ENG_Audit Case Management System.docx

USAID|ARMENIA TECHNICAL ASSISTANCE TO

SUPPORT TAX ADMINISTRATION REFORMS (TASTAR)

ԱՄՆ ՄԶԳ/ՀԱՅԱՍՏԱՆ, ՀԱՐԿԱՅԻՆ ՎԱՐՉԱՐԱՐՈՒԹՅԱՆ

ԲԱՐԵՓՈԽՈՒՄՆԵՐԻՆ ՕԺԱՆԴԱԿՈՂ ՏԵԽՆԻԿԱԿԱՆ

ԱՋԱԿՑՈՒԹՅՈՒՆ (ՀՎԲՕՏԱ)

Audit Case Tracking System Need, Scope, and Benefits of ACTS

Baeva, Neli Petkova 4/15/2011

Establishing standard, controllable, and manageable audit processes increases the effectiveness and efficiency of audit and brings transparency stimulating taxpayers’ compliance.

Contents

Need of Audit Case Tracking System Tax Administrations all over the world struggle to improve the voluntary taxpayers’ compliance and collect the right revenue.

Tax Audits is one of the technique used for better revenue collection and also it has indirect impact on improving taxpayers’ voluntary compliance.

Effectiveness and efficiency of audit depends on the cases selected for audit as well as applied audit techniques.

During the last decades implementation of risk based audit selection systems was going on in Tax Administrations as an approach for selecting cases for audit aimed at improving the productivity of audits.

Risk Based Audit Selection Systems’ efficiency depends on the criteria / formulas used for assessing taxpayers’ risk. The formulas are “invented” based on discovered patterns of taxpayers’ behavior, dependencies and correlations between economic and business trends, financial statements and tax returns data, and information from completed audits.

Audit Case Tracking System (ACTS) builds a repository of information extremely useful in identifying criteria for risk assessment and also for measuring efficiency of audits and auditors performance.

The repository also is a source of information for management decisions on resources, audit planning, and tax policy.

As per Article 4 of the Audit Law of Armenia each auditing organization, including RA Units – Tax Inspectorates, should maintain an audit registry.

The Audit Registry should contain information about each audit assigned and each step of its execution.

This paper focuses only on audits carried out by the Tax Administration in Armenia. It should include studies, desk audits, and field audit. This classification is based on the legislation. Also audits can be divided by the scope of the audit if the regulations and practice envisage such a differentiation.

As per the Audit Law “Audit registry of the economic entity shall include information on audits carried out during the year, the relevant State Body that has carried out the audit, the names of the officials that have carried out the audit, audit questions, purpose and time period of the audit.”

Scope of ACTS The Audit Cases Tracking System should incorporate all business rules defined by the Laws (Tax Law and Law on Audits) as well as rules imposed by internal for the SRC regulations.

Business rules include: who and how assign an audit, who and when sign an order for audit, how assigned auditors carry out the activities related to an audit and how and what should be recorded in the audit registry, how the final report on audit needs to be prepared, etc. Business rules include also the time constrains for executing certain steps within the audit procedure; number of copies per documents, such as Order, Final report, etc. Not all business rules can be implemented in the workflow built-in the software, but the purpose is to include as much as possible.

All currently used forms and reports should be reviewed and redesigned to meet the Computerization standards.

All auditors should be trained how to use the system through the audit process. The system should become an auditor’s tool without which he/she can’t complete the audit.

Necessary coding systems (nomenclatures) should be created as part of the requirements process to ensure unification of information coding into the system, ease the search of information, and is a base for accurate statistics.

At glance the necessary coding systems are:

- types of audits (types of audits should have identification numbers) – classification should be made by two criteria: technique and scope of the audit

- auditors (each auditor should have some kind of identification number)

- audit activities (check books, measure production capacity, check stocks into warehouse, compare data with Customs records, etc.)

- infringements discovered during the audit (all articles for infringements should be coded) – the infringements will uniquely identify the punishments, such as fines and interest to be imposed.

Complete list of necessary coding systems should be created during the analysis phase of the Audit Case Tracking System development and implementation.

Audit Case Tracking System will impose unified standard audit procedures bringing transparency to the audit and thorough documenting of auditors’ actions as well as findings leading to assessing additional tax liabilities and imposing fines and / or interest.

Information on audit gathered from the moment a taxpayers is select for audit until the final report is produced, agreed with taxpayer, and results are posted to taxpayer’s accounts can be used for analysis and improvement of audit procedures and provide statistics on audit productivity.

The ACTS should has functionalities not only to capture each step within the audit process but also should has functionalities allowing auditors to access and retrieve all necessary information to complete an audit.

