Table of Contents

1. Group Dynamics 2. Project Plan and Approach

2.1. Purpose 2.2. Prioritized Measurable Objectives 2.3. Milestones 2.4. Deliverables 2.5. Project in Scope 2.6. Project out of Scope 2.7. WBS 2.8. Stakeholder Analysis

3. Roles & Responsibilities and Schedule 3.1. Roles and Responsibilities 3.2. Schedule

4. Assumptions 5. Change and Risk Management

5.1. Risk Assessment 5.2. Change Management

6. Communication 6.1. Meeting Minutes 6.2. Status Reports 6.3. Emails

7. Story Board & Presentation 7.1. Story Board 7.2. Presentation

8. Project 8.1. Executive Summary 8.2. Managed Audit Program 8.3. Best Practices 8.4. Cost Benefit Analysis

9. Research 10. First Deliverables (hard copies only)

10.1. Team Josh 10.2. Team Todd

1

Group Dynamics When Tammy came in to class to describe the problems and needs within the DoR, two teams immediately identified an area of missed opportunities within the environment: the Managed Audit Program. The team led by Todd Bennett decided that the best way to aid the department was to research how other states around the country had successfully implemented their own Managed Audit Programs. This research was focused on how these states promoted the program to taxpayers, and the criteria they had used in selecting the most qualified businesses for the program. These were chosen because during her presentation, Tammy stated that DoR employees and taxpayers alike did not truly understand the program or its benefits. The team led by Josh Hall went a different path and decided to create a unique solution for implementation. Their idea for implementation centered around the use of less experienced employees to aid taxpayers as they complete the program, which would help the DoR in two ways. First, it would better allocate more experienced employees to larger, more complex audits, while allowing less experienced employees gain experience. Second, it would make the program more appealing to taxpayers as they would now feel as if they were not alone as they completed the program, rather than simply having to fill out the packet with their own time and resources. Our two groups decided to join forces during the first presentation to Tammy when the premises of each groups deliverable became known. We decided that we were developing solutions for the same problem within the DoR. Moreover, the first groups research was determined to actually be a proof of sorts, for why the implementation solution developed by the second group would be a practical idea for the DoR. Consolidation of the teams then occurred when it was determined that if both deliverables were combined, the result would be a more useful solution for the DoR. Tammy supported further exploration of both ideas. From that point, an effort was made to utilize the research conducted by Todds team in order to provide support for the solution provided by Joshs team. Smaller teams of two made up of one team member from each group were formed in order to consolidate work already created, such as the story board and project plan. The following pages is a cohesive combination of ideas resulting in a more complete solution for the DoR. Original deliverables from both teams can be found at the back of this binder.

2

Project Plan and Approach 2.1 Purpose This project is meant to improve the allocation of human resources for the Colorado Department of Revenue by increasing use of the managed audit program and adjusting the resources allocated to it. By reviewing the best practices from other states, we will prove that the MAP is a viable program and we will propose a unique solution for the Department of Revenue. 2.2 Prioritized Measurable Objectives

- Reduce resources expended by the taxpayer by providing onsite assistance from a revenue agent

- Free up more hours for Senior Revenue Agents to work on bigger clients by better utilizing less experienced Revenue Agents to expedite the Managed Audit Program while maintaining the high compliance of the taxpayer

- Prove that the managed audit is a viable program by researching successful programs in other states

- Determine a set of criteria that yields the most qualified candidates for the Managed Audit Program

- Present the benefits of a properly implemented Managed Audit Program

2.3 Milestones

- September 16 : Develop initial project plan and approach - September 23: Finalize project plan - September 30: Make initial contact with at least 3 states - October 7: Finalize presentation and complete preliminary research about

best practices - October 14: Turn in first deliverable in class - November 4: Final research complete - November 18: Draft final presentations for feedback - December 7: Have final deliverable complete - December 9: Final presentation and deliverable due date

2.4 Deliverables

- Analysis of how a managed audit program has been utilized in other states - Research of criteria for companies qualifying for the Managed Audit Program - Research documentation on how other states promote Managed Audit Program to

companies - A set of best practices

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- Managed Audit Program promotion recommendations - Recommendations for criteria for qualifying companies - Recommend a new and unique solution for improving allocation of auditor time

and expediting Managed Audit Programs

2.5 Project In-Scope

- Increase use of managed audit program - Increase utilization of Senior Revenue Agents - Decrease audit hours on Metro and Local 3 audits - Develop entry level agents (Interns, RA 1s) more quickly - Minor changes to Managed Audit Program - Develop a set of useful criteria to use in selecting businesses eligible for the MAP - Present tools that other states have used to promote the MAP - Analysis of the benefits of the MAP seen in other states - Examples of what has and has not worked and why

2.6 Project Out-of-Scope

- Changing established tax payer incentives to participate in the MAP - Major changes to the format of the existing program (ex. Completely re-writing

the MAP, or removing necessary procedures from the MAP) - Adding staff to the Department of Revenue - Decreasing amount of small business audits

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Managed Audit Program

Best Practices

PromotionCriteria

Implementation

l

Identify ways the DoR mayaccomplish their goals

Research human resources Obtain documentation Call and speak to a MAP available at the DoRfrom assigned states representative from assigned states

- use questionairre Identify areas where those Review dcumentation resources can be better allocatedfor criteria used Present examples of

promotion techniques used Use methods identified in other states Identify states with within successful programs to create solution for DoRsuccessful programssuccessfu programs along with the criteria Use promotion techniques in the Present solution to DoR representatives.

creation of solution for the DoR

Managed Audit Program

Best Practices

PromotionCriteria

Implementation

5

Stakeholder Analysis

Stakeholder Role Interest Influence Unique FactsCurrent and future Interns, RA 1s, RA 2s and Senior Revenue Agents

Performing and managing audit work

Impact on changes of day to day activities

High Implementation would directly impact time spent on different leveled audits. More time spent on larger audits could increase travel.

Administrators involved in implementing the proposed changes

Implementing proposed changes

Improve existing programs

High Final decision makers (pending support)

Other Departments of Revenues that may choose to follow successful changes in the Managed Audit Program

N/A (Out of scope) Improving their own states department of revenue

Low Each additional follower promotes increased use among other states department of revenue

Current taxpayers that have previously participated in the Managed Audit

Continuation of participation

Consistency of the audits

Low Direct participant

Programs

Current taxpayers eligible to participate in the managed audit program

Potential future users of the MAP

Take advantage of program perks (knowledge of tax laws, tax benefits and personal business)

Low Target market for future MAP usage

Larger taxpayers that may see more senior agents more often after the implementation

N/A Better experience during audit process

Low Indirect beneficiaries of the program

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Stakeholder Analysis

Stakeholder Role Interest Influence Unique FactsFuture taxpayers that will qualify for MAP

Future program growth and sustainability

Take advantage of program perks (knowledge of tax laws, tax benefits and personal business)

Low Future program growth and sustainability

State of Colorado Direct beneficiary of revenue and efficient resource allocation

Possibility of higher compliance and revenues will positively help the state

Medium Incorporates all other stakeholders into one common interest

Managers Properly training field auditors to conduct MAP

Better utilization of field auditors time

High Managers have a duty to ensure Field Auditors are trained properly on how to promote and conduct a managed audit. They are interested in the outcome of this project because they will be able to use the results to help develop the training.

