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ACT 32 SUGGESTED AUDIT PROCEDURES ## First Edition | February 2013 Commonwealth of Pennsylvania PA Department of Community & Economic Development | dced. pa.

gov Comments or inquiries on the subject matter of this publication should be addressed to: Governor’s Center for Local Government Services Department of Community and Economic Development Commonwealth Keystone Building 400 North Street, 4th Floor Harrisburg, Pennsylvania 17120-0225 (717) 787-8158 1-888-223-6837 Email: ra-dcedclgs@state. pa.

us This and other publications are available for viewing or downloading free-of-charge from the Department of Community and Economic Development website. Printed copies may be ordered and purchased through a private vendor as indicated on the website.

In close cooperation with the Pennsylvania Institute of CPAs (PICPA), the Department of Community and Economic Development’s Governor’s Center for Local Government Services is pleased to provide this publication, Act 32 Suggested Audit Procedures.

PICPA is the premier statewide resource for top-class continuing professional education programs, professional networking, business-friendly advocacy, thought leadership, and a full range of services for accounting professionals. No liability is assumed with respect to the use of information contained in this publication. Laws may be amended or court rulings made that could affect a particular procedure, issue or interpretation.

The Department of Community and Economic Development assumes no responsibility for errors and omissions nor any liability for damages resulting from the use of information contained herein. Please contact your local solicitor for legal advice. Preparation of this publication was financed from appropriations of the General Assembly of the Commonwealth of Pennsylvania.

Introduction . . .

. . .

1 I. Tax Collection and Other Receipts . .

. . .

2 II. Investments . .

. . .

. . 6 III.

Reporting . . .

. . .

8 IV. Bonding . .

. . .

. . 10 V.

Record Keeping . . .

. . .

13 VI. Distribution of Income Taxes and Other Disbursements . .

. . .

16 VII. Administrative . .

. . .

. . 19 VIII.

Appendices . . .

. . .

. 22 SUGGESTED AUDIT PROCEDURES This audit manual is designed to assist the auditor with Pennsylvania Act 32 of 2008 compliance auditing. There are seven major categories covered within this manual.

They are as follows: I. Tax Collection and Other Receipts VI. Distribution of Income Taxes and Other Disbursements The seven major categories are further subdivided as follows: A.

Compliance Requirements B. Internal Controls and Suggested Procedures C. Compliance and Other Audit Procedures The Compliance Requirements section clarifies the Tax Officer’s responsibilities for each of the seven major categories listed above.

These responsibilities are derived from Pennsylvania Act 32 of 2008 and the Pennsylvania Act 32 of 2008 Policy and Procedure Manual produced by the Department of Community and Economic Development (DCED). The Internal Controls and Suggested Procedures and Compliance and Other Audit Procedures sections present the audit objectives and provide suggested procedures to fulfill the respective objectives.

The suggested audit procedures within this manual are not all-encompassing. Individual auditors are responsible for complying with auditing standards generally accepted in the United States of America — the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States — and should determine which audit procedures are applicable within each specific category.

Auditor judgment should be utilized to gain a satisfactory level of comfort for the applicable opinion type being issued; additional audit procedures, not included in this manual, may be necessary. 1SUGGESTED AUDIT PROCEDURES February 2013 # I. Tax Collection and Other Receipts ## A.

Compliance Requirements It shall be the duty of the Tax Officer to: 1. Govern over the administration of income taxes levied within the tax collection district for which the Tax Officer has been appointed. 1 2.

Oversee and enforce the withholding and remittance requirements of employers and the distribution of such taxes, as mandated by Sections 512 and 513 of Act 32, within the tax collection district for which the Tax Officer has been appointed. 2 3. Accept the distribution of resident taxes from other tax collections districts as mandated by Section 513 of Act 32.

3 4. Initiate actions for the collection of unpaid income taxes without affecting the ability of political subdivision to initiate an action in its own name for the collections of unpaid income taxes. 4 a.

