adequately tested and documented