1. Audit Core Team Responsibilities Procedures Deadlines Presented by: Sandra Hoffman, Mike Chertude, Mindy Bates, and Steve Krovitz AD14001 2014 CSP Contract Compliance Audit

2. Audit Core Team What is this?? The Audit Core Team is defined within Rule 806.3 – Administration of the Compliance Audit of Streamlined Sales Tax Rules and Procedures.

3. Defined Per Rule Rule 806.3.1(C) – Authority The Streamlined Sales Tax Governing Board designates the Audit Core Team to perform contract compliance audits for member states and to coordinate the tax compliance audits of Model 1 seller transactions processed by the CSP as authorized by the Governing Board.

4. Defined Per Rule Rule 806.3.2(E) – Audit Core Team The Audit Core Team is a group of designated representatives from full member states who are responsible for coordinating compliance audits, performing contract compliance audits and compiling feedback reports for the Governing Board.

5. Defined Per Rule Rule 806.3.4(B) – Audit Core Team - Reporting Relationship The Audit Core Team will report to the Streamlined Sales Tax Governing Board Executive Director or its designee for audit assignments, guidance and support.

6. Who is the Core Team? Sandra Hoffman Kentucky Department of Revenue Mike Chertude Washington Department of Revenue

7. Who is the Core Team? Mindy Bates Indiana Department of Revenue Steve Krovitz Minnesota Department of Revenue

8. Lets go over the Core Team concept?

9. Simply stated: The Core Team will 1.Complete audit steps and procedures to assess whether the CSP complied with the detailed requirements of the CSP contract. 2.Review areas generic to all the SST Member and Associate Member States (e.g., whether compensation is calculated in accordance with the contract). 3.Coordinate a tax compliance audit of the CSP transactions with the State Auditors.

10. Simply stated: The State Auditors will 1.Complete the tax compliance audit steps as part of the CSP contract audit that are specifically related to their state (e.g., whether the transactions were taxed correctly). 2.Complete a Sales Tax Audit using their specific states policies and procedures.

11. The SST Rules Define the Compliance Audit Process Rule 806.3.5 – Compliance Audit of a CSP A. The Compliance Audit of a CSP and its Model 1 sellers will include a contract compliance audit of the CSP and tax compliance audits of Model 1 seller transactions processed through the CSPs system. B. The contract compliance audit of the CSP will be performed by the Audit Core Team. The tax compliance audits of the Model 1 seller transactions will be performed by the member states under the coordination of the Audit Core Team.

12. Clear as Day! (Right!!!!)

13. The Audit Core Team: Will evaluate all pertinent elements of the current contract between the CSPs and the Streamlined Sales Tax Governing Board and assess each CSPs compliance with the terms of the contract. As part of this contract compliance audit, the core team will audit areas where they are in a unique position to review. Will advise the Member and Associate Member State Auditors if problems exist that would impact the tax compliance audits.

14. Will perform tax compliance audits on sales transactions of Model 1 sellers processed by the CSPs. As part of the CSP compliance audit process, they will report audit exceptions to the Audit Core Team (e.g., tax returns not filed timely). The Member and Associate Member State Auditors:

15. When the rubber hits the road, it could still be a little bumpy from time to time. Why….?

16. Because Although this is the fourth audit cycle, there have been several CSP contract changes that impact the tax compliance audit (e.g., changes to Appendix F regarding quarterly downloads). Theory does not always equal practice. Sometimes the road to knowledge can be full of potholes (large and small).

17. Solution The Core Team will: work hard attempt to communicate effectively with everyone be flexible in its approach keep the goal in focus strive to hold to the audit timeline The SST Audit Committee has: listened to the concerns of the Core Team, the CSPs, and the states diligently attempted to address areas of concern learned during previous audit cycles

18. Goal To complete a timely, accurate, and professional audit that meets the needs and expectations of the Streamlined Sales Tax Governing Board.

