This lesson examines the audit, verification, and investigation function as a core compliance activity. It covers the scale of resources devoted to this function, the shift toward automated checks, and the role of compliance actions in supporting voluntary compliance.

• Definition and Purpose: The audit, verification, and investigation function assesses the accuracy and completeness of taxpayer-reported information. The primary objective is to assure that tax obligations have been met, detecting and correcting instances of non-compliance .

• Resource Allocation: This function employs on average close to 30% of tax administration staff, making it one of the most significant operational areas .

• The Shift to Automation: While audits remain a core activity, there is increasing use of automated electronic checks, validations, and matching of taxpayer information .

• The Deterrent Effect: The undertaking and visibility of compliance actions is critical in supporting voluntary compliance. This operates through:

  • Impact on perceptions of fairness: Visible compliance actions reinforce the perception that the tax system is fair and that non-compliance is addressed.

  • Deterrent effect: The risk of detection and consequences discourages potential non-compliance .

• Preventing Non-Compliance: Tax administrations are increasingly focusing on preventing non-compliance through taxpayer education, improved services, and design of tax systems that make it easier to comply .

• Tax Crime Investigations: For serious cases of fraud and evasion, tax administrations maintain investigation functions with powers to conduct criminal investigations and pursue prosecutions .