Performance Audit Report

PERFORMANCE AUDIT REPORT Local Expenditures of Private Club Liquor Taxes A Report to the Legislative Post Audit Committee By the Legislative Division of Post Audit State of Kansas July 1986 86PA65 Legislative Post Audit Committee Legislative Division of Post Audit THE LEGISLATIVE POST Audit Committee and its committees should make their requests for perform audit agency, the Legislative Division of Post Audit, ance audits through the Chairman or any other are the audit arm of Kansas government. The pro member of the Committee. Copies of all completed grams and activities of State government now cost performance audits are available from the Division's about $6 billion a year. As legislators and adminis office. trators try increasingly to allocate tax dollars effec tively and make government work more efficiently, they need information to evaluate the work of gov LEGISLATlVE POST AUDIT COMMITTEE ernmental agencies. The audit work performed by Legislative Post Audit helps provide that information. Senator August "Gus" Bogina, Jr., P.E., Chair We conduct our audit work in accordance with Senator Neil H. Arasmith applicable government auditing standards set forth Senator Norma Daniels by the U.S. General Accounting Office. These stan Senator Ben E. Vidricksen dards pertain to the auditor's professional qualifica Senator Joe Warren tions,' the quality of the audit work, and the charac teristics of professional and meaningful reports. The Representative Robert H. Miller, Vice-Chair standards also have been endorsed by the American Representative Bill Bunten Institute of Certified Public Accountants and adopted Representative Duane Goossen by the Legislative Post Audit Committee. Representative Ruth Luzzati The Legislative Post Audit Committee is a bi Representative Bill Wisdom partisan committee comprising five senators and five representatives. Of the Senate members, three are appointed by the President of the Senate and two LEGISLATIVE DIVISION OF POST AUDIT are appointed by the Senate Minority Leader. Of the Representatives, three are appointed by the Suite 301, Mills Building Speaker of the House and two are appointed by the Topeka, Kansas 66612-1285 Minority Leader. Telephone (913) 296-3792 Audits are performed at the direction of the FAX (913) 296-4482 . Legislative Post Audit Committee. Legislators or The Legislative Division of Post Audit supports full access to the services of State government for all citizens. Upon re quest, Legislative Post Audit can provide its audit reports in large print, audio, or other appropriate alternative f.ormat to accommodate persons with visual impairments. Persons with hearing or speech disabilities may reach us through the Kansas Relay Center at 1-800-766-3777. Our office hours are 8:00 a.m. to 5:00 p.m., Monday through Friday. PERFORMANCE AUDIT REPORT Local Expenditures of Private Club Liquor Taxes OBTAINING AUDIT INFORMATION This audit was conducted by Mary Beth Green, Senior Auditor, and Curt Winegamer, Auditor, of the Division's staff. If you need any additional information about the audit's findings, please contact Ms. Green at the Division's offices. TABLE OF CONTENTS SUMMARY OF AUDIT FINDINGS LOCAL EXPENDITURES OF PRIVATE CLUB LIQUOR TAXES The Private Club Liquor Tax in Kansas 1 How Are Cities And Counties Spending Their Portion OfThe Private Club Liquor Tax For Alcohol And Drug Abuse Programs? 4 Do These Expenditures Appear To Be Appropriate And, IfNot, What Steps Can Be Taken To Help Ensure That Such Funds Are Properly Spent? 9 Recommendation 13 APPENDIX A: Private Club Liquor Tax Distributions to Cities and Counties, Calendar Year 1985 15 APPENDIX B: Grants For Local Alcohol and Drug Abuse Programs, Calendar Year 1985 17 APPENDIX C: Types ofGrant Awards, Calendar Year 1985 31 APPENDIX D: Agency Responses 33 LOCAL EXPENDITURES OF PRIVATE CLUB LIQUOR TAXES Summary of Legislative Post Audit's Findings How are cities and counties spending their portion of the private club liquor tax for alcohol and drug abuse programs? The auditors visited a sample of eleven cities and counties selected on the basis of population, location, and annual liquor tax revenue. In calendar year 1985, the sample localities received more than $3 million in private club liquor taxes. More than $1 million of that amount was earmarked for alcohol and drug abuse programs. The auditors found that the sample localities spent these funds on a variety of programs and services, but most funds were spent on substance abuse treatment and education programs. Procedures for awarding and monitoring alcohol and drug abuse grants varied from one community to another, but they generally appeared to be adequate for the level offunding involved. A detailed list ofthe grants awarded by the sample localities during calendar year 1985 can be found in Appendix B. Do these expenditures appear to be appropriate and, if not, what steps can be taken to help ensure that such funds are properly spent? The auditors found that current State law allows moneys in local special alcohol