Georgia’s multi-billion-dollar film tax credit, which has made the state an international star in TV and movie production, needs more oversight to prevent abuses, a new audit says.

“As Georgia’s largest and arguably most generous credit, the film tax credit must be accompanied by sufficient controls to ensure that production companies are entitled to the credits granted,” says an audit of the film tax program issued Jan. 6 by the Georgia Department of Audits and Accounts. “Due to control weaknesses, companies have received credits for which they are not eligible and credits that are higher than earned.”

The film tax credit is Georgia’s largest tax credit. More than $3 billion in credits were generated from 2013-2017, with the amount increasing each year. In 2016, more than $667 million in film tax credits were generated, with the amount growing to more than $915 million in 2017.

“While the state has granted billions in credits,” the auditors reported, “it does not have an adequate system of controls to prevent the improper granting of credits. We found issues with the credit’s administration by the Departments of Revenue (DOR) and Economic Development (GDEcD). The issues can be attributed to limited requirements and clarity in state law, inadequately designed procedures, insufficient resources, and/or agency interpretations of law that differ from our own.”

The audit says that, “Despite granting more credits than any other state, Georgia requires companies to provide less documentation than any of the 31 other states with a film tax incentive. Georgia is one of only three states that does not require an audit by the state or a third party, and the other two states (Arkansas and Maine) require more expenditure documentation than Georgia.”

The report says that when audits are conducted, “the procedures do not detect all ineligible expenditures. Our review of eight previously audited projects identified approximately $4 million in ineligible expenditures that had not been disallowed. These included payments to employees or contractors for work not performed in Georgia and to vendors outside the state. We also found expenditures outside the eligibility period, for items unrelated to production, and for wages above the employee salary cap.”

The report recommends that the General Assembly require an audit of each project that receives a film tax credit, “which would mitigate some of the risk associated with the identified issues. This could be accomplished with additional DOR personnel or through the use of independent, third-party certified public accountants, selected by DOR and following audit procedures designed by the state.”

In response to the audit’s findings, the Georgia Department of Revenue “agreed there is a need for stronger controls and agreed with most of the recommendations in the report related to these controls. As noted in specific findings, there are areas where DOR did not agree. DOR did not believe the amounts discussed in the report as unearned credits or ineligible expenditures were material considering the $667 million in film tax credits generated in 2016. DOR noted that it administers over 50 tax credits and 38% of the tax credit processing group’s work is devoted to the film tax credit.”

In its response to the audit, the Georgia Department of Economic Development said it “agrees that the administration of the Film Tax Credit should and can be strengthened by requiring among other measures, mandatory audits.” GDEcD pointed to “limited resources and the inability to access confidential taxpayer information” as limiting its ability to administer the credit. GDEcD generally disagreed with the finding regarding projects with questionable eligibility.

To read the full report on the audit, click here.

A spokesperson for the Georgia Department of Economic Development told Atlanta Business Chronicle in an email, “The film industry has had a tremendously positive impact in Georgia, and GDEcD looks forward to continuing to work with the legislature to enhance the documented success of the film tax credit and improve the administration of the credit along with our partners at the Department of Revenue.” The department’s comprehensive response to the audit is here.

Read the original article in the Atlanta Business Chronicle, here.