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Roles and Responsibilities

Todd - First deliverable presentation - Liaison to Tammy - Develop schedule for preparing meeting minutes and agendas - Book meeting rooms - Develop templates for slides - Develop project plan - Research States CA, ID, ME, MN, NJ, OH, SD, WA - Work with Josh to combine Project Plan, Executive Summary and Roles and

Responsibilities - Present final draft and final deliverable

Jennie - Compiling and printing documentation - Research documentation for Managed Audit Program criteria - Develop documentation for Best Practices - Meeting minutes - Develop templates for documentation - Set up Google site for collaboration and document storage - Risk assessment documentation - Research States AL, GA, KS, MI, NE, NC, SC, TX, WI - Work with Alex to combine story board, research, assumptions and

stakeholder analysis Ali - Proofing and finalizing final presentation

- Research documentation for Managed Audit Program promotion - Develop documentation for Best Practices - Assumptions documentation - Type up questionnaire and research topics - Research States CT, IA, MD, MO, NM, PA, VA - Work with Will to finalize physical implementation of our final plan, make

necessary updates to presentation, risk management and change management

Josh - Status Reports/ Maintain work schedule list and dates - Information Requests/ Responses with Client - Risk Management Updates - Initiate Team Meetings - Present final draft and final deliverable - Work with Todd to combine Project Plan, Executive Summary and Roles and

Responsibilities William - Change management

- Source Documentation - Study room reservations - Create MediaFire online storage account - Researching other states managed audit programs - Work with Ali to finalize physical implementation of our final plan, make

necessary updates to presentation, risk management and change management

8

Roles and Responsibilities

Alex - Meeting Minutes - Quality Assurance - Lessons Learned - Team scribe - Comparison of other states managed audit programs - Work with Jennie to combine story board, research, assumptions and

stakeholder analysis Team - Develop Premise, Conflict, Tension, Turning Point, Resolution

- Develop questionnaire and research topics - Risk assessment - Cost benefit analysis - Create and develop presentation

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Schedule

September 9 - Develop Premise, Conflict and tension - Develop team roles and responsibilities

September 16

- Research 5 examples of other organizations that deal with similar problems - Develop initial project plan and approach

September 23

- Identify and Break Assumptions - Develop Turning point and Resolution - Finalize Project Plan

September 30

- Begin development of seven slide solution - Each member bring research from at least one state

October 7

- Finish all preliminary research from all assigned states - Finalize Draft Presentation

October 14

- Turn in first Deliverable in Class October 21

- Continue Research - Discuss and develop your outline for the final deliverable and presentation

November 4

- Complete final research - Have lists of potential best practices ready

November 18

- Present final draft presentations for feedback November 25

- No class December 2

- Project work - Combine deliverables in groups of two

December 9 - Final client presentations and final deliverables due in class

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Assumptions

- The Managed Audit Programs used in other states are successful, effective tools for departments of revenue

- The managed audit process will save field auditors time only after completing a few and being properly trained because less time will be spent at the clients office

- Only small companies with uncomplicated tax returns should use the managed audit program and there are enough qualifying companies to participate yearly

- Interns and RA 1s will be willing and able to participate - Interns and RA 1s have authority to perform such work - Compliance will not be negatively affected - Field auditors have not been properly trained on how to promote the managed audit

program to potential clients - The Colorado Department of Revenue will be willing to consider our suggestions and

may eventually implement them - Small companies that are prime candidates for the managed audit program believe they

do not have the time or resources necessary to devote to completing the self-managed audit because taxes are already too complicated

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Change Management 9/23 - Discussed the possible idea that our premise may be flawed and that we may need to

alter/change our premise to focus more on something else. Because it has been too hard to obtain the needed information to support the

implementation of the MAP. Tammy wasnt able to provide much info on the MAP because the DOR has only

done a limited number of managed audits. 9/30 - Decided to stick with implementing the MAP into the DOR.

We found a contact that deals with the MAP program in Georgia and will be contacting her on 10/4 to see if we can get some more specific information.

Contacted the Georgia MAP resource but never heard back. We also changed our focus a little from trying to only slightly alter the MAP in

Colorado and also focus on how we are going to persuade the DOR to integrate the MAP more into their auditing work and what incentives the MAP brings to the table.

10/13 - After realizing that both groups projects were focusing on the MAP and that the two projects

would complement each other we decided to combine groups. Decided to present one seven slide solution for the draft presentation and final

presentation. The group of Ali, Jennie, and Todds focus is more on why the MAP is an effective

tool for auditing taxpayers. Their research collected from other states MAPs shows how the MAP can be

used effectively and some of the best practices when doing a managed audit. The group of Alex, Willi, and Josh will be more focused on providing a few changes

to the MAP and how to implement the program into the DOR. The major suggestion we are making is for the taxpayer participating in the

MAP to have the option to have a RA Intern or RA I onsite to help the taxpayer through the managed audit process.

11/18 - Our combined group did our draft presentation and received good feedback with some

specific ideas on how to improve for the final presentation. Following the presentation we decided that it would be more effective for our groups

to produce one combined final deliverable. The combination of projects in one deliverable will make a stronger case for

our argument of implementing the MAP into the DOR.

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Risk Assessment

The Colorado Department of Revenue has very little experience with the MAP leaving us with minimal guidance

Medium High Work with client to understand what information is known about the MAP

Suggesting a significant change in the Department of Revenue structure may cause unforeseen problems, such as a lack of auditor availability

Medium High Attempt to create a relevant solution that can be easily implemented

Qualifying small companies cant or wont use the MAP once it becomes available

Medium High Develop a solution that will provide audit assistance to small companies

Lack of communication with client could lead to developing a plan that does not correspond to DOR goals

Low/Medium High Continue professional and friendly dialogue. Find ways to show whats in it for them, such as offering to share findings.

Auditors may be reluctant to promote the managed audit program because they are not willing to give up control over the audit process

Medium Low Encourage use by providing well documented research and a straight forward plan for implementation

Resources Lack of availability to resources who have experience with managed audits

Medium High Find alternative sources for information on managed audits, such as documentation

Not enough examples from other states to provide a recommendation

Medium High Diligent in reaching out to states in order to find pertinent information and relevant resources to speak with

Main contact at CO DOR leaves before project is completed

Low Low Bring new contact up to speed on the status of the project

Schedule Project time requirements underestimated due to poor planning or unforeseen circumstances due to illness

Medium High Develop a project plan and stick to it. Communication among team members is key when circumstances arise

Possibility of being unable to agree on regular meetings

Low Medium Develop a schedule with a pre-determined meeting time and date and stick to it

Risk Likelihood Impact Mitigation Plan

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Minutes: 9/9/09

Met at 10:50 am All group members present and on time Discussed possible questions to ask the client and also possible project premises Possible premises:

o Delegating some out of state responsibilities to other states department of revenue Finding a way to decrease the number of out of state audits while keeping the

revenue from those companies up

o Finding a better way to select the small company audits because the total dollar production to audit hours spent is very poor

Wrote down and discussed possible questions Meeting ended at 11:55 am

14

Minutes: 9/14/09

Met at 4:45 on Monday 9/14 All members present and on time Duties were delegated and responsibilities accepted

GOALS AND OBJECTIVES

Develop initial project plan and approach Finalize premise and begin outlining detailed conflict and tension Find five examples of other organizations who have/are facing the same problems

ACCOMPLISHMENTS

Decided to set up an account with a storage server in order to store all of our documents online where all members have access

Finalized our premise Set initial conflict, not yet finalized Willie decided to reserve team rooms for 4:30 pm every Monday and 11:00 am every

Wednesday

Set up tension using the books four step process FOR NEXT MEETING

Reserve a team room (Willie) Each team member find two examples of similar organizations Read Seven Slide Solution Set up storage site (Willie) Finalize project plan (Josh)

NEXT MEETING: Wednesday 9/16 @ 11:00am

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Minutes 9/16/09

All members were present and on time 11:00 11:55

Goals

Discuss organizations with similar problems Find examples of organizations with similar problems Determine incentives given by different organizations for Managed Audit Program (MAP)

Accomplished

Set up an account on Mediafire in order to share files between the team members Found California, Washington, Texas, Georgia, Arizona, New Mexico, Canterbury UK Found that California gives an interest rate cut for MAP use Decided to ask Tammy for a list of local organizations that have used the managed audit in order

to set up a possible

16

Minutes

Meeting Purpose Weekly Meeting / Finalize First Deliverable

Date 9/23/09

Location 365H

Time 10:30

Attendees Ally, Todd, Jennie

Meeting Topics

# Topics Facilitator

1 Objectives and deliverables

2 Premise and conflict

3 Roles and responsibilities

4 Research results

Topics for future meetings

# Topics Facilitator

1 Discuss Research Results

2 Roles & Responsibilities

Decisions

# Decision Date Present

1

Old Action Items

# Item Person Responsible

Due Date

Status/Notes

1 None

New Action Items from Current Meeting

# Item Person Responsible

Due Date

Status/Notes

1 Information from at least 1 state to share - actually speaking to a real person

Team 9/30

Develop questions for interviewing states

Team 9/30 Complete

Develop question for Tammy Team 9/30 Complete

Have templates completed Schedule for preparing agenda & meeting minutes

Jennie, Todd 9/30

Risk Assessment Team TBD

Roles & Responsibilities Todd 9/30

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Notes

Premise/Objective/Purpose Develop a method for the DOR to sell the Managed Audit Program to companies that meet the criteria to increase compliance while freeing up Audit time for larger audits where companies pay what's due. Recommendations on what is the most efficient criteria for Managed Audit Program selection. Recommendations on how to promote the MAP to companies that meet the criteria Statistical presentation on how much time could be freed up by using the MAP Conflict: Reducing Field Auditors time spent on small audits by utilizing the MAP Vs. The ability to promote the MAP Tension: MAP had not been used because no one has been on how to do it Field auditors need to spend more time on higher revenue audits Generating more revenue cannot be realized by devoting full time to small audits Without implementation of MAP, there is little chance of reducing field auditors time spent on small audits The state needs money Presentation due on 10/14 - target completion 10/7

Develop Premise, conflict, tension, turning point, resolution - Team Putting all everything together - Todd

Final presentation - Ali Final deliverable - documentation - Interview Tammy to get more information - Todd

Develop interview questions - Team Recommendations on what is the most efficient criteria for Managed Audit Program selection.

