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states — especially California — are
forecasting revenue shortfalls due to The transactional nature of sales and
a recent decrease in state income tax
receipts. Revenue concerns could be purchases directly results in a tremendous
one reason why companies are now amount of data each month.
experiencing even more pressure to close
outstanding audits and are seeing more
new audit notices. population — while strategically automation (RPA); extract, transform,
maneuvering around periods that and load (ETL); and optical charac-
Common strategies in audits may not be representative from a ter recognition (OCR) have become
One common strategy in managing data perspective — can help create common audit tools. The use of RPA
audits is to take advantage of sampling a less painful audit. Considerations to automate PDF download/save/
methodologies. Every jurisdiction and for selecting block sampling periods hyperlink to the audit schedule is a
auditor has a different approach, and include ERP or tax engine imple- great workaround if bulk extraction is
taxpayers need to know their options mentation or upgrades, compliance not available. Combined with OCR
when responding to an audit notice. The provider changes, and the exemption to scan the PDF and convert to data,
most common sampling methodologies certificate process. these tools can save significant resource
are the following: time — for example, the time required
Error rate roll-forward: to download, save, and manually input
Statistical sampling: ■ Simple definition: While not as invoice details into audit workpapers.
■ Simple definition: Statistical sampling common as performing a complete Many organizations took this auto-
is the selection of transactions that audit, “rolling forward” prior audit mation one step further and bolted on
represent the population during an period error rates into the current analytics through visualization software
audit period. Many jurisdictions audit period is becoming more to formulate trends and comparisons of
employ statistical sampling software accepted among auditors as they look transactions before finalizing the audit
during an audit. to manage their backlog of audit methodology.
■ Considerations: Starting with an work.
agreed-to chart of accounts to limit ■ Considerations: Performing a “mini Exemption certificates: More
the population of transactions, audit” is necessary to gain confidence than just a piece of paper
especially within expenses, is a neces- that a prior error rate still applies. While RPA, OCR, and ETL can make
sary first step. Additionally, confirm- However, more than just prior results an impact quickly, it is also important
ing the strata against prior audits’ needs to be considered. Many com- to understand platform solutions so
sampling methodology and business panies have a best practice to update that supporting documentation can
trends upfront is vital. A taxpayer their tax systems and accruals after be available when under audit. This
does not have to immediately agree an audit to address audit issues with column does not focus on tax engines
with every auditor recommendation their top vendors, for example. While and the benefit of those solutions.
for stratification breaks. issues with these vendors may have It does, however, address exemption
been fixed, these vendors may no certificate management, starting with
Block sampling: longer be in use. Examining the new customer exemption certificates. These
■ Simple definition: This method is the top spend for vendor-charged tax are the proof that customers provide
selection of periods during the audit and use tax accrued, combined with to represent that they do not have a
cycle to represent the population analyzing the exemption certificates duty to pay sales tax, due to industry
of transactions. Block sampling is available for exempt sales, can help to exemptions or goods and services
one kind of nonstatistical sampling, determine an appropriate acceptance usage exemptions.
although states may employ other of the prior audit error rate. Consider The typical process begins with
nonstatistical methods. the time and effort of performing a a sale, and the customer indicates
■ Considerations: Block sampling can complete audit as well in the calcula- it should not be charged tax. The
be beneficial for cyclical industries tions of the benefit of an error rate customer provides a certificate or elec-
and organizations that undergo roll-forward. tronic information, which should be
system changes. Care in selecting In addition to sampling methodol- saved for future documentation. The
periods that accurately represent the ogy, technologies such as robotic process tax engine, point-of-sales system,

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