[ 1.7.1 - Audit Scope for Audits Conducted During the Course of a Status Investigation][ 1.7.2 - Audit Scope for Audits Conducted While Obtaining Delinquent Reports ]

A pre-audit letter notifying an employer of an audit of their 2003 records may be sent anytime from 1-1-04 to 3-31-05. Audit letters sent after the 3-31-05 deadline must request records for the year 2004. Remember that in January or early February of any year, accounting records for the most recently ended year may not be complete, and therefore obtaining records for that time period may be more difficult. An Accounts Examiner conducting an audit as the result of a special assignment should request records for the time period covered by the assignment.

If audit expansion criteria are met, an audit must be expanded to cover all completed quarters in the prior year and all completed quarters in the succeeding year. (See "Tolerance - Expanding the Audit" later in this chapter for expansion criteria.) The need to expand an audit lengthens the time period covered by the audit, which in turn affects the audit scope.

If an audit is to count towards the state audit quota, the correct audit scope must be observed. The following examples show how audit expansion criteria, the audit date, first taxable wages date, and the employer's liability date can affect the audit scope.

EXAMPLE 1:

Audit Date	08-28-2004
Audit Target Year	2003
Expansion Criteria for Year 2001	Exceeded
Minimum Scope	01-01-02 - 06-03-04

The audit results for the year 2003 required that the audit be expanded backward into 2002 and forward into 2004. If the results for 2002 also exceed the expansion criteria, the Accounts Examiner must audit records for the year 2001. The 1st and 2nd quarters of 2001 would be outside the Statute of Limitations date (3 years), but the records for those 2 quarters must still be reviewed in order to obtain taxable wage amounts to use in calculating taxable wages for the 3rd and 4th quarters of 2001. Data from the 3rd and 4th quarters of 2001 would be part of the expanded audit.

EXAMPLE 2:

Audit Date	02-01-04
1st Wages Paid	01-01-92
Liability Date	03-31-92
Closure Date	N/A
# of Quarters	4
Minimum Scope	a) 01-01-02 to 12-31-02; or b) 01-01-03 to 12-31-03

EXAMPLE 3:

Audit Date	05-01-04
1st Wages Paid	01-01-92
Liability Date	03-31-92
Closure Date	06-03-03
# of Quarters	6
Minimum Scope	01-01-02 to 06-30-03

EXAMPLE 4:

Audit Date	04-02-04
1st Wages Paid	03-01-03
Liability Date	06-30-03
# of Quarters	4
Minimum Scope	03-01-03 to 12-31-04

EXAMPLE 5:

Audit Date	10-15-04
1st Wages Paid	01-01-04
Liability Date	03-31-04
Closure Date	N/A

An audit cannot be taken because the employer has been in business less than four quarters, which means the audit scope could not cover the required 4 quarters.

EXAMPLE 6:

A quarterly report delinquency exists for the 4th quarter of 2004. In the process of obtaining the delinquent report, the Accounts Examiner audits records for all four quarters of 2004. An audit may be taken if all other audit requirements are met.

Wages on the delinquent 4th quarter report (prepared by the Accounts Examiner as part of the audit process) are considered underreported wages because the wages were not previously reported to TWC prior to the audit. Employees listed on the delinquent 4th quarter report who were not reported earlier in the year become misclassified workers discovered as a result of the audit. Taxes on the 4th quarter delinquent report are underreported taxes, and could contribute to the need to expand the audit forward into the year 2005 and backward into the year 2003.

EXAMPLE 7:

An Auditor receives an audit assignment in August 2004 to audit the employer for calendar year 2003. The Auditor discovered that the employer went from a sole proprietor to a corporation effective April 1, 2003. The Auditor must audit 1-1-02 through 3-31-03 to receive audit credit on the sole proprietorship. A second audit for the corporation could be taken if all audit requirements are met for the time period 4-1-03 through 6-30-04.

An audit may count towards the state audit quota if it represents a newly established account that is audited as a result of completing another assignment, such as a status investigation, a claimant assignment, or a federal Form 940 assignment. The audit on a new account must meet the same audit guidelines and scope requirements as established for all audits.

An audit may count towards the state audit quota if it is conducted while obtaining delinquent reports. This type of audit must meet the same audit guidelines and scope requirements as established for all audits.