surviving a payroll audit

Surviving a payroll audit

Presented by

Kylie Rusten

Do you know what’s in your payroll?

The ATO does.

Single Touch Payroll means the ATO has unprecedented real-time access to payroll data and it’s using it to identify problems.

Access to this data means payroll-related audits are more targeted than ever before.

©2019 Ernst & Young, Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation. APAC no. AU00003653 ED None.

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And it doesn’t end with the ATO…Many employment taxes obligations are interlocked.

Revenue Authorities across Australia share significant information with each other and data match, meaning a payroll-related error in one jurisdiction can facilitate audit activity in others if left unresolved.


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Fair Work obligations

Employer reporting

State Revenue authorities

Employee complaints

Data matching

Getting it wrong can be costly

Financial penaltiesUp to 200% for some

payroll obligations

DirectorsPersonal liability

for some obligations, and

even criminal penalties

Additional strain on internal

functions

Reputational damage


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Payroll audit trigger points



Australia

In a short period, the use of electronic forms and communication channels has expanded significantly – including pre-populated personal tax returns that are fast and accurate.

2013 2018

Digital by default

Single Touch Payroll



ATO and Revenue authorities

Federal and State Australian tax authorities are increasingly utilising data matching technologies to select audit targets, especially where anomalies are identified from cross-jurisdictional data.



Single Touch Payroll► Integration of data matching and data analytics tools to address

non-compliance

► Use of data analytics and data matching

► Unprecedented level of visibility of information at account and transaction level

► Identification of Superannuation and PAYGW underpayment

► Identifying patterns of late- and non-payment of employer obligations

► No need to wait until employees complain► ATO pilot of 85 employers and more recently 3,500 businesses

of employers filing under STP to date have

triggered an ATO Health Check rule.

49%


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Payroll Tax► Incorrect grouping

► Incorrect disclosures

► Incorrectly calculating fringe benefits for payroll tax purposes

► Not disclosing employee share schemes

► Significant payroll tax refunds

► Not disclosing contractor payments

► Large variances in the total Australian wages declared in each jurisdiction

Over the past 12 months, we have seen a significant spike in audit activity from State Revenue Authorities.



Avoiding an audit



Pressures on payroll

Payroll is one of the largest costs for many employers, but doesn’t typically have the technology and training spend like other areas of the business.


Surviving a Payroll Audit11

Robust process


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Regular reviews

Complete and accurate information

Staff training

Payroll manual

Appropriate checks and

sign off

Access to key payroll

documents

Documentation is key


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Checklists

Maintain copies of

workpapers

Document positions

taken

Ensure right people have

access

Be aware of statutory periods

Access to key payroll

documents

Audit survival pack


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Accurate and organisedpayroll data

Calculations and positions documented

Employee/contractor classification


Access to lodged returns and supporting

calculations

Data analytics


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Wage code review Testing Remediation| Surviving a Payroll Audit15

Data Analytics: Wage code review



Wage code

review

Compliance

Integrity

Risk management policy

Interpretational error avoidance

Validation checks

Documented policies

Wage code review

$600kSuperannuation underpayments

• 3 significant wage code changes• 5 years• $600,000 shortfall

• $790,000 liability• $800,000 admin fee• $1.2 million in penalties

$2.79 million in total



Data Analytics: Testing



Testing

Opportunities

Risks

System errors Historical processing

Overpayments

Deficiencies

$0

$2,000

$4,000

$6,000

Example: Australia

$4.3MSuperannuation overpayments

Ordinary time earnings

Difference in superannuation

$20,000

$10,000

$0

Actual super paid Notional super

Employee ID

Salary sacrifice Wage code error Remaining difference



Remediation: Submitting a voluntary disclosure

Future savings

Assessment by ATO

Penalty remission

Submission of voluntary disclosure

Recognition and quantification of

error

Implementation of action to correct error and ensure issue does not recur



What do I do if I get audited?



Don’t ignore it, it won’t go away…Raise awareness

internally

Collate information. Ensure workpapers support amounts

disclosedCommunication is key Negotiate



Contact details

Kylie Rusten

PartnerPeople Advisory Services -Employment Taxes and Data Analytics+ 61 2 8295 [email protected]



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© 2019 Ernst & Young, Australia. All Rights Reserved.APAC no. AU00003653

This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. Liability limited by a scheme approved under Professional Standards Legislation.

surviving a payroll audit

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