Donors to hospitals under a special state tax break have been able to claim tax credits even though their checks bounced, state and private audits have found.
Although the would-be donors who bounced checks would still have been able to file for tax credits, the state doesn’t know if they did, according to the state audit. There is no system for automatically verifying the donations. Spokesmen for the state Department of Revenue said the agency will review the accounts of all the taxpayers who may have claimed the erroneous credit, and reverse it if they find they did.
The Rural Hospital Tax Credit program allows Georgians to get significant tax breaks for donating to a specific list of 55 needy hospitals.
Both individuals and businesses can donate to the program. Donors can subtract exactly the same amount they donate off their state tax bill. That’s a much bigger reduction in a person’s tax bill than if they just claimed the donation as a deduction from their earnings, as most charitable gifts are handled.
The state audit found that bounced checks and other problems spanned several years and added up to accounting mistakes of more than $300,000. It’s unclear how much of that was lost revenue to the state. Auditors pointed out that that’s a small fraction of the $75 million annual hospital tax credit program overall, and a miniscule part of the state’s overall tax revenues, which reach the billions every year.
The audit examined the paperwork of three entities that administer the tax credit program: the state Department of Revenue, the hospitals that qualified to be part of it, and a middleman called Georgia HEART. Georgia HEART (Helping Embrace Access to Rural Treatment) is a nonprofit business and contractor that all the hospitals hired to administer the program for them.
Donors can donate to the hospitals without going through Georgia HEART if they want. If they do go through Georgia HEART, it makes sure they’re eligible, accepts the checks, files the paperwork with the state Department of Revenue, and sends the donors a tax receipt needed to file their taxes and claim their tax credit. It takes a 3% cut of the donations.
But in a few cases, Georgia HEART found out that some people’s checks bounced, and no donation had come through.
State auditors noticed Georgia HEART’s paperwork didn’t match reports sent to the state and recommended the nonprofit tell revenue officials when checks bounce. Georgia HEART agreed and said it was revising its practices to do that.
Another issue the auditor flagged involved Georgia HEART knowingly filing false reports to the state for $1 donations that never happened. Georgia HEART did that whenever a donor preregistered to donate, but then changed their mind and donated nothing. By preregistering, donors block out a certain amount of the donation cap for themselves. With the existing technology, changing the donation amount to $1 was the only way to quickly eliminate that disappearing donor from the pending list, Georgia HEART said. This allowed them to immediately give that space in the donation list to someone else who was actually going to donate.
Department of Revenue officials told the AJC that a technology fix for that is imminent.
Initially, the auditors in June told Georgia HEART to stop filing the false reports, but Georgia HEART in its recorded response to the audit did not agree to stop, saying the $1 donations were a workaround to the problematic computer program. But the morning after the AJC asked Georgia HEART whether they were concerned about legal consequences for knowingly filing false tax documents to the state, Georgia HEART’s CEO Ben Saylor told the AJC that it told the state it would stop.
Saylor added in his email to the AJC that up to now this workaround has allowed other donors the ability to make more than $10 million in donations over time — gifts that would’ve otherwise been blocked by the donors who never gave. He said they’ve been waiting for the state to fix the technology problem for three years.
The auditors pointed out that false donation reports were originally flagged by Georgia HEART’s own internal audits.
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