The Invoice That Had No Sales Tax

Background:

The client was a food production facility outside of LaGuardia Airport.  In order to prepare for a sales tax examination. We set out to review transactions to determine if there is a likelihood of exposure for uncollected sales tax.  The client is in the middle of a renovation of its building facility.

Red flag:

We find a purchase for equipment that is subject to sales tax, but no sales tax was charged.   Later we find a second payment to the same vendor for identical equipment and this time the invoice has a charge for sales tax.  The question is why?  Before the equipment vendor is contacted we realize that there is a good likelihood that the first payment was an  on-account deposit.   The second payment was for a final prepared invoice.   An apparent duplicate payment.

The initial solution:

In speaking to the CEO I suggested we expand our review to find other potential duplicate payments.   The preparation of a project budget with comparison of contract amounts and billings to actual costs finds that quickly.   A significant amount of duplicate payments were found.

The cause:

The building renovation project resulted in a quick stream of orders, contracts and invoices that the office was not prepared for.  Errors resulted.

The preventive control:

Create a project budget at the outset of a project to monitor costs and modifications and payments for those contracts.  The project budget should be updated at a tempo that keeps pace with the progress of the project.