Chapter VII — Grocery Store Audit Checklist
- Gross Sales
- Taxable Sales
- Selection of Test Periods
- Examination of Records
- Sampling/Estimation Issues
The following checklist has been developed as a guideline to be used in completing a grocery audit. The items on this checklist are not all-inclusive, but are meant to serve as a guideline to the auditor.
- Do gross sales include any of the following?
- Sales tax collected
- Money order sales
- Gasoline sales
- Delivery income
- Sales of hunting or fishing licenses
- Sales of Lotto tickets
- Meat processing revenue
- Vending machine income
- Sales of amusement admissions
- Consignment or commission sales
- Snack bar or deli sales
- Have amounts paid by manufacturers to retailers for redeemed coupons been included in gross sales?
- Are separate sales records maintained for different departments (bakery, delicatessen, gasoline sales, meat, produce)?
- If so, can sales and purchases be segregated for the applications of the taxable percentage factor
- Can the method of recording sales through vending machines be determined?
- How many cash registers are present?
- What is the product mix? Is there a higher ratio of taxable items than normal?
- Determine method of reporting taxable sales
- Separate tax key on cash register
- Computer generated sales register
- Retail Inventory Method
- Gross Profit Method
- Purchase Ratio Method
- Estimated taxable percentage
- 15% Method
- Other (describe)
- Review list of taxable items with grocer
- Has the taxpayer failed to collect tax on any taxable items?
- Has the taxpayer collected tax on any nontaxable items?
- Are separate sales and purchase records maintained for the delicatessen department, lunch counter, meat department, etc.?
- If so, can an audit of these departments be performed separately and apart from the grocery operation?
Selection of Test Periods
- Have there been any changes in the taxpayer's business operation during the audit period?
- Addition of beer and wine sales
- Addition of gas pumps
- Addition of "food to go" counter or delicatessen
- Addition of bakery department
- Addition of meat department
- Do sales fluctuate or increase at a fairly moderate rate?
- Is the reported percentage of taxable business relatively uniform throughout the audit period?
- Is there any noticeable effect of seasonal fluctuations?
- Are there any products carried for only certain seasons of the year?
- Christmas trees and ornaments
- Minnows and fishing supplies
- Hunting supplies
- Has the taxpayer used the same reporting procedures throughout the audit period?
- Are adequate records available to select test periods representative of all years and seasons of the year?
- Does the taxpayer agree that the test periods selected are the most representative of the business operation throughout the audit period?
- If there have been any significant changes in the business operations, have the test periods been selected to reflect these changes?
Examination of Records
- Has a receipt been issued for all records removed from the taxpayer's premises?
- Has a "cut-off" date been established to include all purchases received/paid within the periods tested?
- Have all supply items been eliminated from gross purchases (grocery bags, deli supplies, etc.)?
- Have adjustments been made for purchase returns within the cut-off period?
- Have adjustments been made for self-consumed merchandise?
- Have adjustments been made for in-store transfers of merchandise?
- Are beginning and ending inventory figures available for the test period?
- Can inventories be identified by product or department?
- How were inventories priced? At retail? At cost?
- Are adjustments necessary for new stores or new departments establishing a base stock inventory?
- Have adjustments been made for any unusual losses such as theft, spoilage, or fire losses that can be substantiated by police reports, insurance claims, or inventory studies?
- Have the necessary adjustments been made for customer purchases by food stamps/Lone Star Card?
- Does the taxpayer have any purchases or inventory on consignment?
- Check the method of handling sales made through vending machines and adjust purchases and/or sales accordingly
- If the grocer is preparing sandwiches or hot food for immediate consumption, can amounts of the grocery purchases used in the preparation be obtained/reasonably estimated?
- Was the allowance made for theft, spoilage, and any errors inherent in the sampling/estimation technique
- Were the audit procedures adequately discussed with the taxpayer?
- If an estimated audit is being performed, was the taxpayer adequately notified of the estimation procedures utilized?
Although an audit of a grocery/convenience store will rarely utilize true sampling procedures, an estimated audit will more than likely be performed. A Notification of Estimate will need to be issued if one or more of following conditions are met:
- The taxpayer refuses to provide all or part of the records requested by the auditor
- The taxpayer does not have all or part of the records requested by the auditor
- The auditor uses the Purchase Ratio Method but projects the computed percentage into an estimated population
- The auditor uses markup percentages and product mix percentages from AP 92 because the taxpayer's records are incomplete or unreliable and the taxpayer is out of business
- The auditor obtains third-party information because the taxpayer's records are incomplete or unreliable
|NOTE:||Before estimating any audit the auditor needs to follow the instructions in AP 70 regarding issuing a subpoena to obtain taxpayer records.|
If a time period is utilized, the amounts obtained must be evaluated in the applicable section of the Audit Plan in order to ensure that the amounts are reasonably similar throughout the audit period. Any large variances must be explained. The averages of the sample base and of the population base must also be evaluated, and any large variances similarly explained.
For more information on sampling issues and procedures, please refer to Audit Division's manual Audit Sampling Training and Development Course.
Maintained by the Audit Division