1. Research from minimum of 3 states - Team 2. Compile research into one document - Jennie

Recommendations on how to promote the MAP to companies that meet the criteria 1. Research from minimum of 3 states each - Team 2. Compile research into one document - Ali

Statistical presentation on how much time could be freed up by using the MAP 1. Research from states

i. Talk to an auditor who has actually done it from a minimum of 3 states - Team 2. Compile the data into one presentation - Todd

Taking meeting minutes - Team take turns Preparing agendas - Team take turns Develop schedule for meeting minutes and agendas - Todd Booking meeting rooms - Todd Template for slides and documentation

1. Slides - Todd

18

Minutes: 9/23/09

Meeting started at 11:00 in room 100N All members present and on time Began forming our turning point Discussed possible research/information ideas Contacted other state department of revenue offices to find statistics on usage and success

rates of managed audit program

Contemplated changing our premise due to lack of necessary information Reviewed AIS terminology

19

Minutes

Meeting Purpose Weekly Meeting

Date September 30, 2009

Location Leeds

Time 10 am

Attendees Ali, Todd, Jennie

Meeting Topics

# Topics Facilitator

1 Research Results Finalize roles and responsibilities 7 slide, start to develop

Topics for future meetings

# Topics Facilitator

1 Continue calling states on designated list Seven Slide (continued)

Decisions

# Decision Date Present

None

Old Action Items

# Item Person Responsible

Due Date

Status/Notes

1 None

2

3

New Action Items from Current Meeting

# Item Person Responsible

Due Date

Status/Notes

1 Develop seven slide presentation Team 10/7 2 weeks before first deliverable

Information from at least one other state per person

Team 10/7

Finalize risk assessment Ali/Jenny Latest 10/7

Complete

Notes

Premise: Prove that Managed Audit is a viable program by researching Managed Audit Programs

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conducted in other states in order to present how and why it has been successful elsewhere. Through this research, develop a set of best practices for the Colorado Department of Revenue. Conflict: Reducing Field Auditors time spent on small audits by utilizing the Managed Audit Program Vs. The ability and willingness to promote the Managed Audit Program Tension: The state needs a tool to help limit auditor hours spent on small audits.

Field auditors need to spend more time on large-scale audits

Managed Audit Program has not been used by the Colorado Department of Revenue because no one

has been trained on how to use it or promote it. There is a chance that utilizing a Managed Audit Program could reduce field auditors time spent on

small audits. Turning Point: Continue as is without fully implementing a Managed Audit Program OR Consider recommendations on how to utilize the program as a useful tool Resolution: Preliminary research has shown that a Managed Audit Program is viable if implemented and utilized properly, as there are numerous states who continue to utilize it as an useful tool. Further research will reveal the best practices that these states use to develop criteria for businesses, educate their employees about the program, and the benefits realized within these states.

- Slides will be simple. Need to explain the why and how behind them.

21

Minutes: 9/30/09

Met promptly at 11:05 All members present and on time Decided to focus more on how to get the Colorado Department of Revenue (DOR) to implement

the Managed Audit Program (MAP) more often rather than alter the program itself

Discussed incentives to encourage the Department of Revenue to do more Managed Audit Programs

Willie and Josh: Compare Colorado MAP w/ other states MAP Alex: research ideas to encourage more MAP usage (change management) Call and get at least one states MAP statistics Anita Degunbia: (404)417-6936, Georgia DOR Left message which was never returned Meeting ended at 11:50

22

MINUTES

10/5/09

- All members present and on time - Meeting started at 4:30 - Began work on compiling all of our research for deliverable #1 - Drafted Project plan, objectives, milestones, scope, assumptions, research (outlined),

deliverables, stakeholder analysis

TO ASK JIM:

- What to put in deliverable (status reports, meeting minutes, etc.) - Time box - Should we include actual managed audit programs or just which states we found?

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Meeting Minutes

Meeting Purpose Weekly Meeting

Date October 7, 2009

Location Leeds

Time 10 am

Attendees Ali, Todd, Jenny

Meeting Topics

# Topics Facilitator

1 Finalize slides Finalize deliverable content and assign missing pieces to team

Topics for future meetings

# Topics Facilitator

1 n/a

Decisions

# Decision Date Present

n/a

New Action Items from Current Meeting

# Item Person Responsible

Due Date

Status/Notes

Email Ali summary of research Team 10/11

Finalize binder documents Team ASAP

Notes

Todd: Develop project plan Cost/benefit analysis

Ali: research documentation for MAP promotion Combine and organize state research for the whole group. Finish assumptions Finalize questionnaire questions

Jenny: Compile and print documents for deliverable Table of contents/binder Develop best practices documentation Risk assessment (finalize)

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Minutes: 10/12/09

Meeting started at 4:30 Finalized compilation of all meeting minutes Finalized documentation in tension (Draft 1) Finalized turning point (Draft 1) Drafted bibliography (Draft 1) Discussed questions to ask client during her visit Finalized stakeholder analysis document (Draft 1) Finalized risk management analysis (Draft 1) Finalized resolution (Draft 1) Table of Contents (Willie) Organize deliverable for delivery Ended at 6:15

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AgendaMeetingPurpose PutDocument/BindertogetherDate 10/14/2009Location LeedsTime 10:30amAttendees Ali,Jenny

MeetingTopics# Topics Facilitator1 Organizebinder

Tableofcontents(finalize)

Topicsforfuturemeetings# Topics Facilitator1 Keepworkingwithstatestogatherresearch

Decisions# Decision Date Present

WewillnotturnindeliverabletodaybutwillturnitinFriday10/16,Mondaythe19thatthelatest

NewActionItemsfromCurrentMeeting# Item Person

ResponsibleDueDate

Status/Notes

Tableofcontents? Organizeinformationsoitflows

w/ithebinder.

NotesToddwasoutsick.AfterspeakingwithJimwedecidedthatitwouldbeappropriateforustoturnourbinderinbyFridayOctober16th.Thebinderisstillmissingafewkeypiecessuchastheprojectplan)sowewillworktogetherasateamandasindividualstogettheremainderofthenecessarypiecestogether.

26

MINUTES -- 11/11/09

Met at 11:00

- All team members present and on time - Worked on fixing problems from initial deliverable - Delegated duties to include more of the project in scope - Contacted Todd Bennetts group to arrange a meeting - Made out of scope objectives more specific

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Agenda

Meeting Purpose Weekly Meeting

Date November 11, 2009

Location Leeds

Time 10 am

Attendees Jenny, Todd, Ali

Meeting Topics

# Topics Facilitator

1 Discuss if we should combine groups with other MAP group PowerPoint presentation work

Topics for future meetings

# Topics Facilitator

1 How will we combine efforts with the other team, how will it work? Who will present to the client on 10/18?

Decisions

# Decision Date Present

We will combine with the other MAP team in order to create one project presentation and one deliverable

NOW

New Action Items from Current Meeting

# Item Person Responsible

Due Date

Status/Notes

Create our portion of the PowerPoint (the why and how are they doing it at other states)

Team Before meet with other team

In Progress

Notes

Must talk with the other group to figure out a time to meet so we can discuss how we are going to do the final powerpoint.

