Helping Your Client Survive a Debtor Audit
Perhaps in your legal career, you may have the "pleasure" of assisting a client with a debtor audit. These audits were commenced under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). The focus of the audits are to determine the accuracy, veracity, and completeness of the schedules and other information provided by the debtor under Sections 521 and 1322 of the Bankruptcy Code.
Cases are selected at random and the audits are performed by independent firms selected by the United States Trustee, using the auditing standards developed by the United States Trustee Program. You can access the Debtor Audit Standards at www.usdoj.gov/ust.
Procedure
If your client is selected for an audit, you will receive a letter stating this information. The letter will also identify the firm that will conduct the audit and the documents that must be produced to the audit firm. Your client with then have 21 days to provide the audit firm with the requested documents.
Once the audit is complete, the audit firm will issue a report which must specify any material misstatements of income, expenses, or assets that were identified by the audit firm. However, before including a material misstatement in an audit report, the audit firm is responsible for contacting you in writing concerning your client's file. This notification will give you and your client the opportunity to provide an immediate written explanation for the item(s) in question.
Final Notes
The most important thing you can do to assist your client if he or she is selected for an audit is to make sure all requested information is submitted in a timely fashion and offer any explanations that may be necessary to the audit firm. Your client will be depending on your skills and expertise to handle the matter and the more you understand about the auditing process, the better off your client will be.
