Hi-tech search targets liquor store tax fraud

Computerized audits in city, 3 counties find $27 million due to Md.

June 26, 2005|By Andrew A. Green | Andrew A. Green,SUN STAFF

Using computerized sleuthing, Comptroller William Donald Schaefer has identified scores of liquor retailers in Baltimore City and three counties that owe the state a combined $27 million in sales taxes, interest and penalties, with more collections expected as the program goes statewide in the months ahead.

In what national observers say might be a first-of-its-kind approach, the comptroller is using computers to compare wholesale deliveries to liquor stores and bars with the taxes paid by the businesses.

Sometimes, Schaefer found, the numbers don't match.

The comptroller's office is finishing its examination of retailers in Prince George's County, where auditors found 22 cases of tax fraud, costing the state more than $6.2 million. Penalties and interest bring the total expected collections from that county alone to more than $16 million.

Previous audits in Baltimore City and Worcester and Washington counties turned up 29 cases of fraud and 22 of gross negligence, according to Schaefer's office. Now the comptroller is looking to expand the program throughout the state in hopes of finding more money owed to the treasury.

"We have found outright fraud in nearly half the cases we've audited with some businesses grossly underreporting sales taxes," Schaefer said in a statement. "We're constantly on the lookout, so we may be coming to a bar or liquor store near you."

Michael Golden, a spokesman for the comptroller, said just a fraction of the state's liquor stores have been reviewed, so the program has the potential to be a windfall for the state as it continues working its way out of a series of projected budget deficits.

Golden would not disclose where auditors are focusing next but said they intend to check every county.

The comptroller's office regulates wholesalers, so it has easy access to their records, Golden said.

Jack Milani, a Baltimore County bar owner and president of the Maryland Licensed Beverage Association, said there's been little industry reaction to the crackdown.

"If you're doing what you're supposed to do, you don't worry about it," Milani said. "The majority of people out there aren't concerned because they have nothing to be concerned with."

About 2 percent of the bars and liquor stores reviewed have come under suspicion, said Golden.

Milani said that while other industries might get upset about the government checking suppliers' sales records, liquor retailers are used to strict regulation and aren't bothered by it.

"Anyone who is in this industry understands that," he said.

Mohammad Abukhdeir, the owner of House of Spirits in Baltimore, was less understanding. He's appealing an assessment from the comptroller of $196,451.67 in back taxes, an equal amount in penalties and $196,394.64 in interest, a total of nearly $600,000 dating from 1987 to 2002.

There is no way, he said, he could have sold enough alcohol to generate that much tax.

"This is a neighborhood store, not a Giant or Wal-Mart," Abukhdeir said. "I told them, `I give you the keys. You open the store from morning to evening and see how much you come up with.'"

Golden said that the courts have found in the state's favor in nearly all cases.

The idea for the program came from Thomas W. Tartal, a 21-year veteran of the comptroller's office who is the manager of field audits and a computerized audit specialist.

Tartal attended a six-month course at the University of North Texas to learn computerized auditing, programming and statistical analysis.

Upon his return, he started looking for ways to use his new skills. He thought of liquor sales because of the large amount of available data.

The hard part, he said, was getting all the data in the same format. Dozens of liquor wholesalers in the state keep records differently. But once that's done, potential tax scofflaws are easy to spot, Tartal said.

"You could really see a difference where you might have a couple hundred dollars worth of reported sales but they might have a couple thousand dollars or hundreds of thousands of dollars of purchases, and we'd want to know what accounts for the difference," Tartal said.

When the computer flags a retailer, auditors go in and check the books, Tartal said.

John Bodnovich, a spokesman for the American Beverage Licensees, a national trade group based in Bethesda, said a few other states cross-check retail liquor sales but none in the same way Tartal devised.

Kinney Poynter, the executive director of the National Association of State Auditors, Comptrollers and Treasurers, said he hasn't heard of other states using liquor records in this way. But similar searches of other databases to find tax irregularities are becoming commonplace, he said.

Records that auditors would never have had time to comb through can now be sorted and compared in seconds, leading to innovation in the enforcement of tax laws, Poynter said.

"They're doing things these days we just couldn't do say even five or 10 years ago because the database tools now allow us to compare and cross-match searches," he said. "It's almost like picking low-hanging fruit."

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