We will complete our portion of the powerpoint before we meet with the other MAP group. Once we meet with them we will combine the presentations in to one.

Must decide if we all want to present on the topic or if we should select 2-3 of us to represent the entire group? On our team it is a split decision, must talk to the other group to get their opinion.

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MINUTES 11/15/09

- All members present and on time

- Set up a meeting for Tuesday, 11/17/09 with Todds group

- Drafted our 5 slides for Wednesdays presentation

- Alex booked a team room for Tuesday

- Discussed presentation ideas and strategies for Wednesdays client visit

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MEETING MINUTES 11/17/09

- All members from both teams present and on time

- Met with Todd Bennetts group to finalize group presentation

- Decided that Todd and Josh should present so as to not crowd the presentation area and distract the audience

- Agreed on finalized timetable for presentation and project

- Delegated specific duties to accomplish for Wednesday class

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Meeting Minutes 12/2/2009

All members present and on time

Meeting started at 2:15 during scheduled project work time during class

Defined what we need to accomplish:

- Executive summary - Combine duplicate aspects to make one final deliverable

o Assumptions o Stakeholder analysis o Research o Project plan (scope, objectives, deliverables, milestones, WBS)

- Roles and responsibilities - Risk management - Combine premise, conflict, tension, turning point and resolution - Lessons learned - Make necessary updates to presentation - Print and compile final deliverable(s): 1 for client and one for Jim - Finalize physical implementation of our final plan - Table of contents - Cost benefit - Change management

Discussed presentation ideas, formatting, slide design

Delegated duties to be completed by next meeting and defined tasks to be completed as a team on

Monday

Agreed to meet at 11:00 on Monday, and again on Tuesday if necessary

GROUPS OF TWO: to be done by next time

JOSH/TODD:

- Project plan (scope, objectives, deliverables, milestones, WBS) - Executive summary - Roles and responsibilities -

ALEX/JENNIE

- Combine premise, conflict, tension, turning point and resolution - Research - Assumptions

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- Stakeholder analysis -

WILLIE/ALI

- Finalize physical implementation of our final plan - Make necessary updates to presentation - Risk management (keep subheadings: scope, resources, etc.) - Change management -

MONDAY

- Lessons learned - Table of contents - Print and compile final deliverable(s): 1 for client and one for Jim - Cost benefit - Page breaks

FORMATTING RUBRIC:

Font: Times New Roman, Size 12

Size 14 Headings, bolded, underlined

Size 12 subheadings, bolded

Spacing: 1.5 universal

Meeting ended at 2:55pm

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MEETING MINUTES 12/7/09

- All members from both groups present and on time - Meeting started at 11:00 am - Discussed each groups compilation process over the weekend - Decided that Jennie will construct and do final compilation of final deliverable - Revised each section of compiled deliverable - Built cost benefit analysis - Jennie will add research to the Managed Audit Program Implementation and more revision and

compilation. Also will attempt CBA

- Alex will complete the lessons learned section - Todd will complete the WBS - Josh will add a theme to the presentation

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PremiseImprove managed audit program through incentives and onsite assistance from RA Interns and RA 1s to qualify more small businesses for a managed audit program and better allocate resources to larger, more revenue producing audit clients.Prove a Managed Audit Program is a viable solution by researching MAPs done in other states. Through research determine what has worked well and develop a consolidated list of best practices.

Notes:By showing what has worked in other states, we will prove the MAP is viable and therefore encourage the Colorado Department of Revenue to take improvement ideas into consideration.Onsite assistance to allow more complex companies and less financially literate clients to qualify for the managed audit program. Client did not recognize any potential problems with onsite assistance (See Minutes 10/14).More senior resources will become available for larger clients

To ensure that the Field Audit Section utilizes its resources in the most effective manner, we believe it should audit more businesses within the Out-Of-State, Local 1, and Local 2 audit programs (Department of Revenue Business Tax Audits January 2003: Pg. 20).

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ConflictCompleteness of Field Audit

Vs.Effective Utilization of Resources and Awareness of MAP as a Solution

Completeness of Field Audit Section: A fair mix of Out-Of-State, Local 1, Local 2, Routine Metro and In-State clients to maintain compliance and revenue generation.Effective Utilization of Resources and Awareness of MAP as a Solution: By shifting its [Department of Revenue] efforts to auditing more of the States larger businesses, Field Audits would be able to audit a greater percentage of the total tax dollars paid to the state.

The auditors want a complete and accurate audit but there arent enough auditors to conduct as many traditional style audits as they would like

This trade-off combines the idea that enough small businesses will continue to be audited to maintain compliance while allowing more audits of larger businesses to effectively utilize the entire audit department.

Our team will attempt to solve the conflict by proving that Managed Audit is a viable program and presenting a set of best practices. We will also develop a set of criteria for determining eligible tax payers to participate in the program and an effective method for educating employees on how to promote the program to eligible businesses.

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TensionThere are 446,000 corporations, partnerships and sole proprietorships registered in the state (Audit selection, Chapter 1, Intro), an overwhelming majority being small businesses, the percentage of small businesses being audited each year is getting smaller (http://www.census.gov/epcd/susb/2005/co/CO--.HTM).Each small audit takes time and scarce resources (audit hours) adding to the diminishing number of small company audits (Department of Revenue Business Tax Audits-Jan 2003: Pg. 20). Less audits directly relates to lower overall compliance.The managed audits are unpopular and rarely usedThe more the potential usefulness of this program is ignored, the more likely it will cease to be an option and tool for small business resources.The state needs money. If they dont find ways to increase compliance on larger audits, they may need to cut programs.

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http://www.census.gov/epcd/susb/2005/co/CO--.HTM

Turning PointStatus Quo

If we stay with the current methods in place, the state is forfeiting potential revenues and resources are not being utilized to their fullest extent.Support: Too many resources (RAs and audit hours) are spent on the smaller clients, leaving less time and auditors to audit the higher revenue generating clients.

Implement ChangeBy increasing the use of the Managed Audit Program, resources previously allocated to small businesses can be utilized for Out-Of-State, Local 1 and, Local 2 clients.Support: Too many resources (RAs and audit hours) are spent on the smaller clients, leaving less time and auditors to audit the higher revenue generating clients.

We decided to use the same support for the Status Quo as Implementing Change. We feel that it enforces the need for change when presented against status quo and reinforces the need for implementing the change when presented with our suggestion.

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ResolutionIncreasing the use of the Managed Audit Program better allocates the departments resources to audit a greater percentage of the total tax dollars to be paid to the State.Result of Inaction: The risk resulting from the continued failure to implement the use of the Managed Audit Program will result in the department forfeiting revenues and the continuation of poorly allocated resources.

Research has shown that a Managed Audit Program is viable if implemented and utilized properly, as there are numerous states who continue to utilize it as an useful tool. Further research will reveal the best practices that these states use to develop criteria for businesses, educate their employees about the program, and the benefits realized within these states.

For example:Washington Department of Revenue conducts between 125 175 managed audits per year

Each auditor has 15-20 audits at one timeProven that it has freed up auditor time from smaller audits

Michigan Department of Revenue had set up a separate division dedicated to performing managed auditso This division successfully targeted a specific group of tax payers to promote complianceo Once the base was depleted, they dissolved the division

Georgia Department of Revenue has integrated their Managed Audit Program into the audit process as a tool for taxpayers and the DOR to work jointly to facilitate reviews

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Improving the Managed Audit ProgramColorado Department of Revenue

A joint compilation:Josh HallAlex McKinnonWilliam RichardsTodd BennettJennie JohnsonAli Mastrobuono

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The Challenge

Is a Managed Audit Program a viable solution for the Colorado Department of Revenue?Other states have implemented a Managed Audit Program successfully

What can we learn from them?What can we add to improve the program?

