How to assess audit risk? Does the CRA ever request/require bank statements?

I understand there are audit alerts but is there a general overall audit risk assessment? What is the best way to assess audit risk e.g. higher deductions than some norm, material changes in income/taxes from prior years? 

Also, can the CRA require/request bank statements? I am unclear why those are not part of the tax filing in general practice. Thanks. 

Answer

I worked as a CRA auditor years ago on the GST side of things. The audits we were assigned could be any of the possibilities you mentioned (material changes, etc.). You could add to that list clients who have a history of being delinquent (late filing, non-response to CRA queries, etc) and high risk industries such as small business contractors with the unfortunate industry-wide reputation of engaging in cash deals. And then there were the pure random selections.

Where I worked at the North Bay office, all of these audit selections were generated by computer and assigned to the appropriate office on a weekly basis. The audit unit manager (and this was a position I filled from time to time when the AUM was on holiday) would select from the computer generated list so there was some human element in the chain. Some of the random audits were not even worth assigning, so the AUM would just cancel them (extremely low dollar value being one option I remember).

Bank statements were probably one of the first things I asked for on a field audit. Two reasons for that. The first is just to record the details of the bank account (number, branch, etc.) so that if the file ever went to collections then that department had a quick handle on where to go after any money. They had other options too, so that wasn't a make or break detail. The other reason was just as a logical starting point for the audit by giving me a chance to review what was going through the books. I can't see any logic to making bank statements a requirement of tax filing. It would just unnecessarily bog down the system, not to mention the big question of how you'd incorporate them in the preferred efile method of filing.

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