Initiate an action to recover local income taxes within three years of the later of the date: the taxes are due, the date the declaration and return have been filed, or the date that a redetermination of compensation or net profits has been made by the Department of Revenue. b. Initiate an action to collect the tax due within six years when there is substantial understatement of the tax liability of 25 percent or more, with no fraud.

c. Initiate an action to recover an erroneously paid refund within two years of making the refund unless it appears that any part of the refund was induced by fraud or misrepresentation of the fact. i.

Initiate an action to recover any part of a refund induced by fraud or misrepresentation of material fact within five years of making the refund. d. Set the conditions where there is no statute of limitations for the initiation of legal action by the Tax Officer to collect delinquent tax.

5. Set the rate of interest to be assessed on the delinquent tax as the same as a taxpayer would pay to the Commonwealth of Pennsylvania under Section 806 of the Fiscal Code. An additional penalty of 1 percent of the amount of delinquent tax shall be assessed for each month or fraction of month the income tax remains unpaid.

5 a. The total amount of interest and penalties assessed against the tax due for a single tax year shall not exceed 15 percent of the total amount of the tax due. b.

If a Tax Officer must initiate a legal action to collect the tax due, the taxpayer or employer shall be held liable for the costs of collection as well as the interest and penalty. 6. Abate penalties or interest if the taxpayer or employer voluntarily files the delinquent returns and pays the delinquent tax in full within the established conditions set by the Department of Community and Economic Development (DCED).

The Tax Officer must have the approval of the Tax Collection Committee in order to abate penalties or interest. 6 7. Ensure the tax collection district enters into an agreement with the Department of Revenue for the exchange of information as necessary for the collection of income taxes.

7 8. Act in accordance with all regulations, policies and procedures adopted by the DCED under Act 32, in addition to all of the resolutions, procedures and policies adopted by the Tax Collection Committee of the tax collection district for which the Tax Officer has been appointed. 8 2SUGGESTED AUDIT PROCEDURES 9.

Act 32 mandates that any delinquent taxes or reports for 2011 and prior years shall become the responsibility of the newly appointed Act 32 Tax Officer on July 1, 2012, unless a political subdivision notifies the Act 32 Tax Officer that it has made other provisions for the collection of the 2011 and prior years’ delinquent tax. 9 ## B. Internal Controls and Suggested Procedures 1.

Internal Control Objectives a. Obtain and document an understanding of the internal controls over tax receipts in order to identify and assess risks of material misstatement and to design further audit procedures. i.

Identify the types of significant receipts processed by the Tax Officer. This should include check, ACH, credit card, cash payments and supporting detailed records. Consider including a process work flow chart for illustration of data entered into the system.

Typically, a Tax Officer will process the following types of transactions: 1) Employer quarterly returns 2) Individual quarterly estimates 3) Individual final tax returns ii.

Identify the internal controls the Tax Officer has in place to ensure that: 1) Transactions are properly recorded and accounted for to: a) Permit the preparation of reliable financial information and reports b) Maintain accountability over assets (e.g. cash, cash equivalents, and investments) c) Demonstrate compliance with laws, regulations and other compliance requirements under Act 32.

2) All income taxes, penalties, costs and other money received, and collected for each political subdivision served by the Tax Officer and by the Tax Officers for other tax collection districts (tax collection districts) has been identified in its books of record.

3) The Tax Officer’s tax collection activities are in compliance with the DCED rules and regulations, as well as the provisions of contracts or other agreements between the Tax Officer and political subdivisions that could have a material effect on identifying the appropriate amounts due political subdivisions or others from the Tax Officer. iii. Identify and evaluate segregation of duties related to tax collection and other receipts.

iv. Determine the Tax Officer has designed and implemented appropriate monitoring controls of the tax collection and other receipts processes. v.

Sample internal controls 1) Controls should be in place to secure any physical input during the payment process. Physical security controls involving sensitive areas would typically include the following: a) Physical separation of input areas from other departments at the entity, preferably with locked doors. b) Magnetic-based keycard access system to identify individuals as they move throughout the facility and enter secured areas.

