Keeping track of the documents provided to any auditor (income tax, sales tax, customs duties, antidumping duties, etc.) is very important. I cannot say how many times I have come in after an auditor's visit to a new client and the client cannot tell me which documents were provided to the auditor. There are no records in their files. We then have to rebuild the record and that takes time and costs money in legal fees.
If I am called as soon as the auditor/government official contacts a client for an audit, I make the following recommendations concerning document control and record keeping:
1) When the auditor contacts a business in order to arrange a time to conduct an audit, ask the auditor to provide a list of the documents that he/she would like to have available on the first day of the audit.
2) Before the auditor arrives, retrieve the documents requested and organize the documents in a room for the auditor. Start the audit off with a positive and organized first impression.
3) Create a document on which to identify any documents that the auditor requests copies for his/her files. Make 50 copies of this document. Include the following on the form: (a) the name of the business, (b) the name of the auditor, (c) the type of audit (federal income tax, Ontario retail sales tax, goods and services tax, customs duties, antidumping duties, etc.), (d) the dates on which the audit is to occur; (e) the date the document is provided to the auditor, (f) the Exhibit Number (e.g., E-1, E-2, E-3, etc.), and (g) a description of the document. Complete this form as each document is provided to the auditor. These completed forms can be used to make a summary list of the documents provided to the auditor. These forms will be kept in an audit file.
4) Before providing any document to the auditor (a) stamp each page "Confidential" and (b) number each page as '1 of 10. 2 of 10, etc.). If you would like, have a company official initial each page. If a dispute arises, then the business can verify if they provided the document to the auditor. Also, if the document somehow gets into the hands of a competitor, the business would be able to build the case against the auditor/government. Documents provided during and audit often include sensitive business information. it is important to keep track of these documents.
5) Make two copies of every document requested by the auditor. Before giving the copy t o the auditor, hand-write the exhibit number (E-1, E-2, E-3, etc.) at the top the first page of the two copies. Give one copy to the auditor and keep a copy.
6) Scan the business' copy of each document provided to the auditor. Create a computerized file in which to store each scanned exhibit.
7) Save a copy of the computerized file of documents provided to the auditor on a CD-Rom and label the CD-Rom with the auditor's name, the dates of the audit and any other identifier necessary in the circumstances.
8) Create a listing of all the exhibit numbers and documents provided to the auditor and ask the auditor to acknowledge receipt of the documents.
All these steps are undertaken to protect the business' interests and to maintain records in case there ends up being a dispute. Hopefully, the audit will end well and reference to the documents will never be required. However, if there is a dispute, it will be easy to pass information to lawyers. Also, the records may be used in a cross-examination of the auditor at a later date.
The list above is based on years of experience with Canadian sales tax audits, customs and antidumping verifications. if you stay organized as the documents are provided (instead of at the end of the audit), the business will know what was provided and the list will not "overlook" certain documents by mistake while wanting the auditor to leave.
If you are preparing for an audit and need help getting organized, please contact Cyndee Todgham Cherniak at 416-307-4168.