recent-audits

When audited, some businesses have to pay much to government. How much is it typically? Can you provide some practical audit-thwarting measures

Some lessons from recent audits

You can learn lessons from our experience of the recent audits of our customers by the Canada Revenue Agency. Only a few lessons are discussed here.

The auditor considered all deposits in the bank account as Sales. They took deposits not only from the business account, but also from the personal accounts. This was done because our customers had made many personal transactions through the business account and vice versa. Consequently, net income of the business increased, which if undefended, will mean much additional tax, penalties and interest. Therefore you should not mix up the business and personal transactions. However, business payments to you for wages, drawings, or bonus are business, not personal, transactions.

For each deposit that was not a customer payment, we had to tell them and prove the source of funds (SOF), e.g. the owner putting his own funds in the business. This took much time and caused much hassle. You should not deposit in the business account any funds that did not come from the customers. If you must do so for any reason, write a brief note on the deposit slip as to the SOF, e.g. Joe’s tax refund. In fact you should make notes on every deposit slip as to SOF, e.g. customer name. Do not throw away any deposit slips including those generated by the Bank Machines.

The auditor also denied deductions for expenses shown on the bank and credit card statements but not having corresponding bills to support the payments. Neither bills nor statements are adequate by themselves. Therefore you must save all vendor bills besides statements, cancelled checks, deposit slips, and customer invoices.