The system should maintain a log of user activity and movement throughout the facility. d) Visitors should be escorted when entering sensitive processing areas that handle confidential information or liquid assets. 3SUGGESTED AUDIT PROCEDURES February 2013 e) Cameras should be in operation at all entrances and exits to the facility and throughout any sensitive processing areas.

f) Alarm system should monitor the facility after hours or when not in use by authorized personnel. 2) IT logic security controls should be in place to verify input systems. For example, an electronic filing system or an internal tax processing system which is restricted to allow only authorized personnel to input data.

3) Controls should be in place to verify data input is tracked throughout the entire work flow process. a) Data input via a website or other means of electronic data and payments should include a system generated identification number. Reports should be readily available and data entering the system should be reconciled in a timely manner.

(i) For cash payment locations, such as a payment office or customer service office, physical security controls should be in place. Additionally, controls for handling cash should be identified. Consider surprise cash drawer inspections/counts, unique identifiers receipts for each cash transaction presented to a taxpayer, and/or unique user access entry to processing applications.

(ii) Verification procedures should be in place for supporting documentation (e.g. employer quarterly returns, individual quarterly estimates and individual tax returns). (iii) For electronic data input controls, the system should appropriately limit input so that incorrect values, payment amounts, field formats etc. are prohibited by the application.

(iv) For paper-based data input submitted to the Tax Officer, controls should be in place to ensure the information on the paper document/return is electronically and/or manually compared to the system; verification must be performed to ensure accurate information is entered into the system.

4) Verify that the Tax Officer reviews monetary inputs on a daily basis and that the depository bank accounts are reconciled to the systems originating the input. For example, the check imaging system totals should be reconciled against the bank statement after deposit of the checks.

5) Controls should be established over the interest rate assessed on delinquent taxes to ensure the taxpayer is paying at the applicable rate as regulated under Title 72, Pennsylvania Statute Section 806 of the fiscal code. 2. Suggested Internal Control Procedures a.

Perform walkthrough of each transaction type to verify the system is operating as designed. Consider one or more of the following procedures to test the operating effectiveness of identified controls: i. Perform corroborative inquiry.

Corroborative inquiry involves inquiries of more than one person. ii. Perform observation procedures.

iii. Perform inspection procedures. iv.

Perform “reperformance” procedures. Document the basis for determining the appropriate sample size based on the nature of controls (automated vs. manual), the planned level of control risk, and the frequency of the operation of the control. b.

Make a selection of transactions from each type of tax receipt to test identified internal controls. c. If available, obtain the Tax Officer’s SSAE No. 16, SOC1, Type II Report.

Based upon the auditor’s evaluation of this report, the suggested internal control procedures listed above may be eliminated. 4SUGGESTED AUDIT PROCEDURES ## C. Compliance and Other Audit Procedures 1.

Compliance Audit Objectives a. Obtain sufficient appropriate audit evidence to form an opinion and report on whether the tax collector complied in all material respects with the compliance requirements applicable to tax collection and other receipts. b.

Obtain sufficient appropriate audit evidence to form an opinion and report on whether the tax collector complied in all material respects with the contractual terms contained in the contract between the Tax Officer and the Tax Collection Committee that could have a direct and material effect or material indirect effect on the Tax Officer’s tax collection and other receipts. c.

Verify that the Tax Officer executes transactions in compliance with laws, DCED rules and regulations, in addition to the provisions of contracts or other agreements related to the Tax Officer’s tax collection activities and other related receipt activities that could have a direct and material effect under Act 32. 2. Suggested Compliance Audit Procedures a.

Verify the Tax Officer has entered into an agreement with the Department of Revenue for the exchange of information as necessary for the collection of income taxes. i. Tax Officer and PSD (political subdivision) must complete a memorandum of understanding concerning the inspection of information from PA income tax returns.

ii. Tax Officer and PSD must complete Section 356 Agreement for submission to the Pennsylvania Department of Revenue. iii.

Tax Officer must complete and submit to the Pennsylvania Department of Revenue Form DEX-83, Information Request Authorization. iv. Obtain Tax Officer’s reconciliation report of PA income tax returns to local income tax returns.

Test report to ensure processes are appropriately recomputed and determining proper income and tax liabilities. b. Make a selection of amounts due based upon the reconciliation report of PA income tax returns to local income tax returns, late filings, and underpayments.

