Georgia Sales Tax Audit Techniques
Audit Techniques
- During the interview ask when financial tasks are usually performed. The shorter the delay in inputting data into the accounting records, the lower the risk of untracked changes. As input time delays increase, the potential risk related to alterations, manipulations and/or deletions increases. This means there is a greater chance of skimming or undisclosed items.
- During the initial interview, ask what percentage of sales is attributed to cash compared to credit or check payments. When analyzing the bank deposits, this percentage can be verified and any discrepancies can be questioned. If there is any question that the taxpayer gave inaccurate percentages, it will be resolved during the business tour.
- During the tour of the business be alert to the type of payments that are made and how they are handled. Spend some time watching the procedures at the register and stay long enough to observe several transactions. If the taxpayer has said he rarely receives cash, but in two hours the examiner notes 10 cash purchases, that observation must be recorded and analyzed.
- Compare the cash register tapes from the day the register was observed, to the tapes for the audit period.
- Match the taxpayer’s statements, cash register records or reports, against the findings.
- Total Gross Receipts divided by the Number of Days the Store was Open equals Average Daily Sales. This can be compared to the sales on the day the examiner toured the business.
- The examiner should match the cash register tapes to cash deposits for a sample period. If the tapes show cash received was $500, but the cash deposited that day was only $400 and there were no cash paid expenses – find out who operated the register that day, who counted the money, who deposited the cash. Sample more days when those individuals were working. If there are books, analyze every journal entry to the cash accounts and find out who authorized the entries.
- Contact state auditors or sales tax auditors for information on prior examinations and what markup percentages were used. Markup percentages do not usually change, so this information will be helpful even if the sales tax examination is old. Sales tax examinations are usually performed regularly in most states.
- Contact beer and wine suppliers to determine if the amount purchased agrees with the reported cost of goods sold.(Owners will sometimes under-report purchases to improve the ratio between sales and cost of sales.) Alcohol purchase is usually restricted by State regulations, and only certain, licensed suppliers can sell liquor to retailers. Therefore, only a few suppliers can be contacted for an accurate calculation of this aspect of cost of goods sold.
- If there are credit card transactions deposited to the bank account, test a sample of them by tracing them to the cash register tapes. If the credit card purchases cannot be found on the cash register tapes, ask the taxpayer why and consider the tapes may be unreliable.
Georgia Sales Tax Audit Techniques