February 21, 2009

Surviving An Audit: Two Lies and Three Tips

The Two Lies of Auditing
1. Auditor (shaking hands) : I'm here to help.
2. Me (faking a smile): I'm glad to see you.
--- my first encounter with an auditor (1988)

Who wants to get audited? That's not many hands. Getting audited is a hassle. It doesn't matter whether this happens to you personally or to your business. Audit's take time and money. And raise your blood pressure. Much like going through airline security even after removing your shoes and belt.

Then, there's fear of criticism (#2 on Napoleon Hill's list). We're decent, honest people making our way through life as best we can. We don't want to be told we've made mistakes. We're not back in school. We don't want to get graded. We don't want to find that we may have been deceiving ourselves.

There's a bright side, though. We can't fix what we don't know is broken. A fresh look from an outside perspective can help us improve.

Three Tips
I've dealt with three types of auditors over the years --- internal, external, governmental --- and survived. Here are three tips:
  1. Be nice
  2. Be brief
  3. Be clear
The same points work with people in general.

Be Nice
Auditors are people and people are generally nice. They're doing their jobs too. They've got too much to do and too little time. Just like you. Be nice to them. Treat them the way you'd want to be treated. Better still, treat them the way they want to be treated. Best of all, being nice is free. But you may need to smile when you'd rather not.

Be Brief
Some people love talking. That's a problem for time management and audits. You can inadvertently make statements that lead to unnecessary scrutiny.

When we went to the US for Valentine's Day, the customs agent asked if we had any food. Having learned from a prior experience, I said we had snacks. He asked if we had any fruit. My wife, Sharmila, said we had two bananas and three pears. He confiscated the pears (!?!) and let us go. I could have mentioned our pet rabbit (considered food by some) and risked a full vehicle search.

Be Clear
Although we communicate from birth, our messages get misunderstood. Attempting to clarify can make matters worse. Putting your answers in writing helps. This takes more time but that's good because you think more. You can get the replies reviewed before you send them. You save the auditor time and create records for future reference.

A favourable audit gives us confidence by confirming what we hoped all along: we're okay. Until next time.




Anonymous said...

What are the chances of being examined? A total of 1,391,581 individual income tax returns were audited during FY 2008 (Oct. 1, 2007 through Sept. 30, 2008) out of a total of 137.8 million individual returns that were filed in the previous year. This works out to 1.0% of all individual returns filed (about the same as the audit rate for the preceding year). Article.

Promod said...

Thanks for that US data.