EPI Report: Risk Based Audit Capacity Needs Assessment

The Government of Georgia has recently approved a new Revenue Code, which went into effect January 1, 2011. The new Code introduced a new tax regime, allowing the State Revenue Service (SRS) many new authorities. In addition, the SRS and the Audit department have undergone a change in leadership as of January 2011, and are seeking to utilize this new vision and authority to conduct more effective audits. Although not utilized, many tools have recently been introduced into the Audit Department, such as risk based audit selection systems, Field Audit, and Large Taxpayer Inspectorate. As approximately half the population of Georgia is located in Tbilisi, the Tax Department is based mostly in Tbilisi, with regional Service Centers scattered around the country.

In an effort to address inadequate audit activities, the Tax Department has withdrawn field audit activities, conducting all audits as desk audits from Headquarters. The Tax Department has also eliminated the Large Taxpayer Unit, distributing the auditors among the many desk audit units at Headquarters. No audits are conducted from the regional Service Centers. Tax returns selected for audit activity are personally identified by the First Deputy Head of Tax Department, as he is unsure of the effectiveness of the Audit Selection System installed at the Revenue Service. All cases appealed from the Audit Department are personally reviewed by the First Deputy Head of Tax Department before being sent to the Appeals Department.

It is the desire of the Tax Department to begin anew with appropriate processes and procedures, organizational separation, and proper IT support. To this end a Risk Based Audit Capacity Needs Assessment was performed. Laws, background information, and reports of other advisory bodies were utilized. Interviews of Heads of Departments in key positions and business leaders were conducted to determine their vision of an effective, fair, and efficient Audit Department for Georgia. This report covers the entire Audit Department, and includes relations with and dependency upon Revenue Service Departments (such as IT or Human Relations).