We should not be surprised that the Department of Revenue never thought to knock on Joop Bollen’s door and ask why he wasn’t paying bank franchise taxes (at least not until we brought his tax-dodging to their attention). A legislative audit finds that the Department of Revenue hasn’t been keeping sufficiently rigorous track of bank franchise tax payments from legitimate banks:
Internal controls were not adequate to 1) ensure that information being accepted from the banks is sufficient to verify the amount remitted is accurate, and 2) ensure bank taxes were accurately recorded and distributed on the State’s accounting system and reported properly in the State’s financial statements. This is the third consecutive audit to contain a similar finding [“Current Audit Findings and Recommendations,” Government Operations and Audit Committee, meeting documents, 2015.06.29].
Three audits in a row, and the Department of Revenue hasn’t sufficiently tightened up oversight of an important state revenue stream? Gee, you’d think someone in Pierre doesn’t want to get money from our wealthy bankers.
DOR says they have corrected this problem in part by switching databases, from Access to Cedar. The Government Operations and Audit Committee will hear about DOR’s solutions at its meeting today in Pierre. Given GOAC’s glaring lack of curiosity about EB-5 matters last year, don’t expect them to ask DOR to comment on whether their changes include getting EB-5 czar Bollen to cough up the bank franchise taxes he owes us.
I know this will somehow get blasted as a defense or DOR (which it isn’t as I don’t know enough to defend or criticize). I just have a comment.
A rational mode of control of audit is to concentrate resources where risk is greatest. Because banks are also federally regulated (businesses are not) it MAY make sense to put relatively less audit staff on the banking side because they have so much information via FDIC and Federal Reserve reporting to subsequently catch any underpayment.
This is contrast to businesses where they have less alternative sources of information upon which to catch underpayment making diligence less required for banks.
So as I understand you Troy, you are saying that Joop Bollen should be reported at the federal level of tax evasion as the state is just to busy to be able to deal with him. That might not be a bad idea.
My statement had nothing to do with EB-5 or Joop. Only to the comments from Audit Findings on Internal Controls.
Let me give a business example. A business has two types of customers- Those who pay cash and those who use credit card. Rightly, a company would put greater internal controls on the cash aspect as that is where it is likely something could be amiss. Similarly, DOR can justify putting less resources to
1) Insure “information being accepted from the banks is sufficient to verify the amount remitted is accurate” because they have another resource for verifying what was remitted (Information provided to the FDIC/Federal Reserve” as under-payment can be later discerned by a review of that information in an audit. And,
2) “ensure bank taxes were accurately recorded and distributed on the State’s accounting system and reported properly in the State’s financial statements” for similar reasons.
In short, my comment is basically: If the finding is related to DOR not having as rigorous internal controls on banks relative to businesses, I think applying the same standards to banks may cost more than revenue lost and is similar to why a business doesn’t have the same internal controls for credit card transactions and cash transactions. I may be wrong because I don’t have enough information but laying out a rationale why GOAC’s findings might be an overreach.
About 40 years ago, I was working on raising money for the SD Democratic Party. I started with a list of names. One of the names was a bank president. His comment was interesting. He said he would contribute if he could talk to the Governor about strengthening bank regulation by hiring competent people for the department. He said the state people were so incompetent they just screwed up good banking. Sounds like perhaps nothing much has changed. I have been told the tax rate on banks has been steadily reduced since it was pushed by Gov. Tom Berry.
Doug,
The subject of this is with regard to this thread is Department of Revenue with regard to taxation. The experience you reference 40 years ago is with regard to regulatory by either the State or Feds.
The situation you reference was true because then principally there was a significant difference in the sophistication and experience of the bank examiners whereby it seemed state regulators were more arbitrary and capricious. I don’t think bankers think there is a lot of difference anymore primarily because state and federal examiners share information so much more readily and efficiently. Plus, state regulators are not as often the training ground for federal regulators.
Troy, what you are saying makes sense, and I get that it’s not about EB5 or Bollen.
What I get from Jerry is that the information you’ve provided might indicate that the federal bank regulating people might be a good avenue for EB5/Bollen investigating. I’m less optimistic about that, Jerry, if I can go by B. Johnson’s work.
Does that make sense gentlemen?
Deb,
I don’t see where federal bank regulators come into play on EB-5 as I don’t see how Bollen’s entity falls under a federally related bank.
I just want to stress my comment is limited to one issue: GOAC’s commentary on internal controls of DOR with regard to bank taxation and why the controls might not be as sophisticated as other taxed entities.
I’m guessing that a DOR audit person could build a one page spreadsheet that pulls certain lines off the various reports to the FDIC, OCC, FR, and SD Banking and compare it to what is reported to DOR to determine if the numbers foot within an acceptable deviation. Further, I think they’d only have to look at an individual bank every 3-4 years and be good to go. Resources are limited and this isn’t where I’d put excessive resources. If a bank underpays, going back retroactively for the money will not be hard. And, unlike a business that might not be in existence, I think it has been 30 years since a bank failed in SD so that it isn’t a big risk we won’t get what is owed (with penalties and interest).
Deb, that is where I see Bollen’s fingerprints on the banking commission. His revenue stream came from foreign nationals that should put them and Bollen in the cross hairs of federal money laundering examinations for starters. Troy, I see your point about how business works and that also puts him squarely in front of the state revenue department as well as Cory notes. Bollen is just trying to be a good republican and keep his money without paying taxes, we see that crap day in and day out.