The auditor’s mantra: The more you can help me, the more I can help you. Hard to believe? Well, most auditors really do care about the quality of business processes and would prefer businesses are able to pay the tax on time, with no penalty. As a result, they are more than willing to provide process improvement suggestions during their visit. Their suggestions help your business before, during and after an audit.
Business process improvements that an auditor might identify can include methods of keeping track of tax, managing your income and outflow, software you might be using, or not using, to manage your records and even ways to present your information so that it makes following the audit trail easier. Helping you helps the auditor to more quickly assess and determine if there is going to be an impact from this audit. If there is little, or no impact, they prefer to handle the audit quickly in order to move on to bigger fish.
Auditors have quotas to meet in finding revenue for the state. As such, they prefer to be able to spend the least amount of time on small findings and focus on the audits that bring in greater revenues.
For example: Does it make sense for you to spend $100/hour to have someone with a Master’s Degree in Accounting run your cash register to make sure there are no mistakes? Or does it make more sense to keep a staff member on the cash register and have the Accountant focus on ensuring your accounting methods and information are correct?
In like manner, the time spent on an audit by an auditor must be relevant to the value they bring to the state from the audit. Spending 40 hours on an audit that nets $500 and could have been avoided if the customer had kept his records in a more timely fashion using a financial software application, versus spending 40 hours on an audit that nets $500,000 is a no-brainer. So, of course the auditor will provide suggestions to help prevent the lengthy time for an audit just because the data flow is unclear, records are spread all over the place in several locations or because your process is very manual and time-consuming.
An auditor’s time is valuable to the state, so the better you keep your records, the more clear the audit trail, the happier they are. And keeping your auditor happy, and interested in helping your business succeed, can mean fewer and smoother audits down the road.
Other recent “Audits and Sales Tax” posts by Lloyd Geggatt:
- Software Audits for Buyers & Sellers – and the 3 Key Questions
- Luxury Audits: Empty Boxes Full of Champagne Wishes & Caviar Dreams
- Sales Tax Audits: Actual Basis Approach Can Result in "Win-Win".
- What Auditors Should Understand About Outsourced Sales Tax Returns
- Auditing Sales Tax Credits: An Auditor's Top 2 Considerations