The horror of raw data

Digitization of taxation and its digital processing are a fait accompli. To claim that we are only at the beginning of this evolution would be kicking at open doors. The current situation brought by the pandemic is also an important catalyst. Anyone who cherishes the idea of conducting tax audits the way they used to be done some ten years ago is a daydreamer.

E-auditing has been in the spotlight since the internal reshuffling of the tax investigation services in 2015. The method has been applied more widely in the last two years or so. You might therefore say that it is the FPS Finance’s latest innovation. Unfortunately, there is no innovation without teething problems.

One of these shortcomings is that e-auditing is not regulated by law. In practice, the tax administration will contact your bookkeeper or accountant to request a backup of the electronically kept accounts in preparation for the tax audit. Yet, there is no legal basis to do so. The taxpayer can, but is not required to cooperate. This often creates an awkward situation. Practice also shows that the bookkeeper or accountant is often approached by the tax authorities without first informing the taxpayer that he or she is the subject of a tax audit.

The way the e-audit is conducted is a bigger problem. In the words of FPS Finance, “e-auditors have a keen eye for spotting secrets and exposing the fraud hiding between bits and bytes.” Those who only check data from behind a screen really risk having tunnel vision. This approach boils down to looking at and interpreting all the clues from a single presumably correct hypothesis, thus overlooking other explanations. In practice, this means that fraud is identified in cases where there simply is none. How is that possible? The e-auditors sitting at those high-tech computer screens are out of touch with reality and practice. Their assumptions rest on a utopian and infallible reality, yet no one is perfect. This also applies to programmers who write the software for companies. While the interface may look very nice in some cases, the actual software may not be user friendly. There may even be situations where human error is not taken into account in a business process. The path of least resistance is a universal law. Business processes are therefore not always executed perfectly. In such cases, the bits and bytes may tell a story that is different from reality.

The e-auditors sitting at those high-tech computer screens are out of touch with reality.

In some cases, the results of an e-audit are so fanciful that certain findings need to be discussed even within the tax administration. Especially when the auditor in the field does not agree with the abstract investigation results obtained by the e-auditor, and the two are therefore at odds with each other.

If we assume that the e-audit is here to stay, the implication is that a suitable framework urgently needs to be created for this specific audit method. It is imperative that adequate checks and balances are introduced. Why? Because anything can be proven with statistics, as the saying goes.

 

 

Published under