19. The Core Team will provide the State Auditors with two reports. A preliminary report of findings will be issued to the state auditors by the end of May 2014. This report will include any audit results discovered by the Core Team that could be relevant to the tax compliance audits. The final contract compliance report will be distributed by the Governing Board Executive Director to each Member and Associate Member State.

20. Audit Core Team Responsibilities Rule 806.3.4(D)(1) The Audit Core Team is responsible for performing contract compliance audits and coordinating tax compliance audits with member states. Rule 806.3.4(D)(2) Outlines eleven (11) specific tasks the Audit Core Team is responsible for completing.

21. Rule 806.3.4(D)(2)(i) The Audit Core Team will: Create a uniform audit plan with a timeline to establish the projected dates that various audit steps are to be completed by the state audit representatives and the Audit Core Team. The audit timeline has been established and will be reviewed in the following slides.

22. Important Dates for Member and Associate Member State Auditors Monday January 13, 2014 Audit Core team submitted questionnaires to member/associate member states. Monday February 10, 2014 All questionnaires must be returned to Audit Core Team by end of business today. Monday February 17, 2014 The CSPs will have completed the delivery of the quarterly download files for quarter 4 per Appendix F.

23. Important Dates for Member and Associate Member State Auditors February 17, 2014 through February 28, 2014 Follow-up with Member/Associate Member States to ensure that they have received all CSP download files and that they have thoroughly completed their questionnaires. March 15, 2014 to June 15, 2014 Member/associate member states will review the sales transaction records provided by the CSP and prepare reports that notify the Audit Core Team of their findings. The member/associate member state auditors should immediately advise the Core Team if they discover any reporting problems not previously reported on their state questionnaires.

24. Important Dates for Member and Associate Member State Auditors FridayMay 30, 2014 The Audit Core team will forward to member/associate member states preliminary reports detailing work completed to date and outlining any potential audit adjustment areas that are discovered. MondayJune 16, 2014 The member and associate member states Preliminary State Tax Compliance Feedback Audit Reports must be forwarded to the Audit Core Team by the end of business on June 16 th.

25. Important Dates for Member and Associate Member State Auditors June 15, 2014 to July 10, 2014 The Audit Core Team will work with the CSPs and the states to resolve any issues that are a result of communication problems or misunderstandings. July 10, 2014 to August 11, 2014 The CSP will review and comment on the preliminary findings of the compliance audit. Comments will be sent to the Audit Core Team and member/associate member states. FridayAugust 15, 2014 The member and associate member states Final State Tax Compliance Feedback Audit Reports must be forwarded to the Audit Core Team by the end of business on August 15 th.

26. Important Dates for Member and Associate Member State Auditors August 11, 2014 to September 14, 2014 The Audit Core Team and member/associate member states will amend their findings, if necessary. MondaySeptember 15, 2014 The final contract compliance audit report on each CSP will be forwarded to the Executive Director.

27. Rule 806.3.4(D)(2)(g) The Audit Core Team will: Acquire a list of sellers represented by each CSP and provide this information to the Streamlined Sales Tax Governing Board member states. This information will be requested and forwarded to the various states. Audit Core Team Responsibilities (Continued)

28. Rule 806.3.4(D)(2)(h) The Audit Core Team will: Coordinate with state auditors to ensure they have received a download of the audit work files from the CSP. The states should have already received the quarterly downloads from the CSPs except for Quarter 4 of 2013 which isnt due until February 15. By no later than March 15 all the data will be summarized and placed in your states ShareFile folder.

29. Rule 806.3.4(D)(2)(e) The Audit Core Team will: Verify tax collected was remitted to the appropriate tax authority. 1.) The Core Team will verify that all tax collected is remitted to a state. 2.) The Core Team will rely on information received from the states that the tax was appropriately and timely remitted.

30. Rule 806.3.4(D)(2)(f) The Audit Core Team will: Verify sales were accurately reported by the CSP/Seller on simplified electronic returns (SERs). 1.) The Core Team will verify that simplified electronic returns are being filed by the CSP for all sellers. 2.)The Core Team will review the CSPs procedures for extracting the SER data. 3.)The Core Team will rely on information from the states that the SERs are accurate.

