‘Accounting error’ could have cost city $115,000

Fort Smith Finance Director Kara Bushkuhl recently caught a mistake that eventually saved the city of Fort Smith about $115,000 a year, and saved 300-plus Arkansas county and local governments more than $2.771 million.

But she had a difficult time convincing Arkansas Department of Finance & Administration officials (DFA) of the error.

The story begins July 25 when Bushkuhl noticed the state charged the city 3.3% instead of the usual 3% for the collection and distribution of city sales taxes. The tax collection and distribution method is a three-month process. For example, sales and use taxes collected in January by merchants are remitted to the state by February, and the state sends the collections — sans the 3% collection fee — to local governments by March.

“I must have missed a piece of legislation that changed the fee paid to the state for collection of local sales taxes. The amounts charged for the June 2011 distributions are calculated at 3.3% rather than 3%. Please let me know how this was approved,” Bushkuhl noted in her July 25 e-mail to Debbie Rogers, manager of local government services for the Arkansas State Treasury.

Rogers responded: “This was not new legislation. There is a section of code that gives the Chief Fiscal Officer the authority to increase it from time to time. The last time it was done was in 2006. Thanks.”

Bushkuhl, a student of Arkansas’ tax collection code, was skeptical of Rogers’ response, especially since the collection fee the state charges Fort Smith had not increased since 1985.

“That was the answer we got. We are told to take her (Rogers) answers, but what I wanted to know was how this got through without us knowing. You would think they would have to give us notice about changing the rate,” Bushkuhl said during an interview.

The 0.3% increase pulled $9,657 from Fort Smith’s collections in the July 2011 report. Annualized, the loss could have been more than $115,000 for the city.

Curious if other city finance directors noted the change, Bushkuhl e-mailed her colleagues asking if they had received notification about the change. She signed the e-mail: “Dismayed and fed up!!”

No one responded that they had been notified of a rate change. Dorethea Yates, finance director and treasurer for Hot Springs, was not happy about the change.

“I’m with Kara … I’m fed up!” Yates noted in the e-mail response.

Bushkuhl turned to the Arkansas Municipal League when she was unable to get a satisfactory response from state officials. Paul Young, finance director for the League, was able to contact DFA Director Richard Weiss. Weiss’ title also includes Chief Fiscal Officer, according to Rogers.

“Saw Richard Weiss briefly at the APERS meeting who acknowledged that they had made a mistake,” Young noted in an Aug. 17 e-mail to Bushkuhl and other finance directors around the state. “Presumably, this will be changed for the August distribution and July will be corrected.”

On Aug. 22, Young sent this follow up e-mail: “I spoke to Paul Louthian at DF&A who confirmed that they will be correcting the sales tax administrative fee amount starting this month to the statutorily authorized rate of 3%. He had not yet spoken with the Treasurer’s office but was going to do so today. Before the end of this month, they will also be making a separate additional distribution of the amount withheld last month that exceeded 3%.”

The money was returned.

“The total amount returned to cities in August was $117,345.53 and the total to counties was $113,633.08,” Rogers explained in an e-mail to The City Wire.

Although collections differ each month, if the overcharged amount returned in August was annualized it would total more than $2.771 million.

Weiss, in a brief interview with The City Wire, said the mistake was “just an accounting error.” Weiss, who said the DFA manages tax collections for “well over 300 different localities,” said a rate change on collections would require a change in state law.

“I don’t know of any push right now to do that,” Weiss said when asked if his department is considering a rate change.

Bushkuhl said the incident is one of many examples reflecting poor communication between DFA and local officials responsible for city and county budgets.

“We get very little detail from the state on collections, and very little in terms of customer service when questions arise,” Bushkuhl said.