Preparing for and Minimizing the Impact of Financial Investigation

Facing financial investigation or auditing is never a pleasant process and more firms are finding themselves in the position where their affairs are coming under scrutiny. There are, however, some simple steps that can be taken by business owners to prevent and minimize the impact of such investigations on their organizations and we will outline some of these in this article.

Facing the Auditors
When faced with questions from tax auditors, managers need to keep their answers brief and to the point. People tend to talk far too much when they are in a stressful situation and this can work against them. Auditors are experts at listening and analyzing every word exchanged and will soon notice if anything is being hidden or if managers are being defensive – talking too much can often be a sign of this.

The IRS will often ask questions they already know the answer to, to test honesty – so it’s important to be as open as possible. The aim when faced with a tax investigation is to emerge from the process with only the initial tax period in question having been looked at. Businesses owners that start offering information about other tax years could soon see the scope of the investigation widening if anything untoward is spotted.

Preparation
A robust and comprehensive set of financial records is perhaps the most powerful weapon against the financial investigators. Increasingly, the IRS and the Securities and Exchange Commission (SEC) give little or no warning to businesses that are heading for investigation for accounting or tax issues, so it pays to be prepared ahead of time in case their agents should come knocking at the door.

With any kind of financial investigation, a prepared accounts department will come off the best. Having the staff in house to help provide the support to an audit or investigation will help to minimize financial impact on a business. An organized set of accounts will demonstrate to the auditors that a business is willing to cooperate.

Having some missing accounts is not, however, the end of the world, as auditors will consider substantial compliance as adequate in many cases. The government is aware that it is unreasonable to expect businesses to keep perfect accounts and sometimes a verbal account of a deduction may be adequate.

Problems
If a business is facing investigation and is unhappy with the way it is being treated, or with the audit examination report, both can be appealed. Companies are within their rights to request a different auditor if the one sent to them initially is unfair or unprofessional in any way.

If a business owner disagrees with the conclusions of an audit examination report, they can also appeal. First they must call the auditor to talk through any issues they may have. If a resolution can not be achieved, they can appeal to the IRS directly and can even take their case through tax court.

Hiring external experts can be useful in helping an appeal case. In fact, when being faced with investigation of any kind, hiring an expert tax professional can help to ensure the outcome of the investigation is as positive for a business as possible.

About Merrill DataSite

Merrill DataSite is a secure virtual data room (VDR) solution that optimizes the due diligence process by providing a highly efficient and secure method for sharing key business information between multiple parties. Merrill DataSite provides unlimited access for users worldwide, as well as real-time activity reports, site-wide search at the document level, enhanced communications through the Q&A feature and superior project management service - all of which help reduce transaction time and expense. Merrill DataSite’s multilingual support staff is available from anywhere in the world, 24/7, and can have your VDR up and running with thousands of pages loaded within 24 hours or less.

With its deep roots in transaction and compliance services, Merrill Corporation has a cultural, organization-wide discipline in the management and processing of confidential content. Merrill DataSite is the first VDR provider to understand customer and industry needs by earning an ISO/IEC 27001:2005 certificate of registration – the highest standard for information security – and is currently the world’s only VDR certified for operations in the United States, Europe and Asia. Merrill DataSite’s ISO certification is available for review at www.datasite.com/security.htm.

As the leading provider of VDR solutions, Merrill DataSite has empowered nearly 2 million unique visitors to perform electronic due diligence on thousands of transaction totaling trillions of dollars in asset value. Merrill DataSite VDR solution has become an essential tool in an efficient and legally defensible process for completing multiple types of financial transactions.

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