Incoming and outgoing invoices provide important information about the scale of indirect tax risks within the company. By selecting a number of transactions either judgmentally or by applying a statistical sample access to that information is obtained. 

Statistical sampling has the added benefit of allowing the determination of the exact amount of any supplementary tax assessment. For this reason, the Dutch tax authority also prefers sampling as a monitoring method.

In the working method, the same parameters as the Dutch tax authorities can be used. If an organization chooses a different method, then the tax authorities will conduct their own sampling.

A "pre-audit" statistical sampling offers insight into the tax risks that an enterprise encounters with respect to indirect taxes. In addition, giving only instructions and training is, in practice, insufficient for keeping "control." A periodic audit can help establish whether internal instructions are actually observed, whether they are adequate and whether they require adaptation to new transactions, for example.

Statistical sampling has the added benefit of allowing the determination of the exact amount of any tax assessment by the tax authorities

A "pre-audit" statistical sampling performed ‘internally’ offers thus insight into the tax risks that an enterprise encounters with respect to indirect taxes. Furthermore, for the tax department, this is an efficient and effective way to test the effectiveness of its Tax Control Framework.

The result could be used to get indirect taxes higher on the priority list, since managing of material risk that are quantified falls within the KPIs of a CFO

Work method

  • Delivery - process owner delivers files or supplies the necessary information using standard ERP system functionality - Subject Matter Expert (SME) provides instructions for this.
  • Sampling - SME conducts the sampling. The client is instructed to gather the selected (physical) invoices, declarations, receipts or other documents.
  • Assessment - SME then evaluates the delivered material and determines the correctness of the VAT entries based on the tax authority's parameters. In case of incorrect VAT entries and errors, we calculate the potential additional VAT assessment.
  • Measures - SME formulates argumentation and help draw up and improve the (risk management) strategy for future VAT audits.

Effectiveness of Tax Control Framework – single audit via statistical sampling

In order to quickly gain insight into the level of tax risks for all tax types (calculation of the potential assessment), the single audit method of tax authorities can be used.

Single tax audit This method provides a quick insight into the performance of the Tax Control Framework since the results can be used to evaluate whether or not these are within the risk tolerance limits of the company.

An overview of this method is presented below.

The term ‘Single Audit’ originates from the government accountancy. Initially, it referred to an audit simultaneously carried out for multiple supervisors/regulators and for whom the controlled has an accountability to report to each of the supervisors/ regulators.

Because of such a single audit much unnecessary duplication of work can be avoided. After all, separately monitoring different type of reports that all originates from the same (financial) accounting system, leads to extensive audit burden. A single audit reduces that burden.

For the purpose of the Horizontal Monitoring, the Dutch Tax Authority also uses the term ‘Single Audit’. This encompasses simultaneous monitoring of all relevant different tax types, such as:

  • Corporate Income Tax
  • Value Added Tax
  • Wage tax
  • Excise and Customs duties
  • Etcetera

The Tax Authority previously used the term ‘integrated control’ for the same concept. Although the Tax Authority is only a single party, the single audit can still, as with other single audits, limit the audit burden.

In order to ensure sufficient depth, each ‘single audit’ must be performed by specialists. The various fiscal (financial) statements all require control and therefore the use of different tax expertise is essential.

Most of these ‘single audits’ will have to be monitored by a multidisciplinary team and in addition to audit expertise, knowledge on different types of tax must incorporated.

What makes the fiscal ‘single audit’ special is that the accuracy with which the Tax Authority assesses the collection of tax returns of a taxpayer is a priori expressed in terms of tax money. That is, the financial statements to be assessed are often expressed in monetary units of the base amounts of the different taxes.

A few tax examples

  • Corporate Income Tax – the General Ledger, and thus the CIT return, only includes revenues, expenditures and balance sheet accounts but lacks the applicable CIT tax rate.
  • Value Added Tax – the expenditure (investments/costs) will be posted in the General Ledger net of applicable to input tax and the VAT wis posted on a separate VAT balance sheet account
  • Wage tax - the payroll posting in the General Ledger is based gross amounts while tax audit samples are generally based on the net amount of wages.

A ‘single audit’ does not imply that the (monetary units of the) defined transactions must be seen as one indivisible population. The indivisibility can however be assumed in the case of sample drawing in which risk analysis is not taken into account.

In practice this means that the following steps should be taken:

21 statistical sampling process steps

It should be evident that certain subpopulations are created as a result of more complex interpretation and are therefore prone to a higher error probability. Other subpopulations have a lowered risk profile (e.g. due to regular, adequate internal monitoring).

This needs to be taken into account with respect to the amount of work dedicated and if possible, the sample could be reduced in size.

It is obviously always allowed to use a non-reduced sample (skip step 5 and 6) when performing an internal sample check into the effectiveness of one’s own Tax Control Framework.

In the event that the Tax Authority has performed a tax audit based on the single audit method and has imposed substantial tax assessments, it is not only important to check whether the position of the Tax Authority is tenable, but also to evaluate the process. That is, it must be determined whether this process can withstand scientific scrutiny.

In the following paragraphs the methodology of reducing the sample will be outlined. The figure below depicts the population for which from every subpopulation a proportional sample of money is drawn. The starting point is that the tolerable rate in money for each of the subpopulations is equal to that of the entire population.

A subpopulation of the total collection of expenditure as such could for instance be net wages, or expenditure for which the input tax on VAT returns is deducted. Furthermore, one can choose for example every class of transactions that have similar risks.

Figure 1

single audit 1

First Arrow – sample size:
sample size proportionally distributed over subpopulations
sample size per subpopulation after incorporating “prior information”

Second Arrow – incomplete transactions

The dotted lined rectangle depicts the possibility that – due to whatever reason – not all transactions are included in the to be evaluated overall population. The figure above displays the situation in which the risk is equal across all subpopulations.

The figure below depicts different sample sizes per subpopulation. This results from a different amount of ‘prior information’ for each subpopulation.

Figure 2

single audit 2

Sample size per subpopulation after incorporating “prior information”


Ferry Geertman (RE, CISA) has a background in Applied Mathematics. Ferry has vast experience in data analytics, including the design and evaluation of statistical samples as part of internal and external audit

Hein Kloosterman (RE RA) used to be the chairman of the IT audit professional practice office and chairman of the statistical knowledge group of the Dutch Tax Authorities. Hein has extensive experience with the so-called integrated audits (single audits). Hein is involved in the education in accountancy, both at Nyenrode and the Erasmus University

Hein and Ferry are both members of the Steering Committee Statistical Auditing. This steering group is connected to the Limperg Institute and aims to promote the proper (effective and efficient) use of statistical methods and techniques in auditing and related audits of financial statements and reports.

Literature (in Dutch)

  • Belastingdienst (2013) Controle Aanpak Belastingdienst; document cab_dv4221z1fd.pdf via de site van de Belastingdienst.
  • Kerpershoek, L. (2010), Single information, single audit: de impact op stakeholders, PwC Spotlight, Jaargang 17- 2010 uitgave 4, pp 38 – 41
  • Kloosterman, H.H.W. (ed)(2003) Optimalisatie van Controlebeslissingen; project Platform Versterking Vaktechniek Belastingdienst