NASHVILLE — Tennessee comptroller watchdogs said they found in a new audit major problems involving the awarding of some tax credits used by the state to attract new businesses and encourage expansions at existing ones.
According to a finding by Comptroller Justin Wilson's office, one problem area dealt with facilities headquarters tax credits that are aimed at enticing companies to locate national, regional or state headquarters in Tennessee.
The Revenue Department's Division of State Audit said it found the department "did not provide sufficient evidence to support the approved tax credits and, in some cases, approved tax credits that did not meet the definition of qualified tangible personal property."
That problem was closely tied to yet another finding: Revenue officials haven't fully assessed their own public records to determine if they should create, amend or retire records disposition authorizations.
As a result, some documentation involving the headquarters' credits was destroyed. That, the Comptroller's Division of State Audit said, resulted in some situations in which invoice documentation to support a company's claim for the tax credit simply wasn't available.
State audit officials reviewed all 22 qualified headquarters facility tax credits approved from 2014 until earlier this year. They said they found three credits totaling about $1.6 million for three companies for which Revenue officials "could not provide evidence of sufficient supervisory review of the companies' qualifying invoices to support the tax auditors' decisions to approve the tax credits."
Revenue department officials told the comptroller's office they believed they weren't required to maintain the invoices as evidence of tax credit approvals because the invoices were viewed as temporary records.
Thus, Revenue officials reasoned, the records could be destroyed after determining they held no fiscal, legal or historic value.
"Also for the same reason," the comptroller's audit noted, "the department's Audit Division management had not formalized the policies and procedures governing the tax credit approval and documentation process."
But the comptroller's office says it "expected" Revenue department managers to have either developed tax audit policies and procedures governing the documentation or else have adopted readily available "best practices" information to guide them.
Revenue department management argued their supporting documentation for the approved claims met the definition of "qualified tangible personal property." And they also said their tax auditors reviewed additional documentation necessary to determine whether an item met that definition.
Moreover, they said, the companies themselves still have the information.
But the comptroller's office said "this additional documentation was not retained [by the department] and therefore was not available for our review."
Without available records to support Revenue officials' claims, "we were not able to determine whether the items qualified as tangible personal property," the comptroller audit says.
Among their recommendations, comptroller watchdogs said top Revenue officials should either get or retain actual qualifying invoices or make sure there is a supervisory or secondary review of the supporting documentation used to verify the tax credit was properly given.
Department officials concurred, although their take was the department "always ensured that multiple levels of review occurred prior to approving all tax credits and that all invoices were available throughout the entire review process."
The department, however, agreed it "should formalize its existing procedures" related to a supervisor's role in "reviewing headquarters credit claims" and also develop a department records disposition authorizations for temporary records.
In a third finding, the comptroller's office looked at state job tax credits, which are made available to companies that invest in Tennessee and create jobs from that investment.
The credits are claimed against corporate franchise and excise taxes owed by corporations and other business entities.
During its last audit in 2013, the comptroller's office found problems there. A number of issues have since been cleared up. But watchdogs said Revenue officials "did not always obtain or retain sufficient audit evidence to support the audit reports' conclusions, and tax auditors did not follow policies and procedures outlined" in a tax manual.
Based on testwork performed on the 8 field audits and 11 office audits that began after Jan. 1, 2015, auditors said "we noted that for 7 of 8 field audits tested [88%] and all 11 office audits tested, the revenue tax auditors did not create all documentation required" by the department's own manual, auditors said.
Revenue officials said they would fix the problem.
The latest audit is prompting a we-told-you-so from the Beacon Center, a Nashville-based free market policy and activist research institution that opposes what it considers taxpayer-funded corporate handouts.
"The Comptroller audit proves the very point Beacon has been making for the last couple years: that there is almost no accountability when it comes to tax incentives for businesses," Beacon communications director Mark Cunningham said. "While we are against corporate welfare of any kind, the complete lack of accountability in this program is astonishing."
What is "even worse," Cunningham added, "is that those in charge of overseeing the program didn't even know the law."
Contact Andy Sher at email@example.com or 615-255-0550. Follow on Twitter @AndySher1.