The system should be able to provide the status of each audit case at each moment (case open, auditors appointed, TP informed, Audit commenced, Audit ongoing – Xst day from the commencement, extension requested (when and reason for the request), extension granted, etc.).

The system should also generate Alerts to Audit Team Leaders and Audit Managers for approaching or missing deadlines.

Main Workflow The key steps in the audit process include case selection, conducting field activities, gathering evidence, and satisfactory resolution of any discrepancies with the taxpayer.

Below diagram is a high-level presentation of field-audit process. It is just a base for developing a detail process to be implemented as built-in workflow into the Audit Case Tracking System.

Similar workflow should be developed for other types of audit: studies and desk audits. Common elements should be identified and reusable software components should be created for them.

Conceptual Model of ACTS Below diagram is a high-level conceptual model of the Audit Case Tracking System.

TI Audit Manager Module – Through this module Audit Managers at Tax Inspectorates will be able to:

· Access the audit plan

· Select a Taxpayer from Audit plan to be Audited

· Assign auditors to complete the audit

· Produce the required Order and submit it to the TI Director for signature

· Access and view the status of each Audit as well as details on audit case

· Obtain alerts on cases requiring his/her interference

· Generate e-mail notifications to taxpayer’s for a scheduled audit along with mailing the order supplemented with requirements to enable the audit

· Review and approve final reports on audits Auditors’ Cases Module – Through this module Auditor will:

· Receive notification for their assignments to audit cases

· Access and plan activities related to the audit

· Access an audit case and record all necessary information

· Produce the final report on audit

· Submit final report for Audit Manager review and approval

· Record taxpayers opinion on the final audit report

· Close an audit case (which will record the assessed liabilities to Taxpayer accounts)

· Generate e-mail or letter notifications to taxpayer during the audit process, whenever is required (specific by type of audit) Auditor’s Facilitating Tools Module – This module will provide functionalities, through which auditors will be able to access, search, and retrieve any information related to a taxpayer subject of audit. Examples of such functionalities are:

· Access the Final Report on previous audit on Taxpayer X

· Access and view tax declarations submitted by Taxpayer X during certain period of time and / or for specific tax period and type of tax

· Access and view information of Taxpayer X owners and access and retrieve information about their Tax declarations, etc.

Reports Module – this module will ensure different operational, management, and statistical reports for different groups of users.

· For TI Director – Reports showing trends within Audit Activities

· For SRC Audit Director – Statistics on audit cases by Tax Inspectorates and performance trends

· Etc.

Benefits The benefits of having Audit Case Tracking System include:

· Accurate and timely information about the status of each audit case;

· Accurate and timely information about audit performance in each Tax Inspectorate and by auditors;

· Accurate and timely information about revenue brought to the state budget as a results of audits (assessment of audit productivity);

· Detail documentations of auditors actions and findings base on which additional liabilities were assessed and fines were imposed ;

· Establishing transparent audit procedures, easy to monitor and manage;

· Increase the effectiveness and efficiency of auditors work;

· Managers can manage the workload better and measure accurately the performance of their subordinates;

· Ease the communication with taxpayers through generated by the system e-mails or letters;

· Produce alerts on critical actions to be taken.

Such system will increase the effectiveness and efficiency of the auditors and will support Tax Administration in building trust and increase Taxpayers compliance, the ultimate goal of each tax administration.

The system also will provide information for improving the risk-audit criteria.

Hi-level Roadmap In order to develop and implement Audit Case Tracking System the following tasks need to be completed in the order listed below:

1. Draft a Project Charted and appoint a Project Manager.

2. Document the current audit business processes for each type of audit.

3. Analyze and redesign new business processes along with redesigning forms / reports. Redesigning should be driven by process optimization and also taking advantages of the technology capabilities. IT experts should be involved in the completion of this task.

4. Draft requirements specifications for the Audit Case Tracking System.

5. Select the development and implementation approach and based on it assess the time and resources needs.

6. Ensure required resources.

7. Conduct a tender, if outsourcing is selected.

8. Develop and implement ACTS. Development and implementation activities differ based on selected approach: (1) If in-house development is selected the scope of development and implementation activities should follow the SDLC; (2) If outsourcing is selected then contract management activities should be planned.

The owner of the audit business processes is the SRC Audit Department, so the SRC Audit Department should take the lead on initiating this project.

At the same time, because this is a project for software development and implementation the Project Manager should be from the SRC IT Department.

Both departments should work in collaborative manner to achieve desired results and follow up support and maintenance to the system, after it is going live. The IT Department should ensure the system availability.

Logical continuation / extension of the ACTS is a system for tracking appeal cases.

image2.emf image1.emf image3.jpeg