27th Annual Tuesday & Wednesday, January 23‐24, 2018 Hya� Regency Columbus, Columbus, Ohio Workshop MM Ohio Tax Statistical Sampling … A Whirlwind Tour of How Procedures & Techniques Vary Among States Wednesday, January 24, 2018 2:00 p.m. to 3:00 p.m.
Biographical Information Brad W. Tomlinson, Senior Manager (non-attorney professional), Zaino Hall & Farrin LLC 41 South High Street, Suite 3600 Columbus, OH 43215 btomlinson@zhftaxlaw.com 614-349-4818 Brad has more than 34 years of experience in state and local taxation, specializing in statistical sampling techniques for multiple taxes. From 2007 until joining the firm, Brad was an assistant administrator for the Ohio Department of Taxation, Audit Division, while also serving as the manager of the Computer Assisted Audit Group for more than 11 years. In that position he was responsible for the formulation, implementation, and oversight of the Department's statistical auditing practices; including the approval of data populations, sample designs, and the review of all statistical sampling procedural agreements. Prior to that, Brad spent several years auditing fortune 500 companies in manufacturing, telecommunications, computer services, and retail for sales and use tax compliance. Brad was instrumental in the design and implementation of the Audit Division's computerized auditing program (OFAST) used by multiple divisions to audit personal property, corporate franchise, employer withholding, pass-through entity, and sales and use taxes; as well as managing quarterly updates and releases of the application. Brad's other responsibilities included the establishment of single rate reporting procedures for taxpayers as well as assisting in reviewing and approving the Department's PARSA (Previous Audit Representative Sampling Analysis) agreements. Brad is a frequent presenter on statistical sampling at the Ohio Tax Conference, the Federation of Tax Administrators, and Institute for Professionals in Taxation national conferences and workshops. Education • Columbus State Community College, Associates Degree, Computer Programming • Ohio State University, B.S., Business Administration Jonathan Ross, Senior Tax Consultant , Deloitte Tax LLP 180 East Broad Street, Suite 1400, Columbus, OH 43215 (614)229-5932 joross@deloitte.com Jonathan is a Senior Tax Consultant in the sales and use tax practice with Deloitte Tax LLP in the Columbus, Ohio office and has over ten years of sales and use tax experience. In addition, he has a background in statistical sampling as it relates to sales and use tax audits. Jonathan was a sales and use tax auditor for the State of Ohio for three and a half years. During that time he conducted sales and use tax audits and refund reviews. In addition, he transitioned into the state’s computer audit support group which oversees all statistical samples done by the audit division as well as data manipulation support for the entire audit division. Oversight of the statistical sampling program required: refining populations, designing statistical samples based on certain parameters, generating samples, and evaluation of the samples upon conclusion of audits. Since leaving the state Jonathan has assisted clients with state sales and use tax audits, conducted reverse audits, voluntary disclosure negotiations, and provided sales and use tax and statistical sampling consulting services for a variety of clients in a multitude of industries. During his tenure with Deloitte Tax Jonathan has been involved in design and implementation teams for various bolt-on automated tax solutions. Jonathan is a graduate of the University of Kentucky with a B.S. in Accounting
Biographical Information Roger C. Pfaffenberger, Ph.D., Director, Audit Sampling, Ryan, LLC Three Galleria Tower 13155 Noel Road, Suite 100 Dallas, TX 75240 roger.pfaffenberger@ryan.com 972.934.0022, Ext. 101279 Fax: 972.960.0613 Dr. Roger Pfaffenberger is a Director and Practice Leader for Ryan’s Sampling Analysis and Evaluation practice and is based in the Firm’s Dallas Office. Dr. Pfaffenberger is responsible for the design and evaluation of audit sampling methodologies with an emphasis on the use of multiple audit sampling methods in statistical and non-statistical sampling for transaction taxes. Roger has provided statistical consultation and expert testimony for a variety of companies, government entities, and law firms. Prior to joining Ryan, Dr. Pfaffenberger was Professor of Decision Sciences for Texas Christian University and Founding Director for the Center for Teaching Excellence. Dr. Pfaffenberger has made numerous presentations on audit sampling issues to professional and academic organizations. He has a Doctor of Philosophy Degree in Statistics from Texas A&M University.
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• In the planning phase or very early stages of an audit, the auditor should indicate if he or she plans to use sampling. When sampling will be used, the auditor should prepare a sampling agreement and submit a sampling plan. Once the sampling agreement and plan have been agreed to by the taxpayer and auditor, the auditor will generate the sample and determine the audit results. The auditor should handle this process while maintaining complete confidentiality about the taxpayer’s data and the results of the sample audit. Inevitably, issues arise during a sample audit that may require modification of • the initial agreement. Ideally, sampling agreements should be an essential outcome of the process of planning the sample audit through meetings/discussions with the auditor. • If possible, the taxpayer should be actively involved in the development of the sampling agreement. The agreement received should be reviewed in detail and the actual sampling should not take place until everyone agrees to the sampling methodology. This should also remove any fears or concerns the taxpayer may have about the sampling process and reduce the potential for disputes over the sample results. In addition, the taxpayer will be responsible for providing the data to be sampled and should also be involved in the sampling process, including verifying the results of the sample audit. 27
• Sampling agreements can be either binding or non ‐ binding. Ohio, for example, has a binding agreement. If the taxpayer refuses to sign the binding sampling agreement, Ohio will not project overpayments of tax in the sample. • If the sampling agreement is binding, develop a memorandum of understanding that addresses ways in which audit issues are to be handled if not dealt with partially or in whole in the agreement. Append the memorandum to the agreement. If the jurisdiction will not accept this approach, consider not signing the binding agreement. An ideal sampling agreement is not binding and covers all the key issues that may arise in the sample audit. It should represent a planning instrument that is derived from discussions and agreements with the auditor about how the audit sample should be executed. • This sampling agreement should also outline what the auditor will be estimating, the actual sampling unit used and the period to be sampled, the sampling methodology, and how the outcome of the sampling process will be extrapolated to the sampling population (method of estimation). 28
• The sampling agreement and plan should also outline how missing documentation, negative transactions or credits, tax ‐ only items, error corrections, non ‐ taxable items, tax paid in error on purchases, installment and progress payments, tax law changes, and accounting or reporting changes will be handled when detected during the verification process. Each of these issues could have a significant impact on the sampling results and any conclusions that may be drawn from them. Discussing and agreeing with the auditor about how the special topics should be • treated is an essential and extremely important step in planning the sample audit. Agreeing on the treatment of these special topics before the sampling plan and sample have been produced minimizes the chance for a “wheels off” sample audit. The best example of the nonbinding and effective sampling agreement is the California Board of Equalization BOE Form 472 which can be downloaded from the CBOE internet site: www.boe.ca.gov/pdf/boe472.pdf. 29
• To insure that the sampling population is appropriate, valid and is the agreed ‐ upon population, the derivation of the sampling population must be replicable by following the steps in the jurisdiction’s derivation process. The inability or failure to replicate the sampling population potentially leads to a sample that does not represent the scope of the audit agreed to by the auditor. Worse, a sampling population whose derivation cannot be replicated can lead to corrupt data and biased sample results. A key element in the derivation of the sampling population is selecting the • accounts of interest for the audit. These accounts should include those likely to contain overpayments as well as underpayments. Additionally, the derivation criteria should include how the transactions are grouped (e.g., assets, expenses) and how special situations are treated by isolating certain groups (e.g., procurement card transactions). 30
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