Tips to Help Prevent Government Audits

With the possibility of an auditor randomly stopping by, it is beneficial to stay prepared and aware of who they are and what they might be looking for.

Knowing the basic definition of an audit is the first step. An audit is an evaluation of a person, organization, system, process, enterprise, project or product that is performed to discern the validity and reliability of information. Occasionally, an audit can lead to an investigation, an inquiry into circumstances surrounding an allegation or an incident.

As time moves forward, there has been, and will continue to be, an increase in the amount of employees and employers that are audited. The Department of Labor (DOL) has hired more than 300 investigators for the upcoming year who plan to do random audits of 2% of employees a year from 2011-2016. On top of that, the IRS National Research Programs Audit plans to audit an additional 6,000 employers over a 3 year time span. The IRS is also planning to examine 2,000 tax returns per year. Below are a few helpful tips about high-risk industries, types of audits, and what triggers an audit.

High Risk Industries: Although all companies are subject to an audit, there are certain high-risk industries that are more likely to be targeted.

  • Agriculture
  • Janitorial
  • Construction
  • Hotel/Motel
  • Home Health Care/Child Care
  • Transportation and Warehousing
  • Meat and Poultry Processing
  • Other Professional and Personal Service Industries

                     
What Investigators Look For: There are various types of audits and investigations that look for different problems.

  • IRS with assistance from SSA
    • Tax Fraud such as non-filers
    • Expat Pay and taxation
    • Cobra
    • Employee Misclassification
    • Fringe Benefits
    • Officer Compensation
    • 457 plans
  • DOL and Wage and Hour
    • Overtime pay
    • Employee misclassification
  • States
    • Employee Misclassification
    • Withholding on nonresident employee wages
    • W-4 compliance
    • Travel and Expense

Audit Triggers: There are certain actions that can prompt an auditor. If you avoid these mistakes, your company may avoid an audit, but if not, definitely avoid penalties.

  • Filing many Forms 1099’s and only 1 Form W-2
  • Repeatedly issuing Form 1099’s and Form W-2’s to the same person
  • Under-reporting and under-filing
  • Failure to file a Return
  • Employee complaints (This is the number one reason!)
  • Discrepancies in filing between agencies

 

Avoiding all audits is impossible, but avoiding penalties is not. The most valuable advice is to always follow all government and state regulations, if you do not break the rules, you cannot get caught!

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