Report: Denver Marijuana Business Audits ‘Ineffective’

The biggest concern is how the city identifies which operations are audited

The auditing process for marijuana businesses in Denver has potentially cost the city money allocated for public service programs, the city auditor said.

Timothy O’Brien has called the city’s auditing process “ineffective” and “inefficient” in a report analyzing methods, strategies and standards used for auditing marijuana dispensaries, cultivations and manufacturing facilities, The Denver Post reported.

“We did a thorough data analysis of aspects of the tax assessments Treasury has done, and we found examples of missed risks and a need for more attentiveness to warning signs,” O’Brien said.

Denver’s Treasury Division is responsible for overseeing the collection, recording and depositing of all city taxes and other revenues, including in the cannabis industry.

“Treasury isn’t adhering to leading audit standards and isn’t keeping required documentation to support their audit conclusions,” O’Brien said.

The biggest concern is how the city identifies which operations are audited, officials said. Currently, the city identifies a business’ audit history and total amount of taxes paid to determine which should be reexamined, but that doesn’t include which companies are likely to under report taxes.

Tax from marijuana sales is allocated to several different state funds that benefit public education, substance abuse and treatment, health research and local governments. The report also shows that the city has failed to address multiple unlicensed marijuana delivery services active in the city.

“Marijuana delivery businesses pose a high risk of revenue loss to the city because the businesses are inherently harder to trace because of their mobile nature,” the report said.

The report recommends that the Treasury’s tax compliance director maintain a data-driven approach to monitor and identify businesses with a high risk of under-reporting.

O’Brien made 11 recommendations to the city on how to improve its marijuana tax auditing, all of which are expected to be implemented by Aug. 31, the report said. City officials agreed to the recommendations.

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