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How We Got HereRecognized a lack of guidance and motivation for use of Managed Audit Program in ColoradoIdentified 26 states that have conducted or are currently conducting Managed AuditsGathered information from 10 states

Phone interviewsWeb Research

Developed an innovative approach for the DoR in implementing the Managed Audit Program

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Missed Opportunities

0

10

20

30

40

50

OutofState Local1/Local2

RoutineMetro/InState

Other

%oftotaldollarproduction%oftotalaudithours

%ofTotal

446,000businessesregisteredinthestateofColorado Anoverwhelmingmajoritybeingsmallbusinesses Ifprogramignored,themorelikelyitwillceasetobeanoption NotusingtheMAPismissingoutontimesavingsandrevenuegeneration

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The State Needs Money

Colorado deficit is well over $300 millionAlternative solutions to raising moneyFurloughing 15,500 state workers for at least 4 days Higher education cutsEarly release of 6,400 prisonersEliminating a 32 bed nursing unit for the developmentally disabledCutting 59 beds at a facility for the mentally ill

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Choose a Path

If the DoR stays with the current methods in place, the

state is forfeiting potential revenues and resources are

not being utilized to their fullest extent.

By increasing the use of the Managed Audit Program,

resources previously allocated to small businesses

can be utilized for Out-of-State, Local 1 and, Local 2

clients.

StatusQuo ImplementChange

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What Has Worked

Set up a Managed Audit department within Audit Department (Michigan)Use a managed audit that targets use tax within specific industries that have machinery and inventories generally purchased from out of state suppliers (Maine)Customizing a regular audit by using managed audit practices when a sample can be easily obtained by the taxpayer (Washington)

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Incentives

Waiving certain amount of interestWaiving penalties found during the Managed AuditPromoting the idea that taxpayers can get a more thorough understanding of their businessNo adverse consequences

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The Game Plan

Assign an RA Intern or RA 1 for each Managed Audit Program user

The agent will guide the taxpayer through the Managed Audit Program

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Benefits

Improved Managed

Audit Program

Provide incentives to encourage use

Qualify more small businesses for

program

Shorten audit period

Better allocation of experienced RAs to larger clients

Provide onsite assistance from RA interns and

RA 1s

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Options for MAP

Regular MAPTaxpayer does entire audit at their discretion.

MAP with onsite RA assistanceTaxpayer does the majority of the audit and can receive RA assistance

Regular Business Audit with certain parts done as a MAP

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Recap

Why the MAP?

Benefits for the DOR using the MAP

Questions?

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Executive Summary

The Colorado Department of Revenue is in need of a solution to help them increase collections while also promoting compliance. Our project is aimed at providing a simple solution through the promotion of an underused program within the department: The Managed Audit Program. The following information contains extensive research on how other states have successfully implemented their Managed Audit Program, summarized in a best practices report containing criteria for eligible businesses, promotion techniques, and benefits realized by other states through the use of the program. Also contained in this deliverable is a unique solution for the Department of Revenue as they attempt to successfully implement the program themselves. Our solution involves the use of an audit intern or RA1 to guide businesses as they complete their own Managed Audit, providing on-site aid as well as being available at all times to offer quick assistance as problems and questions arise. By using employees in this manner, the Department of Revenue may be able to better allocate more experienced auditors to larger, more complicated audits while educating and training the less-experienced employees on basic tax-related issues in the current environment. We believe that by using the research and implementation tools that we provide in the following, the Department of Revenue may be able to use the Managed Audit Program to their benefit as a simple and easy tool to accomplish both increased collections as well as promoting compliance among small and large businesses alike.

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Managed Audit Program Improvements As stated in the packet given to us by the DOR, the goal of the DOR is to promote voluntary compliance with the tax law, as opposed to maximizing tax recovery. The goal has been interpreted to mean that the DOR wants to allocate a significant portion of their resources to auditing smaller businesses in order to increase the visibility of their auditing efforts. Our group has identified the Managed Audit Program (MAP) as a great resource that could help the DOR accomplish this goal and be more efficient at the same time. Implementing the MAP can help the DOR better allocate their resources between small and large businesses, improve compliance with tax law, and audit more small and large businesses with the same amount of resources. Resources will be better allocated because the utilization of an MAP means less revenue agent time spent on the smaller audits. Revenue agents can spend more time on larger business audits where the potential for recovering higher amounts of unpaid taxes is more likely. Even though producing revenue isnt the main goal for the DOR, it is an added benefit that comes with allocating resources away from small businesses to concentrate more on larger companies. Compliance with the tax law will be improved because the small businesses that participate in the MAP will learn how the tax system works and will know how to be in compliance with tax laws in the future. Also, more large businesses will be in compliance because there will be more revenue agents available to audit the large businesses. Lastly, more small and large businesses will be audited because the small businesses will be utilizing the MAP which will free up resources to audit the large and out of state businesses. Managed audits have been used successfully in a variety of ways in other states. For example, the state of Maine used a managed audit mainly for use tax and target companies that have one or two clearly defined tax issues. They send out a guided packet with a list of items to review. Once they receive the completed packet, they use analytics to compare with what other taxpayers of that type are reporting. If it aligns with reporting trends, they just enter it into the system. If not, they conduct a visit to analyze and audit the client. The state of Washington uses managed audits for small to mediums sized businesses. Half of their managed audits are performed for special situations that come up within a normal audit. If the auditor needs to pull a sample that can be done by the taxpayer, the taxpayer will be given a packet with instructions and review the sample themselves. The auditor will review the results and give the taxpayer managed audit incentives. In Michigan a separate division created to run managed audits. The purpose was to target tax payers who normally arent registered because they purchase inventory through vendors. The division has since been dissolved because they conducted managed audits with all companies that met their criteria and eventually depleted their base. Our suggestion for the Colorado MAP is to have the option for the taxpayer to have an assigned RA Intern or RA I onsite. They would also be available by phone or email during the MAP to

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help the taxpayer. One benefit of having an agent onsite during the MAP is companies with more complex tax issues could potentially qualify for the MAP. Also, the audit period would be shortened due to the taxpayer having the benefit of assistance from an agent, freeing up company resources sooner. Senior revenue agents would be able to focus less on small company audits and more on large company audits. Small businesses with more complex tax issues will qualify for a MAP because the option of onsite support will help the taxpayer audit the portions of their business that have more complex tax issues. Since small businesses with more complex tax issues would be able to perform a MAP with revenue agent assistance, the criteria for businesses eligible for a MAP could be widened. Lastly, allowing a RA Intern and RA I to help taxpayers during the MAP process will help these revenue agents gain hands on experience related to auditing a businesss taxes. Once a company has been qualified for a MAP the taxpayer can choose between a regular managed audit, a managed audit with the onsite assistance, or a regular audit where the taxpayer audits certain parts of their business that are less complicated. In each instance, the benefits to the taxpayer of conducting a Managed Audit should be clearly outlined. In most cases the benefits include a certain amount of penalties and interest waived. All three of these options, when using the MAP, will qualify more companies, increase compliance, and free up senior revenue agent resources.

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Best Practices Report As our group was looking for a solution to aid the Department of Revenue, we identified the Managed Audit Program as an underused and misunderstood program that we felt presented an opportunity to the department. The program was described as having been used a handful of times, and very few employees within the department even knew about the program. Little information could be provided on how the program had been used, what kind of companies they had targeted, or how they had promoted the program to those companies that had qualified. With that in mind, we decided to research how the program had been implemented successfully in other states. Also, since the underutilization of the program in Colorado has stemmed from improper education and promotion, we decided to compile a set of best practices from those states in terms of promotion techniques and criteria used to select the most qualified businesses. We gathered research from California, Maine, New Mexico, Kansas, Washington, South Dakota, Georgia, Texas, and Michigan to create the following report on the best practices from these states. The first steps towards successful use and implementation of a Managed Audit Program lie in the ability to identify eligible businesses that can benefit from the program while benefiting the DoR itself. For example, most states, including California and New Mexico, only use businesses with minimal tax issues that are not complex. This is due to the fact that these companies are essentially completing the program on their own, with no guidance from the Department of Revenue. Another common criteria among multiple states were that companies being targeted needed to have the appropriate resources and willingness to complete the program within their business. A unique set of criteria had been established in Maine where the DoR specifically targeted businesses that maintained large supply and machinery inventories such as doctors, dentists, and pet pharmacists. This technique allowed the department to promote compliance with use tax regulations, as much of these businesses kept inventories that were primarily purchased from out-of-state suppliers. By using these criteria in selecting eligible businesses for the managed audit program, each department was able to promote compliance among small businesses while successfully using their Managed Audit Programs as useful tools in auditing small businesses. Another key aspect of a successful Managed Audit Program is the ability of the department to promote the program to those businesses that they deem eligible for participation. One example of successful promotion was in Washington. There they have used a managed audit in conjunction with a regular audit in order to take advantage of pieces of the audit that can be easily managed by the taxpayer alone. For example, if a sample needs to be run that is simple, and the taxpayer has a greater knowledge of the location of the items within the sample, the auditor will give them the managed audit packet and let them conduct the sampling themselves. Also in Washington, the department promotes the idea of customizing the managed audit to the

