Support Your Audit Position

Transcription

1 Support Your Audit Position Angela Dillon Acosta Senior Director, Metro Detroit & Southeast Region SALT Practice Leader BDO USA, LLP Troy, MI Laraine K. Milkey Manager, Sales and Use Tax Alcoa Inc. Pittsburgh, PA

2 Certificate Management Paper Works well for small customer base Electronic In house software/outside provider Provide criteria for certificate acceptance Blank forms for completion Database for mailing of renewal requests Can coordinate customer tax status in ERP or third party tax software provider 2

3 Certificate Management Audits Create auditor account with limited access Allows for multiple points of use Sales staff Auditors can work offsite Create reports and images of certificates 3

4 Direct Pay Typically used when taxability or use of item is unknown at purchase and taxpayers that make large volumes of purchases Benefits of Direct Pay Increased control taxpayer decides what is a taxable purchase Taxability decision department placement Decrease risk of wrong exemption certificate being issued Cash flow 4

5 Direct Pay Audit focus shifts to self assessment use tax procedures Things to watch out for in preparation for your audit: Use of direct pay on ineligible purchases (hotel, telecom, etc.) Having direct pay does not mean everything bought is exempt 5

6 EDI / ERS EDI/ERS are electronic transactions and there are no paper invoices. Supplier provides their nexus Can be maintained by supplier or purchaser in ERP or third party tax system Purchaser creates the transaction and applies tax as applicable (sales or use) 6

7 EDI / ERS Although the purchaser applies the tax, the supplier is responsible for the sales tax Includes correct rate and remittance If purchaser has DPP or if the supplier does not have nexus, purchaser accrues use tax, if applicable 7

8 EDI / ERS KEYS for audit defense Meaningful item descriptions on PO, GL, or AP system Show tax as a separate amount Request files from supplier for support- ask for these now as supplier relationships change Other documentation- bills of lading, packing slip, etc. 8

9 Procurement Cards Traditionally used on high volume, low dollar goods, not the case today with many companies Items are bought by users with a card or just a number (often by phone) Card issuer provides a periodic statement, usually monthly summarizing all purchases 9

10 Procurement Cards Key Benefits of P-cards: Streamlines the purchasing process Saves money decreases internal purchasing costs Personnel time freed up for value added tasks 10

11 Procurement Cards Potential Pitfalls of P-cards: Lack of traditional audit paper trail Difficult to provide documentation of what was purchased, how used, where used, or if it was taxed without up front intervention 11

12 Procurement Cards Considerations to Prepare for Audit Utilize card issuers that can provide enhanced level data on periodic reports Utilize preferred vendors when possible that can input/deliver level II data at point of sale Controls and limits placed on P-card usage Limit P-card usage to certain goods from certain vendors Manual review - require traditional documentation 12

13 Procurement Cards Considerations to Prepare for Audit (cont.) Utilize tax estimation process Use in conjunction with Direct Pay Permit Agreement with the state on a compliance methodology Segregate out P-card transaction data Document P-card controls and procedures Tax departments should be involved in P-card implementation Consider evaluating P-card integration software 13

14 Journal Entries / Corporate Purchase / Intercompany Transactions Either ignored for taxability when first purchased or taxability may change due to movement JE s Have entries against tax accruals approved Create review process by certain dollar amount if they hit accounts with tax impact 14

15 Journal Entries / Corporate Purchase / Intercompany Transactions Corporate Purchases National contracts Software, computers, leases What may help: Work with procurement/location POs, Contracts, and Ex Certs match Can billing be handled differently? Are modifications going to be made?-rule of First Use 15

16 Journal Entries / Corporate Purchase / Intercompany Transactions What may help (cont d): If manual accruals need made-better to know upfront and have detail provided Intercompany Transactions Purchases made by corporate then moved Transfer of assets Tax impact/occasional sale Corporate overhead charges 16

17 Missing Invoices Auditor assumption: missing invoice = taxable exception Missing invoices highlighted more with sampling than when reviewing boxes of paper invoices Alternatives to address a missing invoice during the audit: Provide or refer to different invoices from same vendor Request duplicate invoice or reports from vendor 17

18 Missing Invoices Alternatives to address a missing invoice during the audit (cont.): Go to vendor website and provide screenshots of items purchased Go to plant or location to show what item is and how it is used (or get statement from engineer) Go online with auditor to make a pretend purchase to show tax normally gets charged 18

19 Proof of Payment Proof of payment Use tax accruals, returns, and cancelled checks Sales tax-credit memo to customer, returns, and cancelled checks 19

20 Questions 20