Determine the Tax Officer is in compliance with the following: i. Regulations to recover local income taxes not paid in full by the taxpayer. ii.

The applicable rate of interest to be assessed on delinquent taxes. The interest rate must be in accordance with interest rates established under Title 72, Pennsylvania Statute Section 806 of the Fiscal Code. iii.

Contractual agreement related to abatement of interest or penalties/amnesty programs established by the Tax Collection Committee. iv. Deadline filings, reporting and collections associated with individual withholdings, and collections from self-employed or who are employed by an employer who is required to withhold the local income tax.

v. Annual deadline filings, reporting and collections of unpaid income taxes from individual taxpayers. c.

Communicate all compliance findings with the Tax Officer before the audit report is issued and discuss potential remedies the Tax Officer may choose to implement in order to correct the compliance findings. 5SUGGESTED AUDIT PROCEDURES February 2013 ## A. Compliance Requirements It shall be the duty of the Tax Officer to: 1.

Invest all income taxes in authorized investments with the standard of care that would be observed by a prudent person dealing with the property of another. The Tax Collection Committee must approve all investments. 1 2.

Distribute the income generated from investments as directed by the Tax Collection Committee. 2 3. Act in accordance with all regulations, policies and procedures adopted by the DCED under Act 32, in addition to all of the resolutions, procedures and policies adopted by the Tax Collection Committee of the tax collection district for which the Tax Officer has been appointed.

3 ## B. Internal Controls and Suggested Procedures 1. Internal Control Objectives a.

Obtain and document an understanding of the internal controls over investments in order to identify and assess risks of material misstatement and to design further audit procedures to ensure: i.

Verify the investment activity is properly recorded and accounted for by the Tax Collector in order to: 1) Permit the preparation of reliable financial information and reports 2) Maintain accountability over assets 3) Demonstrate compliance with laws, regulations and other compliance requirements under Act 32 ii.

The investments are properly authorized in accordance with Act 32 and consistent with the approved policy as approved by the Tax Collection Committee. iii. Funds (e.g. cash, cash equivalents and investments) are safeguarded against loss from unauthorized use.

iv. The transfer of funds from cash accounts are being properly approved and recorded. v.

Identify and evaluate segregation of duties related to investments. vi. Determine the Tax Officer has designed and implemented appropriate monitoring controls of the investment processes.

2. Suggested Internal Control Procedures a. Perform internal control procedures as needed (e.g. verify account access controls, wire transfer authority etc.) Consider one or more of the following procedures to test the operating effectiveness of identified controls: i.

Perform corroborative inquiry. Corroborative inquiry involves inquiries of more than one person. ii.

Perform observation procedures. iii. Perform inspection procedures.

iv. Perform “reperformance” procedures. Document the basis for determining the appropriate sample size based on the nature of controls (automated vs. manual), the planned level of control risk and the frequency of the operation of the control.

6SUGGESTED AUDIT PROCEDURES ## C. Compliance and Other Audit Procedures 1. Compliance Audit Objectives a.

Obtain sufficient appropriate audit evidence to form an opinion and report on whether the tax collector complied in all material respects with the compliance requirements applicable to investment activity. b.

Obtain sufficient appropriate audit evidence to form an opinion and report on whether the tax collector complied in all material respects with the terms of authorized investments set forth by the Tax Collection Committee, as well as the requirements under Act 32, Section 509 – Deposit of Public Funds. c.

Investment income is tracked, recorded and allocated according to the agreement between the Tax Officer and the Tax Collection Committee. 2. Suggested Compliance Audit Procedures a.

Obtain or document the investment policy, established by the Tax Collection Committee, for use by the Tax Officer. Obtain sufficient appropriate audit evidence to form an opinion and report on whether the investment/deposits of tax collections in the custody of the Tax Officer represent authorized investments and are adequately collateralized.

Determine that Tax Officer is observing the standard of care that would be observed by a prudent person dealing with property of another. b. Obtain, or prepare from the tax collector’s records, a schedule of collateral pledged to secure deposits, including: (a) name of depository, (b) name of financial institution holding the collateral, (c) description of collateral and (d) amount of collateral.

i. Determine whether the collateral complies with legal requirements. ii.

