Many DDS vendors believe they do not need a 2011 Audit or Review. The California State Assembly Bill clearly requires all DDS vendors whose revenues exceed $250,000 need a Reviewed Financial Statement from a Certified Public Accountant. DDS Vendors whose revenues exceed $500,000 in 2011 require a full audit. This is not based on partial year nor your orientation (fiscal or calendar year) This is California State Law and can not be waived by any DDS Regional Center.
As an CPA Audit Firm we are very careful to be certain a vendor actually needs an audit. We look at vendor’s service codes and revenues and rates. We can not complete a 2012 audit without first checking for a need for a 2011 audit. It 2011 revenues call for an audit, the 2011 audit must be completed before we can issue a passing 2012 audit.
I am happy to discuss this requirement more with any DDS vendor as I know this has been confusing in the past.
We are a bit farther along in the DDS Audit Process. One of the most frequent questions is about the 15% rule for DDS Audits. The rule is complex, but also it does apply. A little study of the actual California State Senate Bill sheds more light on the subject. There are actually two parts to the bill and the later clarifies which funds are affected and not affected by the 15% overhead. The variable is the vendor’s classification and rate codes. It is easier to address each individual case rather than describe each scenario on my blog.
Another common hurdle is record keeping. Many smaller entities have kept manual records. These can range from Excel Spread sheets, to a notebook with entries to a box full of receipts and bills. AICPA Audit Standards require records to be in a standardized format. This allows the audit firm to be audited. All California CPA firms who perform audits and reviews are themselves audited. Acceptable record keeping would be software like QuickBooks, Peachtree, Great Plains. Its best to find software which your CPA or Accountant is already familiar with and has the software in their system.
As an Audit firm we are not able to be proficient in every type of accounting software. Its difficult to initially change over your records, but in the long run you will have better more assessable information and pay less for your review or audit.
Below is a link for IRS audit software requirements
This is my latest information from California DDS its a bit long to post, but here is the link. I hope this is helpful to you. If you have further questions, please post to this site or call me. I am more than happy to help. DDS Audit Letter
We will update you are we have more information.
Recently PC Magazine published an article on how to stay safe on the internet. These are basic ideas but I thought worth repeating. Good advice is always worth repeating.
1. If you write into blogs, don’t use your e-mail address as your user name. Spammers and Web Crawlers love to copy these off public places and send your lots of span and ads. Don’t put your email address in any Facebook comments. Just because you have good privacy settings does not mean all your friends have good privacy settings.
2. Do not write back to spammers. Your angry note asking the to remove you from their list actually verifies your address. They can now sell your email address as confirmed and charge more money.
3. I know you are smarter than this, but do not click links from people you do not know. The bigger the prize the bigger the hoax. You always hope your anti virus software will protect you, but how lucky do you feel?
4. Do not give people your password. They may only want the password for a harmless log in. The problem is that that password may also give access to your credit card or bank account.
5. Do not do banking over public WiFi. You have no idea how secure the network is. The shop owner may be saving every bit of your info which passes through his server. The guy next to you could use Firesheep to copy your session. Only use secure networks for your finances.
These are really basic simple steps, with no guarantees, but they are a good start.
This is from the IRS Web Page and I hope you find it interesting.
“IRS Tax Tip 2011-71, April 11, 2011
After you file your taxes, you will have many records that may help document items on your tax return. You will need these documents should the IRS select your return for examination. Here are five tips from the IRS about keeping good records.
- Normally, tax records should be kept for three years.
- Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
- In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
- Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
- For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on the IRS website at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).”
Publication 552, Recordkeeping for Individuals ( PDF 61K
New IRS ruling gives businesses a break. Need to re classify a worker? Read this straight from the IRS guidelines.
New IRS rule on worker classification If you had employees classified as contract workers here is an easy way to get them back on your payroll and avoid an audit. The above link gives you the whole code, but the meat of the article says:
“The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and lower the burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.
To be eligible, an applicant must:
- Consistently have treated the workers in the past as nonemployees,
- Have filed all required Forms 1099 for the workers for the previous three years
- Not currently be under audit by the IRS
- Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers
Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.”
There are some penalties, but not interest or fines. Cost is approx 1% of total wages for 1 year. As always, I recommend consulting your CPA tax professional on this mater before taking any action.
IRS Audit Tip Offs
Low gross profit margin
High auto expenses
High business use of autos
Number of Autos used in the business
High travel and entertainment
Little or no profit from business operations
High number of deductions
Estate tax return
At home office
Official documents which are incorrect
Large casualty loss deduction
The IRS.gov website claims audits are triggered by:
- Random selection and computer screening – sometimes returns are selected
based solely on a statistical formula.
- Document matching – when payor records, such as Forms W-2 or Form 1099,
don’t match the information reported.
- Related examinations – returns may be selected for audit when they involve
issues or transactions with other taxpayers, such as business partners or
investors, whose returns were selected for audit.