If not corrected, the state could stand to lose more money as residents age and property taxes go up.
At an average of $7,000 a year and rising, New Jersey has the highest property taxes in the nation. It's a serious problem for many homeowners and an even worse one for those on fixed incomes.
For years the state has offered rebate programs and tax breaks to seniors and disabled homeowners in the form of checks that are usually mailed out in the fall - just in time for November elections.
But a new report by the State Auditor found that the Division of Taxation, which oversees the programs, and municipalities failed to cross-check records or demand proof from homeowners to make sure they qualify for the programs.
In 2007, the year examined by the auditor, the two programs paid out more than a quarter billion dollars.
"We're kind of taking people at their word," said Acting State Auditor Stephen Eells, "and there are improper payments going out."
Known as "senior freeze" rebates, the program allows low-income senior and disabled citizens to be directly reimbursed by the state for property tax increases above the rate they lock into when they enroll in the program.
To qualify for the rebates in 2007, a homeowner had to make less than $60,000 and needed to be 65 or older or receiving federal disability benefits. Lawmakers have since expanded the program to include homeowners making up to $80,000.
Because the tax freeze program requires homeowners to live in a residence for several years in order to qualify, homeowners didn't receive the rebates and credits until 2009.
Homeowners must submit a copy of a driver's license or birth certificate to verify their age and disabled homeowners must provide proof that they receive disability benefits.
Before 2002, the state didn't ask for those verifications and the audit found that the homeowners who qualified for the program before 2002 were never asked to provide such proof after the law changed.
In 2007, the average "freeze" rebate checks averaged $958, according to the Treasury Department. That year, 154,600 senior and disabled homeowners received "senior freeze" rebates totaling $165 million.
A random sample found that 6,000 homeowners who received the rebates were younger than 65, according to federal records. Of those, 405 receiving $318,000 in rebates weren't receiving social security benefits, indicating that they weren't as old as they claimed.
The audit also found sloppy accounting; some homeowners who claimed disabilities were listed instead as over 65. And it found that many - nearly 1,250 homeowners who received a total of $1.3 million in rebates - claimed they made less than $60,000 a year while a cross-check against federal tax forms showed they made too much to qualify.
Also examined was a $250 tax credit program for seniors and veterans. Those credits are applied directly to a tax bill and are administered by municipalities. Only age and proof of service restrictions apply.
The audit highlighted problems at the municipal level because that's where the programs are administered. A major problem is that there was no incentive to weed out fraud; the state reimburses municipalities for the deductions and pays them an administrative fee for each one processed, so the more deductions granted, the more money for the municipality.
A look at everyone - 362,000 homeowners - who received the $250 credit in 2007 found 9,162 cases where, according to tax records, homeowners made more than the threshold. That cost the state $2.3 million in lost revenue.
The audit said municipalities are unable to cross-check income information and the state was not using databases at its disposal, including real estate and tax records.
Eells notes that some mistakes may not have been intentional fraud.
"You are dealing with a senior population and they may have made errors," he said.
The acting director for the Division of Taxation, Cheryl Fulmer, acknowledged that more verification should be done but noted in her response to the audit that manpower was a problem.
"Our plans are subject to the limitations caused by reduced staffing and technology resources," she wrote, noting the difficulty in administering multiple tax programs each with its own set of rules, requirements and deadlines.
Fulmer said in her response that her department was looking at ways to enhance screening protocols, including cross-checking records, and would work more with municipalities to enhance their screening of tax credit applicants.
She did not return a call seeking comment.
New Jersey's new Republican governor, Chris Christie, has vowed to increase rebates even as the state faces an upcoming deficit of between $8 and $11 billion for the 2011 budget year.
Christie spokesman Michael Drewniak said the administration is taking "a close look" at the report but hasn't made any decisions yet on what to do with the programs.
Former Bogota mayor Steve Lonegan, who ran against Christie in the GOP gubernatorial primary, has long been opposed to the rebate program, calling it a form of "income redistribution."
He wasn't surprised to hear that unqualified homeowners were cashing in on it.
"What they really need to do is eliminate the program and cut everyone's taxes across the board," he said. "It's too complex, too costly to administer, too subject to political manipulation. It's a failed program."