Ascertain fair value of collateral and determine whether the amount is adequate to secure funds on deposit as required by law. iii. Consider the need to determine that collateral pledged to secure deposits was adequate at various times during the year.

iv. Consider the need to confirm collateral pledged to secure deposits with the financial institution holding the pledged collateral securities. Document the items selected for confirmation.

c. Perform analytical procedures of interest income received during the period for reasonableness of amount. d.

Perform procedures to determine investment income is tracked, recorded and allocated according to the agreement between the Tax Officer and the Tax Collection Committee. e. Determine whether any investments are pledged or restricted.

f. Obtain a schedule of investment balances at the end of the year broken down by Tax Collection Committee or other tax collection district. i.

Test the numerical accuracy of the schedule. ii. Tie into the general ledger.

g. Consider confirming investment balances and related activity with third-party custodians. 7SUGGESTED AUDIT PROCEDURES February 2013 ## A.

Compliance Requirements It shall be the duty of the Tax Officer to: 1. Make a written monthly report, on forms prescribed by the DCED, and file that report, within 20 days after the end of each month, with specific individuals of the tax collection district and its political subdivision. 1 2.

Act in accordance with all regulations, policies and procedures adopted by the DCED under Act 32, in addition to all of the resolutions, procedures and policies adopted by the Tax Collection Committee of the tax collection district for which the Tax Officer has been appointed. 2 ## B. Internal Controls and Suggested Procedures 1.

Internal Control Objectives a. Obtain and document an understanding of the internal controls over reporting in order to identify and assess risks of material misstatement and to design further audit procedures to ensure: i. The Tax Officer prepares and submits accurate monthly reports to the appropriate entities within the required timelines as prescribed by DCED.

ii. Sufficient change control procedures over the automated reporting process are in place, including: 1) A documented and management approved software development life cycle (SDLC) and a process for only permitting authorized changes to the system. 2) Documenting and testing changes to the system before the changes are applied to the production system.

iii. Identify and evaluate segregation of duties related to investments. iv.

Determine the Tax Officer has designed and implemented appropriate monitoring controls of the tax collection and other receipts processes. v. Identify and evaluate segregation of duties related to reporting.

vi. Determine the Tax Officer has designed and implemented appropriate monitoring controls of the reporting receipts processes. 2.

Suggested Internal Control Procedures a. Perform walkthrough of each transaction type to verify the system is operating as designed. Consider one or more of the following procedures to test the operating effectiveness of identified controls: i.

Perform corroborative inquiry. Corroborative inquiry involves inquiries of more than one person. ii.

Perform observation procedures. iii. Perform inspection procedures.

b. Make a selection of transactions from each type of tax receive to test identified internal controls. c.

If available, obtain the Tax Officer’s SSAE No. 16, SOC1, Type II Report. Based upon the auditor’s evaluation of this report, the suggested internal control procedures listed above may be eliminated. 8SUGGESTED AUDIT PROCEDURES 3.

Sample Internal Controls: a. Validate the IT logic in an individual monthly report. i.

Verify school district and municipal monthly reports (CLGS-32-7) agree to tax collection district aggregate report (CLGS-32-7A). b. Query selected lines within the monthly report and validate the accuracy of the data and calculations.

c. The monthly reporting required by Act 32 of 2008 is available at http://www. newpa.

com/node/6747. ## C. Compliance and Other Audit Procedures 1.

The Tax Officer must ensure compliance with monthly reporting requirements as directed by Act 32 of 2008 2. Suggested Compliance Audit Procedures a. Verify Tax Officer remitted monthly reports CLGS-32-7 and CLGS-32-7A to Tax Collection Committee, school districts, and municipalities within the 20 day timeframe established by Act 32.

The report must be filed by the Tax Officer with the secretary of the Tax Collection Committee and with the secretary of each PSD in the tax collection district for which taxes were collected during the previous month within 20 days after the end of each month. i. Consider confirming timely remittance with a sampling of school districts and/or municipalities.

ii. Inquire of Tax Collection Committee concerning timely remittances. iii.

