There’s recent media exposure about the use of “benchmarking” standards to assess whether or not your business merits an audit. This is done using the numbers you’ve lodged on your BAS and tax returns.
The Emergence of Benchmarking
This trend is part of a “data mining” strategy on the part of the Tax Office, comparing “like” businesses against each other.
There is an expectation that your business should present roughly the same “metrics” as other like businesses. It’s up to you, as the business owner, to validate their results with your detailed record keeping.
The Audit Process
An audit centers around validating what was reported, by examining your record keeping.
Businesses are required to provide any supporting documents (ie Supplier invoices, Sales invoices, Till register rolls, receipts, etc) requested.
Failure to provide these documents can lead to the tax department assessing a business as per your industry benchmark.
In many cases this leads to additional tax payable and penalties.
Managing to avoid an Audit
As dire as this seems, it can be easily avoided by applying a few sound principles and consistent practices.
Maintaining a comprehensive document management system is the key to it all.
All these documents exist, because you issue invoices/receipts to sell things, and you receive invoices/receipts when you buy goods or services, right down to your petrol receipts.
It’s simply a matter of learning how to manage them properly.
Record Keeping & Benchmarking
Professional bookkeeping practice is to institute structured record keeping.
This is done by adopting strategies and apps that provide all the backup required to pass an audit.
These strategies also support your legal requirement to store documents for a fixed period of time.
The apps are readily available and are easily set up to meet your requirements.
Your bookkeeper could also setup a regular benchmark comparison for you based on the current standards.
This comparison can highlight early on whether you are safely inside the parameters for your industry.
The Benefits of Staying Right
It is relatively easy to minimise the likelihood of an ATO audit, although they can be completely arbitrary sometimes.
Proper record keeping, along with the right behaviors, is the key to it all.
Industry benchmarking can also be a very valuable tool for your business as it allows you to measure your business activities against your competitors.
Maintaining a healthy business is aided by knowing where you stand in the marketplace.
While generating a profit is important, staying on the right side of the tax man is equally Important!