Implications of tax audit risk, consequences, aggressive behavior and ethics for compliance

Purpose This study investigates whether consideration of future consequences (CFC), Machiavellianism (MACH) and the perceived role of ethics and social responsibility (PRESOR) enhance understanding of the impact of tax audit risk on compliance. Design/methodology/approach A between-subjects experiment is conducted to test the hypotheses. A hypothetical tax audit case (or lack thereof) is used to create a high (low) perceived tax audit risk. The usable responses of 144 participants representing the general taxpayer population are analyzed. Findings The results suggest that taxpayers with lower CFC, MACH or PRESOR scores are more compliant when tax audit risk is high than low. In contrast, taxpayers with higher CFC, MACH or PRESOR scores are indifferent toward high or low tax audit risk. Research limitations/implications Research can elicit consideration of future consequences of being detected for taxpayers with lower CFC scores to increase compliance. Additionally, increased saliency of tax audit risk and detection of noncompliance in a tax audit can enhance the compliance of taxpayers with lower MACH scores. Dissemination of information via social media on the value of ethical and social responsibility of compliance can also increase the compliance of taxpayers with higher PRESOR scores. Practical implications This study helps researchers and the tax authority better understand the complexities of compliance and the ethical dilemmas that taxpayers face, especially when a considerable amount of cash income is involved. To deter underreporting of cash income, the tax authority can use social media to explain how data analytics tools can facilitate the analysis and integration of multiple sources of a taxpayer’s income and expenses. Originality/value Prior studies present participants with objective tax audit rates, such as 5, 25 and 30 (Cullis et al., 2006; Maciejovsky et al., 2007; Trivedi et al., 2003) or 50% (Maciejovsky et al., 2012) to investigate tax compliance. However, the actual tax audit rate is very low (about 1%) due to the limited resources of the tax authority (Alm and Torgler, 2011). To attenuate perceptions of unrealistic tax audit rates, this study operationalizes high (low) tax audit risk via a hypothetical tax audit case (or lack thereof) to examine the impact of tax audit risk on compliance.

The deterrence effect of real-world operational tax audits on self-employed taxpayers: evidence from Italy

We use a large administrative tax-returns panel dataset merged with a tax audit database to estimate the effect of real-world operational tax audits on subsequent tax behavior of a large sample of Italian self-employed taxpayers. Results from operational audits do not suffer from the fact that taxpayers are aware that they have been randomly selected for research purposes and, then, such audits are viewed as more of a signal about true audit rates by the taxpayer. Our empirical approach relies on fixed-effects difference-in-difference comparisons with an ex-ante matched sample of non-audited taxpayers. To address concerns about the endogenous selection into audit, we provide evidence for the common trends assumption. We find a positive and lasting effect of audits on subsequent reported income. However, in line with theoretical predictions, taxpayers do not increase tax compliance when the tax authority does not assess a positive additional income. Our results are robust to a variety of specifications and samples.

Does IRS Monitoring Deter Managers From Committing Accounting Fraud?

We examine whether monitoring by the Internal Revenue Service (IRS) affects managers’ decisions to engage in fraudulent financial reporting. We argue that IRS monitoring provides a disciplining effect reducing managements’ incentives to engage in rent diversion activities such as costly financial statement misreporting. Using information on IRS audit rates and instances of fraud disclosed in Securities and Exchange Commission (SEC) Accounting and Auditing Enforcement Releases (AAERs), we find evidence consistent with IRS monitoring providing positive spillover effects in reducing the likelihood of accounting fraud. Our results are robust to using a matched sample of fraud and nonfraud firms. Altogether, we find evidence that tax authorities provide positive externalities in reducing agency costs through monitoring and enforcement.

Translation into Practice: Dextrose Gel Treatment for Neonatal Hypoglycemia to Reduce NICU Admissions and Increase Breastfeeding Exclusivity

BackgroundOral dextrose gel is an evidence-based treatment that has been shown to reduce NICU admissions and support exclusive breastfeeding.PurposeWe summarize a knowledge translation project to introduce dextrose 40 percent oral gel to treat hypoglycemia or hyperglycemia. Implementation took place during the months of May, June, and July 2017.ResultsThrough chart audit, rates for NICU admissions and exclusive breastfeeding were measured for a three-month period before implementation and the three-month period after implementation.There were 234 doses indicated, 128 doses given, 93 doses missed, and 13 doses declined by parents in the first three months of implementation. Admission rates to the NICU for the groups audited were 13 percent in 2016 and 6 percent in 2017.Principles of knowledge translation were used to successfully introduce this change. Centers providing maternal newborn care should consider similar projects to enable introduction.

Early complications of total hip and knee replacement: a comparison of outcomes in a regional orthopaedic hospital and two independent treatment centres

INTRODUCTION There is anecdotal evidence of poorer outcomes from prosthetic joint replacement performed in independent eatment centres but very few comparative studies. PATIENTS AND METHODS We compared the early re-operation, dislocation, re-admission, major wound infection and audit rates of 880 total hip (THA) and 874 total knee (TKA) arthroplasties carried out at a regional orthopaedic hospital (Avon Orthopaedic Centre; AOC) with 368 THAs and 365 TKAs from an NHS (WGH) and 67 THAs and 86 TKAs from a private hospital (CNH) independent treatment centre. RESULTS Early re-operation rates were 9% at CNH, 1.4% at WGH and 0.6% at AOC after THA and 8% at CNH, 1.9% at WGH and 1% at AOC after TKA. After THA, dislocation rates after THA were 6% at CNH and 1.8% at both WGH and AOC. Re-admission rates were 13% at CNH, 0.6% at WGH and 1.2% at AOC. Major wound problems were 20% at CNH, 3.8% at WGH and 0.4% at AOC after THA and 19% at CNH, 1.9% at WGH and AOC (1.1%) after TKA. After TKA, re-admission rates from CNH were 13%, 1% at WGH and 1.1% at AOC. AOC and WGH audited their outcomes. None were available from CNH. CONCLUSIONS Results and audit from independent treatment centres are variable and patients should be warned of this before undergoing treatment at them.