AUDIT COMMITTEE SUMMARY
April 22, 2014
Audit of Tax Increment Financing Program
Report Issued April 7, 2014
Background
Tax Increment Financing is a special funding tool used by the City to promote public and private investment areas where little to no private sector investment is currently taking place. A portion of collected taxes are contributed to a fund that is used to help revitalize a designated area called a Tax Increment Zone (TIRZ).
Once a TIRZ has been established, the City enters into written interlocal agreements with all participating taxing entities to specify: (1) the conditions for payment of the tax increment into a tax increment fund, (2) the portion of the tax increment to be paid by each entity into the tax increment fund, and (3) the term of the interlocal agreement. As illustrated in Table 1 below, incremental real property taxes resulting from new construction, public improvements and redevelopment efforts accrue to the TIF fund. The funds are used to build and repair roads and infrastructure and rehabilitate historic facilities and existing vacant buildings. Currently managed by the Planning & Community Development Department (DPCD), the TIF program began in 1998.
Audit Objective
Are there appropriate controls and governance structures in place to properly manage the Tax Increment Financing (TIF) Program?
Audit Scope & Methodology
Scope: The audit scope was FY 2013
Methodology: Interviewed management and staff from both the DPCD and Finance. We performed walkthroughs and documented the initiation and administrative processes and internal controls associated with the creation and administration of a TIRZ within the TIF program. We obtained and reviewed copies of development agreements, financial plans, invoices, and other supporting documentation pertinent to the TIF program.
Audit Conclusions
No, the City does not have appropriate governance structures in place to properly manage the TIF program. Specifically,
Ø Executive management has not assigned overall responsibility for ensuring the TIF program is in line with the City's overall strategic and operational goals and policies.
Ø Guidelines and criteria for governing the TIF program are not being managed in accordance with the TIF Manual adopted in 2008 and the Texas Tax Code.
Consequently the following operational control deficiencies were identified:
Ø Finance plans used to budget and anticipate future tax revenue collections have not been completely updated for the 23 active TIRZ since inception.
Ø Policies are not in place regarding Tax Increment Reinvestment Zone (TIRZ) administrative processes and procedures. Specifically:
o Taxing entities were overbilled in at least one of the TIRZ districts.
o Administrative fees have not been consistently deducted from the TIRZ accounts.
o Disbursements are not supported with appropriate evidence indicating the originating invoice was reviewed and approved.
We communicated our recommendations to the Directors of Planning and Community Development and Finance. Management concurred with our recommendations and developed a positive corrective action plan.