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Best Practices Report

specific business, rather than using a general audit packet for all businesses. In doing this, the department has found that it both saves time during review for the auditor and reassures the taxpayer that they will have lesser problems in completing the packet. In Michigan, the DoR set up an individual department that only dealt with managed audits. This managed audit department handled promotion, selection and distribution of the program, and were successful in their implementation. Besides promotion of the program itself, proper incentives for the taxpayer have been shown to be key in the implementation of a successful managed audit program. States generally waive a certain amount of interest, penalties or both as the most common form of incentive to use the program. In California, for example, the department of revenue waives the first $10,000 of interest and 10% of all interest above that amount. In South Dakota, all penalties found in conjunction with the managed audit are waived along with up to $5,000 of interest. Each state mentioned above have successfully implemented a managed audit program of their own. Through the use of first using proper criteria to identify eligible companies, and then using unique ways to promote the program, most states have shown that the program is successful in a couple ways. First, it educates taxpayers on the issues affecting their company by allowing them to investigate them on their own. Also, most states have shown that the managed audit program saves auditor hours compared to those that would be conducted during a regular desk audit. By using some of the practices just presented, the Colorado Department of Revenue may be able to successfully implement and effectively utilize their own Managed Audit Program.

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Cost Benefit Analysis Benefits Increase time spent on larger audits Achieve goal of increased compliance on smaller audits Increased compliance on larger audits increases potential greater amount of unpaid taxes recovered Finding a way to utilize an existing tool Develops skills of newer agents Costs Increased travel as time frees up to spend on larger, out of state audits Time spent developing instruction packets for taxpayers to perform managed audit Time and resources spent training initially Potential reduced efficiencies due to learning curve We chose to take a qualitative approach to the cost benefit analysis due to the lack quantitative data available.

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Questions for State Auditors

1. What criteria must a potential client meet in order to qualify for the managed audit?

2. Why have you set those specific criteria? How did you determine the appropriate

criteria?

3. What were your goals upon implementation of the managed audit program, and have they been realized?

4. How long does it typically take a client to complete the managed audit?

5. Once the audit has been completed, what is the average amount of time an auditor

must spend reviewing the material?

6. How long has your state been offering managed audits as an option for taxpayers?

a. If no longer performing MAP, why?

7. How many managed audits has your state performed? Would you be willing to share any statistics regarding the results of those audits?

8. Do managed audits save field auditor time?

9. Do managed audits save the Department of Revenue money?

10. Do managed audits save taxpayer time?

11. Would you be willing to share any documentation on your managed audits with

us?

12. How did you educate your auditors on the program? How is it promoted to qualified taxpayers?

These questions served as a baseline for the conversation we had with auditors from other states. Sometimes our conversations went in different directions depending on the answers we received as we were talking.

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Email from Tammy From: Sorensen, Tammy [tsorensen@spike.dor.state.co.us] Sent: Wednesday, September 23, 2009 11:27 AM

To: Joshua R Hall Cc: James Raymond Marlatt

Subject: RE: Managed Audit Program Info Inquiry- Josh Hall

Josh,

I'm sorry, but I can't be of much help to you on this one.

For 2008/2009, we did not conduct any managed audits. For 2007/2008, we had one managed audit on an out-of-state company that wanted us to review their work prior to them remitting tax to us. The bottom line is that we don't have any companies really using this. The binder that was put together on managed audits showed that we spoke with AZ, CT, FL, KS, NM, OH, TX, and WV when putting together our program. I have not seen this binder, but the information was passed along to me by my supervisor. You are more than welcome to contact these states, but I don't have any contact information for you.

Since we haven't done many of these, I'm afraid that I can't give you hour requirements. We were told during the presentation that it should save time.

I don't believe that we have had any taxpayer input, and unfortunately, even if we did I would not be able to give you any taxpayer names due to confidentiality issues.

Once again, I am so very sorry that I could not be of more help.

Tammy

-----Original Message-----From: Joshua R Hall [mailto:Joshua.Hall@Colorado.EDU] Sent: Wednesday, September 23, 2009 11:18 AMTo: Sorensen, TammyCc: james.marlatt@colorado.eduSubject: Managed Audit Program Info Inquiry- Josh Hall

Ms. Sorensen,

We are having trouble finding certain statistics about the Managed Audit Program. If possible, could you see if there is any information about:

1.) How many clients use the program each year? In Colorado and other states as well, if available.

2.) Generally how much RA time the Managed Audit Programs consume

3.) Any client feedback from users of the program

4.) If at all possible, contact information to speak with a company who has been through to process to see the pros and cons from the client side?

5.) Any more information you have about specific criteria to qualify for the program would be helpful.

Thank you,Josh HallJoshua.Hall@colorado.eduCell: (303)917-2964

Page 1

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Maine

Criteria

Companies that have one or two clearly defined tax issues within their business Now use what is called a Self-Audit Project

o Used mainly for doctors, dentists, and pet pharmacists Mainly concerned with the use tax

Buy machinery and inventory from an out of state supplier. Also concerned with the reporting of state licensing fees. There is no visit, and they send a guided packet with a list of items

to review

Once they receive a copy of the packet, they review and compare analytically with what those types of clients should be reporting

If it aligns with reporting trends, then they just enter it into the system

If not, they conduct a visit to analyze and audit the inventory of the client

Does it save the Field Auditors time and the DOR money?

Did not notice any significant time savings as far as review versus an actual audit of the client

Problems

Have not used since the early 90s o Implemented a new software package that did not align with the structure

of a managed audit program.

Noticed that auditors were reluctant to give up control of the auditing process

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Michigan

Contact

Kim Knoll

General Information

A separate division was set up to run managed audits. It was created as a short term

project to target tax payers who normally arent registered because they purchase

everything at the vendor, such as beauty salons.

At this time the division has been dissolved because they have depleted their base. Once

a company has been through the program, they are assumed to be compliant and are not

approached again.

Will be sending any documentation on criteria, statistics, etc., after obtaining permission.

Once we have reviewed this documentation, we will contact for further questions on

anything that cannot be answered from the documentation. UPDATE: Ms. Knoll did not

obtain permission to send documentation in time to include in final deliverable.

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South Dakota

Contact

Doug Jensen

605-995-8080

General Information

Used the Managed Audit Program from 1999-2004.

Initial goals for the program were to help manage auditor field time on smaller audits and

free up more time for larger audits. They also wanted to promote compliance by raising

specific issues and allowing businesses to become more involved in their own tax-related

issues.

Phased-out the use of the Managed Audit program in favor of desk-audits due to the fact

that they were forcing the used of managed audits on companies who had more complex

tax issues than the program was designed for. This led to more auditor time spent on

reviewing the documentation as well as client time spent on gathering information which

was not an efficient use of time on the audit as a whole.

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Washington

Statistics

Do 125-175 managed audits per year

Criteria

Use for medium to small sized businesses o Most of the time, qualification for the MAP is subject to the discretion

of the auditor, to use where they see fit

o Medium sized companies seem top have the better ability to devote employee time to the program.

50% of the managed audits are performed during special situations within a normal audit as tool for the auditor to use

o For example, if they are going to be pulling a sample that will be easy for the client to review themselves, they will send a packet with the

sample to the client, and then review the results and give them the

Managed Audit incentives. (No penalties and waive up to $5,000 of

interest.)

Time Savings

Instead of using all of their time on the back-end of the MAP, they spend 4-8 hours drawing up a packet that will specifically apply to each client.

o Saves time in the review process, as they do not have to devote as much time to reviewing the specific laws and regulations that apply to the

business on the back-end.

However, they find that it does save time and allow the auditors to dedicate their resources to different audits.

o Each auditor has 15-20 audits going on at one time. Believe that the businesses do like the fact that the auditors are not breathing

down their throats and are out of the office.

