Marijuana Taxation Follow-up
The Treasury Division fully implemented four recommendations made in the original audit report, but seven others have yet to be fully implemented or acted upon.
Treasury developed a formal policy and procedure to validate data, ensuring it is accurate and appropriate for decision-making processes. The audit unit implemented measures to coordinate with the state Department of Revenue to receive state audit information to better inform which entities the city selects to audit.
The audit unit did not adopt professional auditing standards as originally recommended. Instead, it implemented policies and procedures requiring the use of relevant information and supervisory review — in addition to developing safeguards to ensure procedures are followed, which results in higher quality and more effective audits. The audit unit took steps to proactively identify unlicensed marijuana delivery businesses and implemented a verification process to check the accuracy of state marijuana shareback payments.
However, several risks remain. By not developing a data-driven approach to audit selection, Treasury risks taxpayer funds being spent on audits that may not recover as much tax revenue for the city as they could.
By not developing a policy to retain supporting documentation, Treasury hinders the verification of tax audit work and the accuracy of audit assessments. Outside auditors, peer reviewers, and others who conduct a peer review or inspection of the division’s audits would not be able to review the documentation and understand how the evidence supports the findings or whether it sufficiently supports the conclusions in the audit.
Furthermore, Treasury did not sufficiently define policy terms, such as what constitutes an “abnormal” or “erratic” trend, or develop appropriate performance measures for marijuana tax audits, inhibiting its ability to efficiently identify these issues. Treasury also did not take adequate steps to coordinate with the Department of Excise and Licenses to review information at the state level.
November 4, 2021
In keeping with generally accepted government auditing standards and Auditor’s Office policy, as authorized by city ordinance, the Audit Services Division has a responsibility to monitor and follow up on audit recommendations to ensure city agencies address audit findings through appropriate corrective action and to aid us in planning future audits.
In our follow-up effort for the “Marijuana Taxation” audit report issued in April 2020, we determined the Treasury Division fully implemented four of the 10 recommendations it agreed to in the original audit report. It partially implemented two and did not implement four. Although Treasury officials disagreed with one other recommendation, we learned they did take some action to address the concerns.
Overall, despite Treasury’s efforts, we determined the risks associated with the audit team’s initial findings have not been fully mitigated. As a result, the Audit Services Division may revisit these risk areas in future audits to ensure the city takes appropriate corrective action.
The Highlights page in this report provides background and summary information about the original audit and the completed follow-up effort. Following the Highlights page is a detailed implementation status update for each recommendation.
I would like to express our sincere appreciation to the Treasury personnel who assisted us throughout the audit and the follow-up process. For any questions, please feel free to contact me at 720-913-5000.
Timothy O'Brien, CPA
AUDITOR TIMOTHY O'BRIEN, CPA
Denver Auditor´s Office
201 W. Colfax Ave. #705 Denver, CO 80202
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