and drug programs funds to be spent on a wide variety of services and programs. In the localities they reviewed, most alcohol and drug program expenditures clearly complied with the requirements of State law. Some localities awarded grants to organizations or programs that did not have substance abuse as their sole or primary concern. While these expenditures did not appear to violate current State law, statutory changes made during the 1986 Session may prohibit such expenditures in the future. Three localities also allocated money for administrative costs, which is not" specifically allowed by State law. The auditors recommended that the Legislature clarify the law to specifically state whether cities and counties may use private club liquor tax funds for administrative costs. LOCAL EXPENDITURES OF PRIVATE CLUB LIQUOR TAXES State law imposes a 10 percent tax on the gross receipts derived from the sale of alcoholic liquor by private clubs. Revenues generated by this tax are allocated to the State General Fund, the Department of Social and Rehabilitation Services' Community Alcoholism and Intoxication Programs Fund, and cities and counties. One-third of the money distributed to cities and counties must be deposited in special alcohol and drug programs funds, and may only be spent for programs of alcohol and drug abuse prevention, education, intervention, and treatment. Legislative concerns have been raised that local funds intended for alcohol and drug abuse programs are being spent for other purposes. To address these concerns, the Legislative Post AuditCommittee directed the Legislative Division ofPostAudit to conduct an audit of the private club liquor tax expenditures for local alcohol and drug abuse programs. This audit answers two questions: 1. How are cities and counties spending their portion of the private club liquor tax for alcohol and drug abuse programs? 2. Do these expenditures appear to be appropriate and, if not, what steps can be tal{en to help ensure that such funds are properly spent? To answer these questions, the auditors reviewed the current private club liquor tax laws and examined records maintained by the Departments of Revenue and Social and Rehabilitation Services and the State Treasurer. They also visited a sample ofKansas cities and counties to interview local officials and review expenditures from local special alcohol and drug programs funds. Finally, the auditors reviewed recent changes in the private club liquor tax laws and determined whether additional steps are necessary to ensure that these funds are properly spent. In the sample cities and counties, the auditors found that most expenditures ofprivate club liquor taxes for alcohol and drug abuse programs complied with the requirements of current State law. These cities and counties spent about 90 percent of their 1985 special alcohol and drug abuse funds on programs that were primarily concerned with substance abuse. Another three percent was spent on programs that dealt with alcohol and drug abuse but that did not have substance abuse as their sole or primary concern. The remaining funds, representing about $67,500, were spent on administrative costs, which is not specifically allowed under State law. These and other findings are discussed in more detail after the following overview of the State's private club liquor tax law. The Private Club Liquor Tax in Kansas K.S.A. 79-41aOl et seq. imposes a 10 percent tax on the gross receipts derived from the sale of alcoholic liquor by private clubs. This tax applies to the total amount clubs charge for drinks containing alcoholic liquor. Consumers pay the tax to private club operators, and the operators remit the tax to the Department ofRevenue. The Department of Revenue deposits liquor tax receipts in the State Treasury as follows: 25 percent to the State General Fund, 5 percent to the Department of Social and Rehabilitation Services' Community Alcoholism and Intoxication Programs Fund, and 70 percent to the Local Alcoholic Liquor Fund. The State Treasurer then makes quarterly distributions to cities and counties from the Local Alcoholic Liquor Fund. In addition, if the total amount distributed to cities and counties in any calendar year is less than the amount distributed in 1981, an equalization payment is made the next March 15. Funds for 1. equalization payments come from the State General Fund. The procedures for collecting and distributing private club liquor tax receipts are shown in the figure on page three. In calendar year 1985, the Department of Revenue collected approximately $9.6 million in private club liquor taxes, and the State Treasurer distributed about $9.5 million. Collections and distributions differ because distributions to the cities and counties lag about three months behind actual collections, and distribution figures include equalization payments. As the pie chart below shows, cities received more than $6.2 million, or 65.7 percent of the total amount distributed. Counties received an additional $874,000, or 9.2 percent ofthe total.

Load more