Reverse Audit Tips for Tax Professionals…Get some COLD CASH?

Posted by Kelley LearcloseAuthor: Kelley Lear Name: Kelley Lear
Email: kelley.lear@redmoonsolutions.com
Site: http://blog.redmoonsolutions.com
About: Kelley is a member of the executive leadership team and leads our sales and marketing efforts at Red Moon Solutions. Kelley’s extensive experience in project management, product management, and consulting with Fortune 500 and Global 1000 clients is extremely important in this role.See Authors Posts (127) on Nov 16, 2011 | 0 comments

As most of you know by now, Traci Wheeler and I attended the Vertex Exchange 2011 at the Bellagio in Las Vegas, Nevada.  So, I thought it would be fitting to share some of the topics of discussion that relate directly to COLD CASH!  Or, perhaps ways of uncovering tax savings within our organizations.  Vegas, although completely over the top with a whirlwind of cash, shows and every type of tantalizing cuisine you can imagine, can also remind one of cash flow and waste…(at least with my gambling skills)!  Therefore, I thought I’d share some of the latest thinking shared by a number of tax professionals during a panel discussion called “Reverse Audits – Uncovering Savings Opportunities”.  This was more than a straight discussion on sales tax audits, use tax or simply discussing unclaimed tax refunds….

For those of you who haven’t initiated or worked through a reverse audit yourselves, these really are “proactive” approaches to facilitating and identifying items/transactions for which a company may have over paid sales and use tax. 

The benefits coming from these projects are a long list and include:

1. Small to significant tax refunds…yes, COLD CASH!!
2. Can obtain state credits to offset current or future liability.
3. Can obtain tax recovery from bad debts.
4. Ensure that tax compliance is correct and supportable.
5. Can assist in building relationships for the tax department throughout the organization as whenever you go from “cost center” to generating “revenue” and affecting the top line, you gain recognition and favor.
6. Can educate employees during the process of a reverse audit (which will improve future processing for sales tax, use tax, property tax, payroll tax, and other general tax compliance issues ).
7. Can uncover vendor issues…

OK, we have discussed the benefits, now let me share the potential costs of taking on these projects:

1. Internal resource time, focus.  May affect tax resources (including sales and use tax, property tax, payroll tax, and many other tax professionals),  as well as IT, A/P, Purchasing/Supplies, Procurement, and Legal, just to name a few.
2. External consulting third party fees (tax consultants, tax attorneys, the Big Four, etc.).  The going rates discussed ranged from hourly rates to from 7.5% to 25% of total savings (to be paid after recovery).
3. Potential strain on vendor relationships.

During the discussion, there was lively discussion around what was working well for folks versus what was not working so well.  We even had one participant who shared that his boss was not supportive at all of the tax department initiating a reverse audit, as he felt it pointed out the failings of the tax department in ensuring compliance across the board.  However, most tax pros agreed that this was a narrow perspective and short sided.  Most tax pros know that it is almost impossible to reach every faction of your organization and to be on top of each and every transaction nationwide/globally.  There is always opportunity to uncover savings and improve processes. 

Some of the best practices shared included:

• Making friends with procurement to get the “heads up” on possible transactions to look at.  One participant even brought them coffee and treats regularly to solid up that relationship!
• Create incentives for folks to help you.  Share the dollar savings across the departments who participate in and add value to the reverse audit.
• Make sure that purchase orders require tax department signature before approved.
• Don’t allow software maintenance agreements to be bundled with software license agreement.
• Make sure you look carefully at contract provisions related to “taxes”.  There is usually a section in every contract and definitions that should be reviewed.
• Watch out for internal re-seller issues, drop ships and internal purchase transactions across jurisdictions and intra-entity transactions.

Go get some of those unclaimed tax refunds out there.  We would love to hear from you.  What are you doing?  Share your tips for reverse audit success!