September 1, 2014

ATO compliance and recovery action – ATO Audits

Over the past few months, there has been an increase in activity by the ATO in respect to organisational compliance. One of their main areas of focus recently has been ATO Audits, where the ATO will be targeting organisations who have failed to adhere to their compliance requirements. The four pillars of compliance activities are:

  • Registration
  • Lodgement
  • Reporting and accuracy or reporting (data matching)
  • Payment.

Those most likely to be audited are:

  • Cash economy businesses
  • Businesses with continued losses
  • Households on low income
  • People who have things missing, such as documents lodged that are incomplete, non-lodgement of document, non-remittance of payments
  • Mismatches between reported data and third party data.

The ATO uses benchmarking and data matching tools when determining which organisations to be audited. Benchmarks such as key financial ratios are used to compare businesses against each other. They are updated annually and are a fundamental method of risk assessment within audit selection.

The ATO uses data matching to identify any anomalies. Such data matching includes merchant data, motor vehicles (expensive cars vs affordability based on disclosed income), real estate, PayPal/eBay, gambling (government organisation reports) and offshore transfers. These can provide strong evidentiary basis for the requirement of an audit.

The ATO recognises that audits can be very expensive and disruptive for a client. So when profiling a client or an accountant, they want to ensure there is a purpose for the activity and will make a go / no go decision at the end of profiling.

How to prevent an audit:

  • Make sure clients are not attractive audit candidates
  • Ensure correct industry codes are used
  • Remind clients of benchmarks and business norms
  • Maintain proper records
  • Don’t just become a lodgement service for your clients

How to prepare for an audit

  • Have consistent processing for handling client records
  • Proper documentation – instil good habits on your clients
  • Businesses are individual – there are often explanations for how each business is run, so make sure that they are documented
  • Keep on top of lodgements and debt
  • Don’t try to patch things up when you or your client receives an audit letter.

It should be noted the proper management of audits can significantly reduce the long term financial impact on clients. If you have any concerns regarding any of the recent activity from the ATO, please contact your SV Partners expert or call us on 1800 246 801.

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