Opening Enquiry Letters Asking For Your Firms Software Details

Opening Enquiry Letters Asking For Your Firms...

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During a recently ended enquiry the Inspector requested information as to what business software the accountancy firm had use of, specifically Accounts, Tax, Word Processing etc, and asked for back ups on disk. I am sure this request was outside their remit. In any case I managed to side step this commercially sensitive issue. No computer having been used to prepare the accounts it being a simple income and expense job!

Anyone else had this one? And; How did you react or not react so to speak?

Finally are IR developing a special software intelligence section?
Robert Mitchell

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By AnonymousUser
31st Jan 2002 16:28

IDEA
The Revenue were piloting IDEA many years ago and due to its success they decided to make it available to all investigators and acquired a national licence last summer. The opening letter reported here is now typical and has been widely used since last October on all but the smallest of businesses.

Grant Thornton was a development partner for IDEA and has been using the package for years, particularly in audit and forensic accounting. The tax investigation team has also been using the package for sometime to both assist in the investigation work required to compile a Hansard disclosure report to Special Compliance Office, and as an assurance product.

As noted by other contributors the searching capabilities of the package are extensive and, used with the right search terms, the potential to detect evasion is high. Of course, the system is only as good as the experience and imagination of the person defining the search terms. There are many other functions available too. Benfords law, the statistical analysis which was vogue with investigators a couple of years ago, for example, is an add in function.

We have used the offer of a live review of the client computer records using IDEA on our own systems to an investigator many times. In the right case the investigator can then be persuaded to end an enquiry or a particular aspect of an enquiry can be resolved. However, care is required with this and a good understanding of what is being made available and what might be found, is needed.

I have seen many examples of advisors handing over client back up discs for, say, SAGE, without having any real idea of what they are giving the investigator. Many back ups cover several years and unless the data period is refined the investigator can be given more than he is legally entitled to. IDEA is useful to the advisor here. It is a relatively easy task to use IDEA to strip out data relating to the investigation period only. Investigators do try to insist on the original data format (i.e. SAGE) for this very reason but they find it very difficult to resist the offer to put the data in a format (IDEA) they will need it in anyway. Using IDEA in this way will also allow the removal of non-accounting matter which might otherwise be given over with the original back up files.

IDEA will become used more frequently and advisors need to become familiar with it, and similar products, if they are to keep pace with the investigators.

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By michaelblake
21st Jan 2002 23:20

IDEA it is!
I think Peter probably has the correct explanations.

Both H.M. Customs and Excise and the Inland Revenue, has the use of the 'IDEA' data interrogation tool, and they can use this to test both the validity of returns and the quality of the underlying data used to compile them.

A company's data, and therefore its returns are only as good as the company's procedures for coding expenses, and the staff who imput the data (often low paid with no knowledge of what they are inputting or what it will be used for). Where a large company has millions of expense items, and sloppy or non uniform procedures across dozens of offices, there is the capacity for mistakes. Taken together with an audit materiality limit that might be say £500,000, or in the millions, and the capacity for accounts being incorrect is huge. This is what the IR are after.

The IDEA software is a powerfull tool that can interrogate data quickly. For example you can ask questions of say 1 million lines of data and the answer will come up in seconds. An inspector analysing 1 million lines of written data would take a little longer - even if he were able to look at one line per second - well do the sums yourself!

A typical question IDEA might pose might be to identify invoices that have no description attached in the narrative field, or say to look for invoices that mention specific words ie "new" or "improvement" when analysing invoices for repairs expenditure. An alternative could be to list invoices by size, where you may find evidence of items being duplicated (perhaps due to carelessness or fraud within the company). The possibilities are endless.

The tool was meant for LBOs who might be looking at large corporates that would have data of this size, but the training has filtered down to some districts and inspectors are trying out their new(ish) toy on smaller cases.

Although as Peter has said s127FA1988 extended the definition of documents to include computer records, thereby removing a difficulty for the IR where no paper records existed, it is not clear whether the IR could insist on interrogating computer systems where the same documents exist in paper form.

Where the documents in question are produced by computer, the Revenue is given ancillary powers of access to the computer, and to require reasonable assistance in inspecting and checking the operation of the computer. In practice access to computer records is arranged where possible with the assistance of the business’ own computer staff.If, exceptionally, it is necessary for the Revenue’s own staff to have direct access to a computer, only officers with suitable computer experience can be used.

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By DavidT
22nd Jan 2002 08:17

IDEA
We had this topic covered on a recent CPD course. It is apparently going to happen more and more.

For interrogation we were told that they are likely to search for specifuc peoples names or the word drawings etc to see if personal expenses were being properly classified etc.

Our lecturer wondered how long it would be before deliberate misspostings happen in order to defeat the Revenue system. I suppose to some extent this will happen in that people will start to pick up on what the revenue are doing and try to avoid using certain words and phrases where possible.

Does the system pick up misspellings? Ie if someone consistently spelt repairs, repiars would it still get picked up.

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By AnonymousUser
18th Jan 2002 17:38

An IDEA?
The Revenue now have software developed by the Canadian Revenue[I understand] that can interrogate computer records and it is being used in investigations, or enquiries if you prefer the gentler sounding new word for them.

The name of the software escapes me for now, I think it is called IDEA and can be acquired commercially.

Basically it will search out those things that may be dodgy eg credit notes, cheques cleared on the same day etc.

I would suspect HMIT request was something to do with this

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By AnonymousUser
21st Jan 2002 11:45

The Authorities
HMIT will always informally request information, indeed he usually has to prior to a section 20 notice. You do not have to respond to an informal request, as Nicki points out, but if HMIT proceeds to a formal order the answer to your question is that the information will have to be produced.

HMIT would probably issue a s20[3]TMA order for you to produce documents. s127FA1988 deals with computer records and effectively makes them documents and gives HMIT right to access your computer and requires you to assist him.

I would say that any request to identify the software you are using could be refused because this is asking for particulars, not a document, and s20[3]only requires documents.If HMIT really wants to know then he will proceed under s20[3] as described.

You would have to decide, on the merits of each case, whether to co-operate with HMIT or 'go formal. If you decide to 'go formal' I would suggest agreeing this with your client in order to avoid difficulties with him when it comes to penalty mitigation time.

The Kingston Smith problem was that the hard disk contained information outside the scope of the search warrant the Revenue had obtained.


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By Abacjm
17th Jan 2002 17:44

Software enquiries from Inspector
Usually the Revenue are quite the reverse and do not want other people's software contaminating their own "superior" software. Could this have been a case of the zealous Inspector going to process the case at home on his home PC to save listing again and some number-crunching?
Either that or he was so impressed with the documentationthat he wanted a free copy for personal use! LOL!
Normally, the Inspector is only entitled to see information and records used "in the preparation and completion of the Income tax Return." I don't think this extends to a copy of software, even if it was used.

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