How to Prepare for a BOE Audit?

On: July 17, 2020

The Board of Equalization (BOE) administers, enforces, and collects sales and tax for the State of California. The audit authenticates whether a business has reported and paid the correct amount of sales tax to the state. Before you begin your preparations, you should be ready to follow your auditor’s requests. But do not deliberately give additional information beyond what they ask. Also, always make sure to carefully examine the documents as it is up to you to research and clarify anything that you do not understand. Other audit preparations include:

Working With the Auditor

Display your best manners and a helpful attitude to the auditor. Respond promptly to the auditor’s meeting requests, even if it is to negotiate a time better suited to your business. The auditor will be more likely to be flexible if you have been courteous. Provide the auditor easy access to your facility. Include a tour of the facility. Offering a comfortable environment will only work in your favor. Help the auditor understand your specific business so records can be examined correctly. Provide access to a staff member or employee who has a good knowledge of the business and can answer questions or locate documents in your absence. The auditor should not be conducting informal conversations with staff members who have incomplete knowledge of the business as this may create issues.

Records Requests

Providing the required documents neatly and carefully and demonstrating transparency and a willingness to work with the auditor can make this audit process more comfortable. If you cannot understand a request, ask the auditor to explain. Some requests are generic and may not apply specifically to your business. If some documents are not representative of how your company operates, you may be able to negotiate with the auditor. Examples of common records requested include:

• Accounts Payable
• Accounts Receivable
• General Ledger
• Federal Income Tax Returns (FITR)
• Supporting documentation such as invoices, purchase orders, paid bills, contracts, and customer exemption certificates

If the auditor is unable to find all the documentation, be cooperative. If you do not cooperate, the auditor may make an assessment based on a lack of information. If the auditor is unable to find the information, and the BOE district administrator approves, BOE staff can get the information directly from your financial institutions, either with your permission or by subpoena.

Tests and Sampling Methods

One-way audits can be performed quicker by using a short test at multiple points in the process. If the auditor, upon examination of any record, supporting data, or other information, determines that it cannot be accepted as correct, a short test can be expanded into a full examination anytime. In some cases, a short test is designed as a control of documents over a short period to determine the representative sample size for audit. The size of the test depends on the time required for the reasonable accuracy of the problem. Test periods usually involve complete months or quarters.

PAPE Program and Cut-Off Techniques

The PAPE (Prior Audit Percentages of Error) program is another method of redoing the audit process, but its use is limited to specific circumstances. The program uses the error percentage made in a previous audit for the sales and accounts payable portion of the current audit. For PAPE eligibility, you must have been audited at least once before, and your business operations must meet specific standards of consistency during both the previous and current audit. PAPE can only be used in the most current audit. Cut-off techniques are methods of considering a time to stop testing or examining data. Cut-offs can either be used for the entire examination or a specific test. And always make sure to call Leading Tax Group and don’t attempt to do it yourself.