Three executives offer their own well-tested audit protection strategies.
Every growing business gets audited sooner or later, and your company's turn will come. But if you can't prevent an audit, you can do a great deal to prepare for it. Below, three executives offer some well-tested audit-protection strategies:
Tom Angell, owner of Interface Video Systems, a video-production company in Washington, D.C.:Cooperate, but try to have input in the process. "We ask auditors to give us a complete list of the documents they need, and we tell them we'll deliver those records to our accountant's office, where there is an extra room they can use to examine them in. That's helpful because it organizes the process, tells us exactly which records they'll need, and gives us time to retrieve records kept in off-site storage. You don't want to have to keep digging up more and more documents -- it's better to be organized up front. Also, by removing the auditors from your work environment, you don't run the risk of disrupting your employees."
Rob Brierley, chief financial officer of Phoenix Controls, a Newton, Mass., manufacturer of precision air-flow systems:Keep comprehensive records for at least 7 to 10 years. Brierley says you should hold onto records of payroll, tax filings, travel expenses, and other operational costs. After 10 years, he says, there's no need to keep inventory registers, accounts-receivable or accounts-payable records, or general-bookkeeping ledgers. Phoenix has yet to be audited, perhaps, he says, because "we make certain our tax filings are always timely, accurate, and complete, right down to the signatures."
David Muir, CEO of Switchgear Systems, a Grand Prairie, Tex., remanufacturer of circuit breakers:Be congenial. "I'm a salesman; I know that if I kick someone in the shins, he's going to kick me back. So we try to be as helpful as possible. It works. During a sales-tax audit, we wound up having to pay $1,000 -- but the auditor was helpful, too, by taking some extra time to show us how to avoid mistakes in the future."