Louisiana may be losing millions of dollars in revenue because of an inadequate system for collecting oil and gas severance taxes, according to an audit by a state official.

In a three-page statement issued Monday, Legislative Auditor Daryl Purpera said that while the Louisiana Department of Revenue (LDR) has procedures in place to make sure severance taxes are paid on time, the department “needs to improve its current processes to ensure that these payments are complete and accurate.”

Severance tax receipts from 2009 to 2012 were analyzed in the audit. According to Purpera, the LDR’s own data for fiscal years 2009 and 2010 found $11.7 million in potentially unpaid severance taxes.

The audit found that before September 2010, the LDR used an automated system called “Gen Tax” to detect and send estimated tax assessments to oil and gas companies. The assessments were based on past returns if the companies did not file required taxes, including severance taxes.

But Purpera said the LDR turned Gen Tax off in 2010 on the grounds that agency officials said the program was “sending out erroneous assessments and the department was receiving complaints.” Gen Tax is expected to be re-activated this month.

The audit discovered based on 461 refunds issued that the LDR overpaid at least $12.9 million in refund payments to oil and gas companies from July 2010 through May 2012. “LDR’s review of severance tax refund requests is inadequate,” the audit said. “LDR staff does not ensure that all refund requests are accurate before sending them to companies.”

According to Purpera, the LDR said it has recouped $3.3 million of the $12.9 million in refund payments as of January 2013. The agency added that it monitors the refunds after the payments are made.

“While instituting back-end reviews helps detect inaccurate payment refunds, this process results in additional work for LDR employees who have to recoup the overpayments,” the audit said. “A more effective and efficient process may be for LDR to implement a comprehensive review of requests before refunding payments.”

The audit also found that the LDR doesn’t “adequately verify the accuracy” of oil and gas companies’ self-reported data. Case in point: of 29 randomly reviewed tax payments between 2008 and 2012, eight were inaccurate, resulting in a combined underpayment of $41,452.

The LDR also saw a decrease in severance tax revenue when the authority for performing field audits — which are conducted at the site of oil and gas companies with full records available — shifted briefly to the state Department of Natural Resources (DNR). According to the audit, field audits conducted by the LDR yielded $26 million in fiscal 2010, but that fell to less than $41,000 for the 2012 fiscal year.

“DNR only conducted field audits on companies that paid royalties on minerals produced on state-owned lands,” Purpera said. “[But] leases located on state-owned land make up less than 2% of 61,879 active oil and gas leases. Staffing shortages also hampered audit efforts.”

The LDR resumed field audit powers from the DNR in July.

Purpera said the audit also recommended that the DNR and the LDR both change their respective program rules to limit the amount of severance tax refunds and interest that companies can collect when they file for severance tax exemptions after paying the taxes.

“State law requires the LDR to pay companies interest on severance tax refunds at the judicial interest rate which state law sets,” Purpera said, which the audit determined to be 5.5% in 2009, 3.75% in 2010, and 4% in 2011 and 2012. “However, this creates an incentive for companies to delay submission of their exemption applications as the longer they wait, the more interest they receive.”