Select a sample of monthly reports submitted to Tax Collection Committee’s and review for accuracy. iv. Evaluate IT Logic of system generated monthly reports.

b. Determine Tax Officer is in compliance with DCED regulated forms. c.

Determine Tax Officer is in compliance with reporting deadlines mandated by Act 32 and DCED. d. Auditors should communicate all compliance findings with the Tax Officer before the Audit Report is issued and discuss potential solutions the Tax Officer may implement to correct the compliance findings.

9SUGGESTED AUDIT PROCEDURES February 2013 ## A. Compliance Requirements It shall be the duty of the Tax Officer to: 1. Acknowledge and provide a bond to the Tax Collection Committee (TCC): a.

The Tax Collection Committee shall fix the amount of the Tax Officer’s bond. 1 i.

The bond shall be in an amount equal to the maximum amount of taxes that may be in the possession of the Tax Officer at any given time or an amount sufficient, in combination with fiscal controls, insurance and other risk management and loss prevention measures used by the tax collection district, to secure the financial responsibility of the Tax Officer in accordance with guidelines adopted by the DCED. ii.

The amount of the bond shall be revised annually by the Tax Collection Committee based upon the annual examination required under Section 505 (h). b. The bond is required to be joint and several, with one or more surety companies.

The surety companies must be licensed by the Pennsylvania Insurance Department. 2 c. The bond shall outline the duties and responsibilities the Tax Officer, Tax Officer’s employees and appointees upon which the bond is conditioned, including: 3 i.

Faithful execution of all duties required of the Tax Officer. ii. Just and faithful accounting or payment over of the moneys and balances paid to, received or held by the Tax Officer by virtue of the office in accordance with law.

iii. Delivery of all tax records or other official items held in right as the Tax Officer to the Tax Officer’s successor in office. d.

The bond shall be in the name of the tax collection district and outline the entities that may use the bond. 4 e. The bond must contain the name of the surety company.

5 f. The Tax Collection Committee is required to allow the substitution or the addition of a surety company in order to make the bond sufficient. 6 g.

The custodian (solicitor or chair of TCC) of the Tax Officer’s bond shall be designated by the Tax Collection Committee. 7 h. The Tax Officer is required to file copies of the bond or bonds currently in effect with each

Frequently Asked Questions

Who can apply for Suggested Audit Procedures?

Based on current listing details, eligibility includes: See the Pennsylvania grants portal for complete eligibility requirements. Applicants should confirm final requirements in the official notice before submission.

What is the typical funding level for Suggested Audit Procedures?

Current published award information indicates See Pennsylvania state grant listing for funding details. Always verify allowable costs, matching requirements, and funding caps directly in the sponsor documentation.

When is the deadline for Suggested Audit Procedures?

The current target date is rolling deadlines or periodic funding windows. Build your timeline backwards from this date to cover registrations, approvals, attachments, and final submission checks.

How competitive is Suggested Audit Procedures?

Federal grant success rates typically range from 10-30%, varying by agency and program. Build a strong proposal with clear objectives, measurable outcomes, and a well-justified budget to improve your chances.

What documents are required for Suggested Audit Procedures?

Requirements vary by sponsor, but typically include a project narrative, budget justification, organizational capability statement, and key personnel CVs. Check the official notice for the complete list of required attachments.

Can I use AI to write this grant proposal?

Yes — AI tools like Granted can help research funders, draft proposal sections, and check compliance. However, always review and customize AI-generated content to reflect your organization's unique strengths and the specific requirements of the solicitation.

How long does the review process take for Suggested Audit Procedures?

Review timelines vary by funder. Federal agencies typically take 3-6 months from submission to award notification. Foundation grants may be faster, often 1-3 months. Check the program's timeline in the official solicitation for specific dates.

Is Suggested Audit Procedures renewable?

Many federal programs offer multi-year funding or allow competitive renewals. Check the official solicitation for continuation and renewal policies. Non-competing continuation applications are common for multi-year awards.