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City auditor outlines STR/hotel audit findings; council weighs extending audits and reallocating workplan
Summary
City auditors reported recent hotel and short-term rental (STR) audits identified substantial unpaid hotel occupancy tax revenue; auditors recommended expanding audit work this year, while council discussed staffing, costs and tradeoffs with other planned audits.
City auditor Glenn (Galveston City Auditor) briefed the council on ongoing hot-tax and short-term rental (STR) audit work on Feb. 27, reporting that auditors had identified unpaid hot tax and penalties from hotel and STR properties and discussing resource implications of expanding the audits.
Gary (assistant auditor) told council the audit of hotels and STRs yielded estimated additional revenue with penalties — roughly $115,000 for several hotels and about $250,000 from a sample of 45 STRs — though precise collection and net gain hinge on costs and reimbursement agreements. Auditors said audit work has been more time-consuming than estimated; hotel audits cost the city roughly $5,000 each to complete while the Park Board contract contributed roughly $1,000 per hotel audit, leaving a shortfall in coverage of auditor costs.
Auditors said STR audits are now more difficult because many operators are on platforms (Airbnb/VRBO) that collect tax directly; platform data can be difficult or require subpoena to obtain. Auditors said their historic sampling covered 45 STRs (about 6% sample of the city’s inventory) and that many of the noncompliant properties were properties not listing on platforms. The auditors recommended continuing audits of hotels and targeted STRs but noted the work drains staff time and that expanding the scope would require reassigning or delaying other audit plans or adding staff.
Council asked practical questions about scale and priorities. Auditor Glenn proposed auditing one year under the current administration and one year under the prior administration as a comparative approach; council supported sampling two years (one from each administration) rather than a full multi-year sweep. Council also supported keeping sales-tax audit work (which has produced recoveries) on the schedule and pushing lower-priority audits (public works overtime and police seized-funds tracking) into the next fiscal year if resources must be shifted.
Council asked auditors to bring a budget and staffing recommendation if they want to expand the HOT/STR audit program without delaying other required audits. The city auditor agreed to return in March with a plan showing the staffing and cost trade-offs — including the expected recoveries and a list of audits that would be postponed to a later year — and to recommend whether a part-time audit clerical position or another staff addition would allow the expanded work without delaying priority audits.
What’s next: auditors will return with a March recommendation that lays out the additional staffing or scope trade-offs required to expand the HOT/STR audit work. Council instructed staff to prioritize sales-tax audits and to consider STR and hotel audit expansion only if the auditor can show net benefit net of costs or identify an offsetting funding source.