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Managed Audit Agreement

Arizona Department of Revenue

Transaction Privilege Tax Department

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Taxation; Managed Audit Agreements. S.B. 1171; Chapter 95. Senate Bill 1171 (Ariz. Sess, Laws 2005, Chapter 95 Taxpayer may audit themselves under Managed Audit Agreement with the Arizona Department of Revenue. S.B. 1171 allows taxpayers to enter into managed audit agreements with ADOR under which the taxpayer or the taxpayers representative audits the taxpayers books and records rather than have ADOR auditor conduct the audit. Effective January 1, 2006 for managed audits involving state and local transaction privilege (sales) tax, use tax and luxury tax. Effective January 1, 2007 for managed audits involving state income tax.

Procedures. The ADOR has sole discretion over whether to allow taxpayer to conduct its own audit and may consider all relevant factors, including compliance history and pending disputes, when making its determination. Under a Managed Audit Agreement, the taxpayer must make and submit written findings to ADOR. ADOR reviews and accepts or rejects the taxpayers findings and issues either a deficiency assessment, a no change report or a refund. The taxpayers appeal rights under Managed Audit Agreement are the same as under a conventional ADOR audit. Managed Audit Agreements may include local excise tax audits at the taxpayers request. Upon such request, the ADOR must notify the relevant cities and towns. If the local jurisdiction refuses to participate in the managed audit, it may not independently audit the taxpayer for 42 months following the end of the last tax period covered by the Managed Audit Agreement unless a limited exception applies.

No Penalties and No Interest. No penalties will be assessed under a managed audit unless the taxpayer commits fraud or willful tax evasion. No interest will accrue on deficiency assessments or refunds if they are paid within 45 days of receipt of the notice of determination.

Limited Audits. Managed Audit Agreements may be limited to certain periods, activities, transactions, geographic areas, or lines of business. When audits are completed under limited agreements, the ADOR remains free to audit issues not covered by the agreement within the appropriate statute of limitations.

Managed Audit Statutes

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42-2301. DefinitionsIn this article, unless the context otherwise requires: 1. "Limited managed audit agreement" means a managed audit agreement that is limited in scope to certain periods, activities, lines of business, geographic areas or transactions, including tax on the receipts of certain sales, the value of certain assets, the value of certain items or services and other categories specified in the agreement. 2. "Managed audit" means a review and analysis by a taxpayer or the taxpayer's authorized representative of the invoices, checks, accounting records or other documents and information to determine a taxpayer's liability under chapters 3, 5 or 6 of this title or title 43, chapter 11. 3. "Managed audit agreement" means a written agreement between the director and taxpayer that consists of an audit plan that requires the taxpayer to review selected revenue, expense and fact records to determine the proper filing method and to calculate the taxpayer's liability under chapter 3, 5 or 6 of this title or title 43, chapter 11. Managed audit agreement includes a limited managed audit agreement. 4. "Taxpayer's authorized representative" means a representative who is selected by the taxpayer to conduct the managed audit and who is approved by the director. 42-2302. Managed audit agreementsA. On application by a taxpayer, the director, in the director's sole discretion, may agree to a managed audit with the taxpayer. The managed audit agreement shall: 1. Be signed by the taxpayer and the director. 2. Contain a declaration by the taxpayer that all statements of fact in the taxpayer's application and agreement are true and correct for every material matter. 3. Specify the types of taxes, the reporting periods, any limitations on the scope of the managed audit, the name of the taxpayer's authorized representative, if any, and the audit plan, including the procedures to perform the managed audit. B. The managed audit agreement may be modified in writing if the agreement is signed by the taxpayer and director and the agreement complies with subsection A of this section. C. The director may consider all relevant factors when determining whether to agree to a managed audit agreement, including: 1. The taxpayer's history of tax compliance. 2. The amount of the taxpayer's time and quality of resources that the taxpayer can dedicate to the audit. 3. The extent and availability of the taxpayer's records. 4. The nature and scope of any legal dispute with the department and its relevance to the managed audit proposal. D. A managed audit agreement for taxes under chapter 5 of this title shall include county excise taxes. A taxpayer may request that the managed audit agreement include city and town excise taxes and the department shall notify the cities or towns in which the taxpayer conducts business. If a city or town does not agree to participate in the managed audit agreement, the city or town shall not conduct an audit of the taxpayer for forty-two months from the end of the last tax period that is covered by the managed audit agreement unless an exception applies pursuant to section 42-2059. 42-2303. Managed audit operations; appealA. The taxpayer or the taxpayer's representative shall furnish written findings of the managed audit to the director. B. The director shall review the written findings and may examine records and perform other reviews that the director deems necessary to verify that the managed audit substantially conformed to the terms of the managed audit agreement. After performing the review under this subsection, the

65

director shall accept or reject the findings of the managed audit and issue a notice of determination. C. If the director accepts the managed audit findings, the director shall assess any deficiency or issue any refund that results from the managed audit pursuant to section 42-2304 in the manner described by sections 42-1108 and 42-1118. D. If the managed audit results in a notice of determination that the taxpayer disputes or if the director rejects the findings of the managed audit, the taxpayer may appeal the notice of determination. The taxpayer has the same appeal rights under this section as if the department conducted the audit. E. The taxpayer and director may agree to a closing agreement under section 42-1113 to resolve any issues or amounts that are disputed. 42-2304. Interest and penalties; refundsA. Notwithstanding section 42-1125, the director shall not assess any penalties unless the managed audit discloses that the taxpayer committed fraud or willful tax evasion or that the taxpayer collected monies that were represented as tax but were not remitted to the state. B. Notwithstanding section 42-1123, the director shall not assess interest if the managed audit results in a deficiency, if the taxpayer pays the tax within forty-five days of receipt of the notice of determination and the taxpayer did not commit the activities described in subsection A of this section. If the entire assessment is paid after forty-five days of the taxpayer's date of receipt of the notice of determination, the taxpayer shall pay interest pursuant to section 42-1123. C. If the findings of a managed audit determine that a refund is due to the taxpayer, the department shall not pay interest to the taxpayer if the refund is issued within forty-five days of the taxpayer's date of receipt of the notice of determination. If the refund is paid after forty-five days of the taxpayer's date of receipt of the notice of determination, the department shall pay interest pursuant to section 42-1123. D. For the purposes of subsections B and C of this section, "notice of determination" means either: 1. The director's notice of determination, if not appealed. 2. The final decision at the highest level of appeal to which the matter is taken, if a notice of determination or rejection is appealed. See Managed Audit Statutes http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/42/02301.htm&Title=42&DocType=ARS

Frequently Asked Questions Why Should I do part of the audit myself? If you complete a managed audit and owe additional tax, no penalties will be assessed unless the taxpayer commits fraud or willful tax evasion. No interest will accrue on deficiency assessments or refunds if they are paid within 45 days of receipt of the notice of determination. There are other benefits, too. In a conventional audit, our auditor typically reviews your records at your place of business, during working hours. In a managed audit, you can review your records whenever and wherever you like, as long as you finish your work within the time specified in the timeline.

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http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/42/02301.htm&Title=42&DocType=ARShttp://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/42/02301.htm&Title=42&DocType=ARS

Also by participating in a managed audit you may gain a more thorough understanding of how tax applies to you business transactions, what kind of records you should keep, and how to improve your business procedures that relate to transaction privilege and use tax. How will I know what to do? Authorized representatives of the Department and Taxpayer shall jointly develop a managed audit plan for a specific audit period. The audit plan shall include the agreed audit procedures to be applied to each identifiable business segment, of Taxpayer, subject to taxation under the Arizona Revised Statutes. How much of my time will it take? The amount of time needed to conduct the audit will vary, depending on your business operations and records. Our auditors will give you an estimate of the time required based on his or her experience. If the managed audit cannot be completed by the date specified in the Managed Audit Agreement, Taxpayer shall provide written notification to the Department a minimum of thirty (30) days prior to such specified completion date. Will the auditor review any of the transactions? The taxpayer shall document in detail the results of the managed audit and provide the documentation to the Department in a format specified by the Department. The Department may, in its sole discretion, examine records and perform reviews that the Department determines are necessary, in order to verify the results of the audit. Is my business eligible for the Managed Audit? The Arizona Department of Revenue has sole discretion over whether to allow taxpayer to conduct its own audit and may consider all relevant factors, including compliance history and pending disputes, when making its determination. How do I get the Managed Audit process started? To begin the process, the taxpayer submits a written request outlining their desire to perform a managed audit. The request should be sent to the Department; once the request is received, the Department will contact the taxpayer for a preliminary meeting to discuss the managed audit process. Can the Managed Audit Process be used for a taxpayer to fulfill their Transaction Privilege Tax obligations and become into compliance with their filing requirements? NO-See Voluntary Disclosure http://www.azdor.gov/Audit/Disclosure.asp

