Ah, the Audit
My company is getting audited. I run the accounting department. As such, my life is hectic currently. If anyone has ever survived this experience, they know it is quite tedious and (essentially) time and money that would be better spent doing other stuff. I used to be an auditor so I can sympathize with the pesky little auditor persons.
The auditors (as always) come in wearing fancy clothes, carrying fancy computers, and have this whole ‘here we go again’ expression on their faces. Typical audit crew boils down to this:
1 partner: who (as a client) you will likely only see once at the beginning of the engagement and once at the end. And occasionally he may show up at some point in the middle to stir his staff up. He’s responsible for ultimately signing off on the engagement (which is puzzling, as he does not do much of the work, but I digress). These guys go for about $250 – $500 per hour.
1 manager: This person coordinates the underlings, directs the work, and generally tells people what to do. They usually show up 2 – 3 times per week. They bill out for $150 – $200 per hour.
1 supervising auditor: There all the time. Usually, asks intelligent questions and provides insight. They’re usually the people that companies offer jobs to, since a career in public accounting tends to be short or for the rest of your life. Meaning, people stay long enough to be a supervisor and split, or hang out for manager jobs. In public accounting, this is the ‘make or break’ you point (I broke. I grew tired of the 60 hour work weeks and the constant travel). $100 – $150 per hour.
3-4 staff accountants: Boy, these folks are annoying. They come in, dressed sharply and you’re paying $80 – $120 per hour for their time. Yet, they ask some of the dumbest fucking questions you’ll ever hear. My answers invariable consist of: 1) as I’ve told you already, . . . , 2) Ya know, generally accepted accounting principles state that . . . . , did you cover that in school?, or 3) ask your supervisor, we’ve discussed it at great length. Then, I give a glance as if to say ‘I’m paying that much for this?’
They, of course, won’t find anything wrong that I don’t already know about. In fact, I (being a very ethical individual) am up to no funny business in my books. If it happened before my tenure and I haven’t gotten to it yet, I’m kind of glad when they find things as it’s less for me to clean up later, but it costs more.
If you want to survive an audit, use these handy tips (they apply to financial statement audits and compliance audits):
Allow your auditors a comfortable work area. I’ve been on audits where the client put us behind a kitchen. It was like 400 degrees in that room. It may have affected our attitude during the engagement.
Be open and honest. Do not appear to hide anything. If you confide to your auditor that ‘you don’t know,’ they’re usually eager to help.
Indicate clearly your working hours. Public accounting firms are notorious for being sweatshops. In fact, firms often mandate 60 hour work weeks during certain times of the year. Unless you want to put in 12 hours per day yourself, instruct the auditor when you will be working.
Always get a flat fee engagement. Paying by the hour could cost you bucks should problems arise.
If you’re audited by the IRS, the only right you really have is that you can pick when the meeting will be. So, schedule it for about 4:30 p.m. on Friday afternoon. The good old IRS agent doesn’t want to stay too late and will likely hurry you along to start his weekend.
I’ve also heard a story from some acquaintances that two individuals in a partnership were both audited by the IRS at the same time. Both individuals kept very good records. One went to his IRS auditor with his stuff neatly organized and wound up having to pay back taxes on some items. The other individual took his nice neat records, placed them in a plastic tub, and shook the hell out of the tub to scatter his papers and ensure there was no identifiable order. Then, when the auditor asked where something was, he replied ‘it’s in the tub.’ What do you know, the second partner got a clean bill of health. Sad, but true.
Nothing says ‘red flag’ louder than ‘home office’ and ‘mileage.’ Document the hell out of your mileage and home office. In taxes, the burden of proof is on the taxpayer (kinda thwarts that whole ‘innocent until proven guilty’ stuff).
