Unfair Auditing Practices Threaten Your Company

Would you hire someone to file your personal income tax returns if you knew they stood to earn more money by inflating your tax liability? Until a few years ago, the state and many local government units essentially did just that, engaging third-party auditors for personal property tax assessments on a contingency fee basis. Contingency fee audits create an inherent conflict of interest because larger payouts for higher audit assessments can incentivize auditors to arbitrarily inflate a taxpayer’s liability. And these unfair practices could become the standard once again if important legislation fails to pass the General Assembly in 2015.

In 2012, legislation was passed (HB462/SB847) restricting the NC Department of Revenue, the State Treasurer’s office, counties and municipalities from hiring auditors on a contingency fee basis, requiring that audits be paid on a flat-fee or hourly-fee basis. For counties and municipalities, the 2012 legislation became effective July 1, 2013, and is scheduled to sunset on July 1 of this year. If that sunset is allowed to take place, North Carolina taxpayers will once again be under the gun of potentially unfair auditing practices.

Fortunately, bills introduced in both legislative chambers in 2015 (SB682/HB542) will remove the sunset to keep the restriction on contingency audits in place. Yesterday, Senate Bill 682 gained approval in the Senate Commerce Committee, and is now expected to move to the Senate floor for consideration.

While audits are necessary to certify sound financial practices are maintained, the North Carolina Chamber will fight to ensure we use fair assessments that pay auditors on a flat-fee rather than a contingency fee basis. We understand the profound impacts this issue has for our members, and we will continue to keep you updated on the progress of this legislation throughout session.

Gary J. Salamido
Vice President, Government Affairs
North Carolina Chamber

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