31. Rule 806.3.4(D)(2)(d) The Audit Core Team will: Verify appropriate entity use exemption data elements are captured by the CSP system. 1.) The Core Team will evaluate the CSPs system to be assured it has the ability to capture exemption data elements. 2.) The Core Team will verify that exemption elements are being captured. (The Core Team cannot be responsible for auditing whether a purchaser is claiming a proper exemption; it can only be responsible to document that the CSP is capturing the correct elements.)

32. ATTENTION !!! The next two areas to be discussed could result in audit findings relevant to the tax compliance audits.

33. Rule 806.3.4(D)(2)(b) The Audit Core Team will: Evaluate the CSPs system and processes to verify compensation is calculated in accordance with the contract. 1.) The Core Team will evaluate the CSPs system and processes to be assured it is calculating compensation as dictated in the contract. 2.) Gross compensation figures will be reviewed and verified. 3.) The Core Team will review and verify that compensation is being properly allocated to the states.

34. Compensation The method in which compensation is calculated is addressed in Section D of the current contract between the CSPs and SST Governing Board. The compensation formula can be reviewed in section D.5, the rate adjustment process is outlined in section D.6, and resetting rates annually is addressed in section D.7. It should be pointed out that effective January 1, 2011, rates of compensation shall reset on January 1 of each year. Prior to calendar 2011, the reset dates occurred twelve months from the month in which the seller first remitted tax as a volunteer seller.

35. Rule 806.3.4(D)(2)(c) The Audit Core Team will: Verify appropriate procedures for mapping exist, are in conformance with the mapping requirements, and are followed in the initial mapping setup, as well as during updates and corrections to mapping. 1.) The Core Team will evaluate the CSPs procedures for implementing Mapping. 2.) The Core Team will complete audit steps to document whether product descriptions in the data downloads accurately depict the sellers invoice level description.

36. Rule 806.3.4(D)(2)(a) The Audit Core Team will: Determine the CSPs level of compliance with the terms of the CSP contract. (Questionnaires and specific tests will be used to assess the CSPs contract compliance.) The Audit Core Team will issue questionnaires to the CSPs, each Member/Associate Member State, and the Office of Executive Director addressing various elements of the contract. The completed questionnaires will be analyzed and used as the starting point of the contract compliance audit. (continued)

37. The SST Audit Committee has isolated areas of definite audit interest in the CSP contract. The Audit Core Team will specifically look at these areas and complete various compliance audit procedures to assess the CSPs compliance with the contract. Rule 806.3.4(D)(2)(a) - continued

38. Rule 806.3.4(D)(2)(j) The Audit Core Team will: Compile the feedback (findings) reports from the member states, summarize the findings and report to the Executive Director of the Streamlined Sales Tax Governing Board. The summaries must comply with confidentiality restrictions that apply to the SST Governing Board regarding disclosure. Continued – next slide

39. For each CSP, the Audit Core Team will incorporate its findings from the contract compliance audit with the (finding) feedback reports from the Member and Associate Member States into a final compliance audit report to be issued to the Executive Director of the Streamlined Sales Tax Governing Board. The Executive Director and the Governing Board will use these audits to evaluate the CSPs for contract renewal. Rule 806.3.4(D)(2)(j) - continued

40. Final Audit Report Rule 806.3.5.3(C) The report on the audit findings to the Executive Director will contain general information on errors found and will not contain specific taxpayer information to ensure the confidentiality of taxpayer information.

41. TIME WILL BE PROVIDED AT THE END OF THE WEBINAR FOR QUESTIONS ???

42. Thank You & Good Luck Audit Core Team Sandra Hoffmansandra.hoffman@ky.gov859-371-9049 x70113 Mike Chertudemichaelc@dor.wa.gov360-256-2081 Mindy Batesmbates@dor.in.gov765-457-0525 x80036 Steve Krovitzsteve.krovitz@state.mn.us651-556-6017