720-913-5000 auditor@denvergov.org

Audit Report

Property Tax Assessment Process – Department of Finance

The audit had three objectives:
  1. To determine whether the City’s policies and procedures related to the property tax assessment process are effective to ensure compliance with regulations and promote data accuracy and completeness;
  2. To examine whether the current tax-increment financing law should be amended to permit adjustments to the base level when an exempt property is converted to a nonexempt property to allow for the timely recovery of infrastructure costs incurred by the City; and
  3. To analyze whether the City is recovering the costs of services associated with the assessment and collection of property taxes on behalf of third-party entities, such as Denver Public Schools, the Denver Urban Renewal Authority, and other special districts.

Watch the Audit Committee presentation here soon.

The property tax assessment process is outlined within and regulated by state law as well as the state’s Assessors’ Reference Library. Property tax assessment includes appraisal and classification, exemptions, and taxation of real and personal property. The assessment process is driven by the City’s Department of Finance.

In our first audit of the City’s property tax assessment process, we identified controls and processes that need improvement to promote appropriate accounting practices, compliance with state law and regulations, and to protect the integrity of property tax assessment data.

The City Incorrectly Recorded and Reported the State Reimbursement for the Senior and Disabled Veteran Property Tax Exemptions

State reimbursements were recorded and reported as property tax revenue rather than “government-mandated nonexchange revenues.”

The Department of Finance Should Improve Oversight of the Property Tax System and Processes

  • Policies and procedures related to property tax assessment processes are outdated and lack sufficient detail to ensure processes are performed consistently and in compliance with state law.

  • The Treasury Division cannot ensure waived interest and fees are allowable.

  • Information, such as occupied square footage and weighted exemption percentages related to state-leased properties, were inaccurate and inconsistent.

1.1 Correct Accounting for the Exemption Reimbursement – The Department of Finance should record the state’s reimbursement of the senior and disabled veteran property tax exemption as a government-mandated nonexchange transaction in the City’s financial accounting records beginning in 2019.

Agency Response: Disagree
Auditor’s Addendum: See page 21 under Recommendation 1.1

1.2 Provide Complete Data to Other Entities – The Department of Finance should review what data is provided to Denver Public Schools and other government entities regarding property taxes and reimbursements related to the tax exemptions. If that data is not sufficiently clear as to the source of the funds, the department should modify the reporting to those entities to make certain they receive accurate data regarding property taxes and tax exemption reimbursements to ensure they can provide accurate financial reporting.

Agency Response: Disagree

2.1 Develop, Document, and Implement Policies and Procedures – During the implementation of the new property tax system, the Department of Finance, including the Assessment Division, Treasury Division, and Controller’s Office, should develop, document, and implement policies and procedures for processes related to property tax assessment. Policies and procedures should identify, at a minimum:

  • Responsible parties

  • Chain of custody

  • Review and approval procedures

  • Documentation requirements

  • A timeline for periodic review and approval to update policies and procedures

Agency Response: Agree, Implementation Date – Oct. 1, 2020

2.2 Develop and Document Procedures to Accurately Capture Omitted Properties – The Assessment Division should work with the Controller’s Office and Treasury Division to ensure all omitted properties are properly captured in certifications of valuation provided to third-party entities. Additionally, because third-party entities rely on certifications for budgeting and property tax rate-setting purposes, the Assessment Division should use the Assessors’ Reference Library as guidance to ensure data is accurate.

Agency Response: Agree, Implementation Date – Jan. 17, 2020

2.3 Track and Monitor Omitted Properties Data – The Assessment Division should work with the Controller’s Office and Treasury Division to establish and document procedures to track and monitor data related to omitted real and personal properties to identify potential trends and ensure omissions are not due to data entry or other administrative errors.

Agency Response: Agree, Implementation Date – Jan. 17, 2020

2.4 Obtain Clarification of State Law – The Treasury Division should work with the City Attorney’s Office to clarify Colorado Revised Statutes § 39-10-104.5(10) with regard to waiving interest and fees due to delinquent taxes. Based on its findings, the Treasury Division should adjust and document its policies and procedures on granting waivers accordingly.

Agency Response: Agree, Implementation Date – Nov. 30, 2019

2.5 Establish and Document Criteria for Waiving Fees – Based on the guidance obtained from the City Attorney’s Office as part of Recommendation 2.4, the Treasury Division should establish criteria for when interest, fees, and penalties are eligible to be waived as well as a process for review, approval, and documentation of waived interest and fees.

Agency Response: Agree, Implementation Date – Nov. 30, 2019

2.6 Establish Procedures for Accounting for Waived Interest and Fees – With implementation of Recommendation 2.5, the Treasury Division should work with the Controller’s Office to identify procedures to properly record and account for waived interest and fees.

Agency Response: Agree, Implementation Date – Dec. 31, 2019

2.7 Document Lease Monitoring Procedures – As part of the new property tax system implementation, the Assessment Division should establish and document procedures to ensure information used for monitoring leases is accurate. Documentation should include, but not be limited to: methodologies for calculating weighted exemption percentages; the source of record for total rentable square footage, such as the lease and/or OASIS; and a process for supervisory review to ensure accuracy and completeness of the information.

Agency Response: Agree, Implementation Date Jan. 17, 2020

2.8 Correct Inaccurate Weighted Exemption Percentages – The Assessment Division should calculate the amount of property taxes potentially over- or undercollected due to the inaccurate weighted exemption calculations for properties affected. Once calculated, the Assessment Division should contact the affected property owners to determine an appropriate course of action for resolving previously inaccurate property taxes collected.

Agency Response: Agree, Implementation Date – Jan. 17, 2020

The objectives of our audit of the property tax assessment process were to assess the City’s practices and compliance with relevant laws and regulations, to analyze tax-increment financing for exempt properties, and to review commissions associated with the collection of taxes on behalf of third-party entities. I am pleased to present the results of this audit.

The audit revealed the Department of Finance incorrectly recorded the reimbursement for senior and disabled veteran property tax exemptions, and lacked oversight over the property tax assessment system and processes. We had no findings regarding tax-increment financing for exempt properties or commissions associated with the collection of taxes.

By reclassifying the reimbursement and strengthening governance over property tax assessment systems and processes, the Department of Finance will be able to better ensure compliance with accounting practices and the integrity of property tax assessment data.

This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, “General Powers and Duties of Auditor,” and was conducted in accordance with generally accepted government auditing standards. Those standards require we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We extend our appreciation to the Department of Finance and Denver Urban Renewal Authority personnel who assisted and cooperated with us during the audit. For any questions, please feel free to contact me at 720-913-5000.

Follow-up report

A follow-up report is forthcoming. 

Audit Team: Kevin Sear, Jeremy Creamean, Kharis Eppstein, Amy Barnes, Ronald F. Keller