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http://www.azdor.gov/Audit/Disclosure.asp

Contact Information Managed Audit written requests may be sent to: Arizona Department of Revenue Audit Division Attention: Vincent Perez, Assistant Director 1600 W. Monroe St, Room 601 Phoenix, AZ 85007 Anthony De Stefano Tax Analyst II Phone: 602-716-6230 Brace Taylor Tax Analyst II Phone 602-716-6638 Tami Benson Revenue Field Audit Manager Phone 602-716-6657

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Managed Audit Progr

am

Publication 53 | January 2009

boarD MEMbErS

bEtty t. yEE bill lEonarD MicHEllE StEEl JuDy cHu , Ph.D. JoHn cHianG raMon J. HirSiG First District Second District third District Fourth District State controller Executive Director San Francisco ontario/Sacramento rolling Hills Estates los angeles

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PrEFacE

This publication provides general information regarding the Board of Equalizations Managed Audit Program as well as specific instructions for managed audit procedures. The original Managed Audit Program expired on December 31, 2002. The program was reinstated effective January 1, 2004, as required by Revenue and Taxation Code sections 7076.1 through 7076.5.

Note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted on the cover. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, the decision will be based on the law and not on this publication.

To contact your Board Member, see www.boe.ca.gov/members/board.htm.

Efile today. Its E-Z, Its Fast, Its Smart. www.boe.ca.gov

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www.leginfo.ca.gov/calaw.htmlwww.boe.ca.gov/members/board.htmwww.boe.ca.gov/elecsrv/eServices.htmwww.boe.ca.gov

contEntS

Chapter Page

Introduction to the Managed Audit Program 1

Reviewing your sales 4

Reviewing your purchases 8

Finishing up the audit 12

Appealing the results of your audit 13

For more information 14

Managed Audit Program Participation Agreement (BOE-526) 17

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introDuction

This publication provides general information regarding the Board of Equalizations (BOE) Managed Audit Program. The program allows certain businesses to conduct a type of self-audit with instructions and guidance from one of our auditors. If you qualify for a managed audit and we approve your participation, you will enter into a Managed Audit Program (MAP) Participation Agreement (see page 17) and conduct many of the audit tasks that would ordinarily be performed by our auditor. This publication provides general information on the program and specific instructions for audit procedures.

Why should I do part of the audit work myself? If you complete a managed audit and owe additional tax, you will pay interest on that tax liability at only one-half the rate that would otherwise apply. This can result in significant savings to you.

There are other benefits, too. In a conventional audit, our auditor typically reviews your records at your place of business, during working hours. In a managed audit, you can review your records whenever and wherever you like, as long as you finish your work within the time specified.

youll also gain a more thorough understanding of how tax applies to your business transactions, what kind of records you should keep, and how to improve your business procedures that relate to sales and use tax. This will not only help you in your ongoing business operations but can help ensure that any future audits go smoothly.

your decision to participate in a managed audit does not affect your right to appeal the audit results. In addition, your participation is entirely voluntary. There are no adverse consequences for choosing to have us conduct your audit in the usual manner.

What kind of work will I be doing? under the direction of our auditor and using instructions provided in your MAP Participation Agreement and this publication, you will review your records to determine whether you have fully met your obligations under state, local, and district sales and use tax laws. you may be asked to review a representative sample of your sales and purchases or every transaction in the audit period.

Typically, you will examine your sales records to see whether you:

Correctly calculated and reported the sales tax due on your transactions.

Have the required documentation to support any sales tax exemptions or exclusions you have claimed.

you will typically review your purchase records to determine:

Whether you paid California sales or use tax on the purchase.

Whether you correctly calculated and reported the tax.

As you conduct the reviews, youll fill out transaction worksheets with the information needed to determine whether you paid the correct amount of tax during the audit period (see samples on pages 7 and 11). Our auditor may also ask you to perform additional audit tasks, such as reviewing your sales tax returns. The auditor will review your work when youre done and determine whether you owe more tax, whether you are owed a refund, or whether your sales and use tax returns were correct as filed.

How will I know what to do? Our auditor will indicate in the MAP Participation Agreement which books, records, and equipment purchases you must consider in your review and provide you with detailed instructions.

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How much of my time will it take? The amount of time needed to conduct the audit work will vary, depending on your business operations and records. Our auditor will give you an estimate of the time required, based on his or her experience.

What happens when Im done with my portion of the work? When youve reviewed all of your records and completed the necessary worksheets, our auditor will review and verify your work to determine whether you adequately followed instructions and addressed any problem areas. When satisfied that you have accurately completed your part of the work, the auditor will complete the audit and arrange a conference with you to explain the audit results.

For more information regarding notification of audit results and subsequent steps in the process, please see publication 76, Audits (our auditor can provide a copy).

Will the auditor review any of the transactions? Certain types of transactions are not appropriate for review in a managed audit, for example, those involving complex legal issues. If your records include such transactions, our auditor will notify you and let you know which books and records to make available for review. If our auditors review indicates that you owe additional tax on these transactions, interest will apply at the reduced rate, provided you are still approved to participate in the Managed Audit Program.

Why is my business eligible for the Managed Audit Program? your business meets the criteria for our Managed Audit Program if the tax issues in your business are generally straightforward, your transactions are not subject to a number of sales tax exemptions, and you have the resources necessary to do the work.

Is there anything that guarantees that Ill get the reduced interest rate? yes. If you choose to participate in a managed audit, you will enter into a MAP Participation Agreement with us (BOE-526see sample on page 17). The agreement will:

Contain your name and account number.

Specify the period of time covered by the audit.

Specify a reasonable time period for you to complete your work (generally up to 90 days).

Specify the types of transactions and records to be reviewed.

Specify the review method and the periods for the records that will be reviewed.

Specify the circumstances under which we may void the agreement.

Specify the time period in which you must pay any tax and interest due.

The agreement explains the terms and conditions of your managed audit. Please read it carefully before you sign and date it. The District Principal Auditor of the field office conducting your audit will also sign and date the form. youll receive a copy for your records.

Can the Board terminate the MAP Participation Agreement? under certain circumstances, we can terminate (void) a MAP Participation Agreement. The agreement form includes a list of the events that may cause us to take this action. Please note that these events are unlikely to occur in a managed audit where the taxpayer cooperates fully with the auditor. If we terminate the MAP Participation Agreement, you will not receive the benefit of the reduced interest rate.

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How long do I have to decide whether a managed audit is right for me? Ask our auditor. The auditor must begin the audit as soon as possible and will need to make work plans based on your response. The auditor will usually give you a few days to consider how you would like to proceed.

What if I change my mind after Ive started? If after starting the work, you decide not to complete the managed audit, or you do not complete the work that you agreed to do, our auditor will finish the job. The full interest rate will apply to any tax liabilities that are disclosed by the audit.

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rEviEwinG your SalES

During an audit, the auditor customarily checks your sales records to be sure that you:

Computed the correct amount of tax.

Properly reported tax on your transactions.

Have documents in your records that support any untaxed sales.

In a managed audit, you will be doing this verification yourself. To help you determine whether you have properly reported tax, our auditor will provide you with publications that describe the most common nontaxable sales and charges: sales for resale, sales delivered outside California, shipping and delivery charges, and sales to the U.S. government. The auditor will also give you information regarding cash discounts and nontaxable charges such as installation or repair labor.

Assembling your records for review Our auditor will indicate in the MAP Participation Agreement which records you will review in the managed audit, as well as the test period and method you will use.

Verifying information in your records you will need to carefully review your invoices, following procedures explained by our auditor and detailed in this section.

If you added an amount for tax to the sale

If your invoice shows that you added an amount for tax to the sale, you need to check the invoice to determine:

Whether you used the correct tax rate (for sales shipped into or out of special tax districts, see our auditor for help). All the rates i