Preparing for and Minimizing the Impact of Financial Investigation
Facing financial investigation or auditing is never a pleasant process and more firms are finding themselves in the position where their affairs are coming under scrutiny. There are, however, some simple steps that can be taken by business owners to prevent and minimize the impact of such investigations on their organizations and we will outline some of these in this article.
Facing the AuditorsWhen faced with questions from tax auditors, managers need to keep their answers brief and to the point. People tend to talk far too much when they are in a stressful situation and this can work against them. Auditors are experts at listening and analyzing every word exchanged and will soon notice if anything is being hidden or if managers are being defensive – talking too much can often be a sign of this.
The IRS will often ask questions they already know the answer to, to test honesty – so it’s important to be as open as possible. The aim when faced with a tax investigation is to emerge from the process with only the initial tax period in question having been looked at. Businesses owners that start offering information about other tax years could soon see the scope of the investigation widening if anything untoward is spotted.
PreparationA robust and comprehensive set of financial records is perhaps the most powerful weapon against the financial investigators. Increasingly, the IRS and the Securities and Exchange Commission (SEC) give little or no warning to businesses that are heading for investigation for accounting or tax issues, so it pays to be prepared ahead of time in case their agents should come knocking at the door.
With any kind of financial investigation, a prepared accounts department will come off the best. Having the staff in house to help provide the support to an audit or investigation will help to minimize financial impact on a business. An organized set of accounts will demonstrate to the auditors that a business is willing to cooperate.
Having some missing accounts is not, however, the end of the world, as auditors will consider substantial compliance as adequate in many cases. The government is aware that it is unreasonable to expect businesses to keep perfect accounts and sometimes a verbal account of a deduction may be adequate.
ProblemsIf a business is facing investigation and is unhappy with the way it is being treated, or with the audit examination report, both can be appealed. Companies are within their rights to request a different auditor if the one sent to them initially is unfair or unprofessional in any way.
If a business owner disagrees with the conclusions of an audit examination report, they can also appeal. First they must call the auditor to talk through any issues they may have. If a resolution can not be achieved, they can appeal to the IRS directly and can even take their case through tax court.
Hiring external experts can be useful in helping an appeal case. In fact, when being faced with investigation of any kind, hiring an expert tax professional can help to ensure the outcome of the investigation is as positive for a business as possible.