AR 060606 Municipal Auditing Services

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ITEM #17 CITY OF COLTON AGENDA REPORT FOR THE COUNCIL MEETING OF JUNE 6, 2006 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: DILU DE ALWIS, FINANCE DIRECTOR SUBJECT: APPROVE AND ADOPT A RESOLUTION AUTHORIZING MUNICIPAL AUDITING SERVICES TO ACCESS/RECEIVE CALIFORNIA SALES TAX DATA AND ENTER INTO A PROFESSIONAL SERVICES AGREEMENT WITH THE CITY TO PROVIDE AUDITING/ACCOUNTING SERVICES REGARDING CITY BUSINESS LICENSES DATE: May 31, 2006 BACKGROUND: Cities throughout California benefit from electronic detection of unlicensed businesses. These data mining services detect unlicensed businesses through data available from the State of California Board of Equalization, phone directories, property tax, State of California Franchise Tax Board, and the Internal Revenue Service. While data mining does generate some results, it is unable to correct data matching errors allowing for substantial losses of potential business license tax revenue. The Franchise Tax Board estimates the loss of potential business license tax revenue may be as high as 40 percent of the current business license tax revenue. Municipal Auditing Services' ("MAS") performance results indicate that the business license tax revenue loss is much higher when discovery of unlicensed taxpayers and deficiency of taxpayers who under report are combined. DISCUSSION/ANALYSIS: MAS proposes to audit the City's business license tax as it applies to discovery and deficiency by meeting with the City's licensed businesses on an individual basis to review their business documents. MAS will verify the businesses' self reports, make corrections (if appropriate) and collect the outstanding business license tax and penalties (if any). MAS will be available to discuss and educate the City's licensed businesses on the Colton Municipal Code requirements and encourage businesses to maintain full compliance in the future. In addition, MAS will be able to identify business to business transactions.