Audit System Manual graphic

[ Audit System Manual- TOC ] [ Ch 1 - Introduction ] [ Ch 2 - Preparing for an Audit ] [ Ch 3 - Conducting the Audit ] [ Ch 4 - Completing the Audit Forms and Schedules ] [ Ch 5 - Audit System Screens ] [ Ch 6 - Miscellaneous ] [ Ch 7 - USDOL - Tax Performance System ] [ Ch 8 - Computer Fundamentals & Hardware ] [ Appendix ]
[ 4.1 - Audits Performed by New Hire Tax Employees ][ 4.2 - Where to Find Audit Forms and Schedules ][ 4.3 - Assembling the Completed Audit Work Papers ][ 4.4 - The C-51 - Field Audit Report ][ 4.5 - Schedule One (C-51E) & Schedule One (C-5G) Audit Summary ][ 4.6 - Schedule Two (C-51F) Verification of Payroll Posting ][ 4.7 - Schedule Three (C-51G) Search for Additional Wages ][ 4.8 - Review Process for Audits and for the Audit Program ]

Chapter 4:  Completing the Audit Forms and Schedules


comments to: Tax Department

4.8    Review Process for Audits and for the Audit Program

[ 4.8.1 - Review Process for Completed Audits] [ 4.8.2 - Review Process for the Audit Program]

Completed audits, as well as the entire Field Tax audit program, undergo several types of review. These reviews were established in order to ensure the credibility of audit results and to make certain a high quality audit program is maintained.

4.8.1.     Review Process for Completed Audits

All audits should be reviewed and graded by a supervisor or designated representative. The goal is to have all audits receive a grade of "100" points.

  1. Local review of completed audits. A supervisor or audit representative must review the work papers for each audit. They should be reviewed for accuracy and returned to the Accounts Examiner if corrections are needed. The supervisor must enter their AE number and initials, score the audit, and insure that the correct audit results have been keyed into the mainframe audit system. While reviewing the audit work papers for the completed audit, a supervisor must determine if:
  1. Adequate records were examined by the Auditor.
  2. The ownership was verified.
  3. The audit scope was appropriate.
  4. The existence of the business was verified.
  5. The payroll record tests were performed.
  6. There was a search for hidden and misclassified wages.
  7. Pre-audit and post-audit discussions were held.
  8. Adjustment reports were prepared when needed. Prepared adjustment reports were submitted.
  9. Money was collected.
  10. C-51 Audit Report and Schedules 1-3 were properly completed.
  11. There are written comments when appropriate.
  12. The work papers are legible and support the findings of the Auditor.
  1. Monthly Review by Field Tax Operations. Each month the Regional Tax Manager submits at least one audit work paper package to Field Tax Operations. The audit will be reviewed using the C-51 Audit Review Form. A copy of the review form and the audit will be returned to the Regional Tax Manager. The reviewed audit will be rated as either:
  1. Acceptable.
  2. Unacceptable. The audit will not count towards the regional audit quota unless corrections are made. If the audit is unacceptable, one or more of the following problems was found with the audit work paper package.
  1. A numerical grade will be given based on the items listed below. The goal is to have all audits receive a grade of "100" points.

    5   pts. The ownership was verified.
    5   pts. Audit scope explained if other than 4 quarters.
    10 pts. Pre-audit discussion was held with ownership.
    5   pts. The existence of the business was verified.
    25 pts. The payroll records tests were performed.
    25 pts. Search for misclassified wages performed.
    10 pts. Post audit conference was held.
    10 pts. Adjustment reports were prepared and submitted.
    5   pts. Monies collected or explanation provided.

    No partial credit is given for any indicator. The scoring is categorized as follows:

    Audits scoring 90 to 100 points - excellent.
    Audits scoring 80 to 89 points - pass.
    Audits scoring below 80 - fail.
  1. Post Audit Contact with the Employer. Each month the automated audit selection system sends a post audit confirmation letter along with a postage-paid return envelope to selected employers. A blank copy of the Post Audit Confirmation letter is located in the Miscellaneous Section of this manual. The post audit confirmation letter asks three questions.

    1. Was the Auditor courteous and professional?
    2. Were you given adequate preparation time and information prior to the audit being conducted?
    3. Were the audit results discussed with you or your representative?

    The letter requests that the employer answer the questions, tear off the questionnaire at the perforated line, and return it to TWC in the postage-paid envelope that accompanies the letter. Space is available for employer comments.

    The responses are returned to Field Tax Operations for review by the Audit Program Administrator. Both positive and negative responses are then sent to the Regional Tax Manager.

    In rare cases an employer responds indicating that they were unaware of an audit occurring. A memorandum is sent to the appropriate Regional Tax Manager advising of the employer's response. This letter will request an investigation be conducted with the results to be forwarded to the Field Tax Operations office. Supervisory personnel will conduct the investigation.
  1. Regional Review by Field Tax Operations. Field Tax Operations periodically reviews the Tax program in each tax region. During this review, audits from current employees are reviewed and graded. Audits selected for review have been completed within the previous 12 months. The review looks for completeness, accuracy, and compliance with Tax Department requirements. The grading system for this regional review of audits is the same point system described for the monthly review of audits by Field Tax Operations.

4.8.2.    Review Process for the Audit Program

  1. Annual Regional Review by Field Tax Operations. In conjunction with the annual regional office review, Field Tax Operations randomly selects and reviews audits. The audits are graded using the same standards as the monthly review. Field Tax Operations will determine if the annual audit quota for the region was met and whether all data was keyed into the system properly.

  2. Annual Review of the overall program. Each January, TWC will review the audit program, the audit selection system, and the audit procedures and objectives.
  1. The analysis produces the following information:
  1. Percentage of change audits.
  2. Average number of quarters per audit.
  3. Average time (hours) per audit (exclusive of travel).
  4. Average amount of gross payroll, taxable wages, and tax per audit.
  5. Average net amount of underreported total wages discovered per audit.
  6. Average net amount of overreported total wages discovered per audit.
  7. Average total wages discrepancy (Underreported plus overreported per audit.
  8. Average net total wages discrepancy per audit.
  9. Average amount of underreported tax contribution per audit.
  10. Average amount of tax contribution discrepancy (underreported plus overreported per audit).
  11. Average net amount of tax per audit.
  12. Frequency of audit sources. (Number of audits conducted as a result of TEU assignments, B-27s, anonymous tips, etc).
  1. The review determines if:
  1. The state audit quota was reached. If not, which regions were below quota and which were above, and why?
  2. TWC is achieving adequate employer penetration.
  3. TWC is penetrating and auditing a good cross section of different employers.
  4. The change audit percentage is adequate.
  5. The Auditors are adequately trained to conduct audits.
  6. There is any new Department of Labor regulation that needs to be incorporated into the audit program effective January 1 of a particular year.
  7. There is any need to change the audit standards.
  8. Additional audit training is needed.
  9. Any forms require change.
  1. The review measures the workload, the effectiveness and the efficiency of the audit program.
  1. Annual Tax Performance System (TPS) Review. In the 4th quarter of each year, the TPS reviewer selects 60 audits completed during the first three quarters of the year (Jan.1 - Sept. 30). The results and recommendations for improvement are provided to the Department of Labor and to the Agency's management staff.
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Last Revision: May 05, 2011