News and Media
So, you’ve been targeted by the ATO for a tax audit
Can you – or your clients – afford to be audited? We find out why it pays to be prepared.
It’s the letter or phone call you may not want to receive: a client, or even your own accounting practice, is being targeted for a tax audit.
For Simon Flowers FCPA, a principal at LBW Business + Wealth Advisors, the experience is all too familiar.
“We probably have 12 to 18 clients go through an audit each year,” he says. “Audits typically come at the worst times, when you’re really busy but have to drop everything and start gathering information for the tax office.”
What triggers an audit?
This year, the Australian Taxation Office (ATO) has announced that it will be cracking down on work-related expense claims – potentially undertaking over one million interactions (including audits) with taxpayers making claims in this area.
However, there is an abundance of other red flags that can trigger an audit or review, explains Roman Kaczynski CPA, director at Accountancy Insurance.
“Business activity statement (BAS) audits are our highest frequency of claims, but rental property owners are also a focus, as well as businesses that may be involved in the black economy,” he says. “We're seeing a lot of audits of restaurants or takeaway shops right now; any businesses that conduct a lot of cash transactions.”
Cryptocurrency compliance is also in the spotlight, Kaczynski continues, and self-managed superannuation funds (SMSFs) still get their fair share of audit attention.
“The big trend for me is employer obligation audits,” he says. “These are going to increase significantly because with SuperStream in place, the ATO knows immediately when employee superannuation guarantee payments are missed.”
Counting the costs of an audit
Even when the outcome of a tax audit is positive, the process itself may not. Flowers estimates that it takes between 10 and 20 hours to collate all the information required – or $3,000 to $4,000 in employee costs.
“If the client doesn’t have protection in place, justifying these extra fees is a tricky conversation to have,” he says. “If they don’t have protection, we often make up some of the cost.”
Kaczynski says that some public practitioners look to go it alone with self-insurance. However, it can sometimes be a case of a small saving now, only to pay big costs later.
“Some accounting firms may look to cover their clients using a self-insurance model instead of something like Audit Shield – not fully realising that in doing so, they can leave themselves vulnerable,” he says. “In particular, under a self-insurance model, not having access to external professional services can lead to either a limited response or additional unexpected costs for the client, making it difficult for practitioners to recover professional fees.”
Waiting for a response from the ATO can likewise be stressful. “It puts pressure on the relationship between the accountant and their client,” says Kaczynski. “It’s never a good experience.”
Preparing for the unexpected
With the ATO’s random audit program now in full swing, even the most vigilant taxpayer can be the target of an audit. It pays to be prepared: in fact, Kaczynski says Accountancy Insurance reimburses around $1 million each month for the professional fees and associated costs of ATO audits.
“Accountants know they can respond confidently on behalf of their clients, while their clients have peace of mind that they'll get the response they want without having to pay any extra fees,” he says. “It’s a win-win situation.”
As the ATO continues to refine its data analysis systems, tax audit protection is set to become increasingly useful.
“With Single Touch Payroll and all the data matching tools that the ATO is using at the moment, a lot more targeting is going to happen,” says Kaczynski. “In this environment, a protection solution is cost-effective and alleviates the financial stress of being audited.”
This article was originally published in INTHEBLACK on 4 September.
7-Eleven Joins List of Companies Penalised for Accounting Misconduct
7-Eleven was fined $192,780 for forging employee and payroll records. Payroll and bookkeeping were the most common contraventions across all companies.
This April, the Federal Circuit Court penalised Avinash Pratap Singh, a manager and shareholder of 7-Eleven in Brisbane of $32,130; moreover, a $160,650 penalty was imposed on S & A Enterprises (QLD) Pty Ltd., of which he is a director.
An investigation by the Fair Work Ombudsman (FWO) revealed repeated violations by both companies, namely short-changing and accounting falsification.
Judge Salvatore Vasta revealed that the intended operations “created records that appeared to show that the employees were paid at the rates of pay prescribed by the modern award, including penalty rates and overtime rates of pay, which actually bore no relation to their hours of work or actual hourly rates.”
These malfeasances add yet more examples of companies underestimating the diligence of official investigators such as those at the FWO. Proper oversight of complex audit and accounting procedures is a demanding task, but a necessary one for every organisation.
Penalties for inaccurate bookkeeping have recently become stiffer as official institutions are determined to send a warning to all companies on this issue. Australia now takes fraud more seriously than ever, and businesses need to take extra care to produce accounting reports that are thorough and accurate.
Companies that report their financial details accurately can avoid painful long-term consequences for non-compliance. Over the past few years, FWO has probed company accountability in businesses throughout every sector of the economy. A number of employers have found themselves in court following the discovery of infringements.
Kjoo Pty Ltd., a sushi outlet in New South Wales, was copped for conducting an illegal internship program by the Federal Circuit Court. The company received a $200,000 penalty for underpayment of interns in 2014-2015. Three young foreign workers revealed that they were underpaid a total of $51,025. Judge Philip Dowdy disclosed that there existed a “deliberate, intentional and informed decision by Kjoo, through Mr. Kwon, to underpay the employees to gain a financial advantage for its business.”
Meanwhile, Fuji Xerox sued senior Australia and New Zealand executives for their role in an accounting scandal. There was evidence of “inappropriate” accounting practices for the company’s revenue and net profit position under their administration.
In 2016, Wesfarmers also took legal action against a former Target managing director and some financial staff. Those who were involved in inflating commercial income by $21 million faced allegations of impropriety. The litigation may have contributed to the resignation of the managing director.
As organisations such as 7-Eleven and Fuji Xerox have learned, it’s always best for businesses to have a clear and clean approach to accounting. It is worth stressing that simple negligence can also create negative outcomes for businesses, and that diligence in all matters of accounting is essential. Transparency in the audit process prevents fraud, corruption, waste and abuse – but it is also key for maintaining a stable business that does not get fined or have managers that are forced to resign.
As a general rule, risk can be minimised through the use of efficient systems, internal verification procedures and effective internal communication. These qualities of good corporate governance also lead to the embrace of accountability by every department within your business.
Budget 2018: Finance items in the fine print
9th May 2018
Accountants and the tax profession will find plenty of measures in the fine print of the 2018 Federal Budget papers that will affect individuals and business clients.
There is extra funding for the Australian Taxation Office (ATO) to investigate claims by individuals and their tax agents, and changes that may impact partnership structures of professional firms.
Practitioners will have to await draft legislation to better understand how many of these changes will actually impact taxpayers.
Click here to read the full article.
Whistleblower exposes ATO ‘cash grab’ targeting small businesses
10th April 2018
Two Australian Taxation Office whistleblowers have told a joint Four Corners and Fairfax investigation about a toxic internal culture where vulnerable small businesses and individuals are deliberately targeted to help meet revenue goals.
They allege unethical tactics are used for revenue raising, at the expense of correct procedure and fairness to taxpayers.
ATO debt collection officer Richard Boyle has told Four Corners that last year some staff were instructed to seize funds from the bank accounts of taxpayers assessed to owe the Tax Office money, regardless of their personal circumstances.
Click here to read the full article.