The client, a large hospital system, historically determined use tax obligations at the vendor level rather than at the general ledger (GL) level. While this approach was intended to streamline tax decisions, it introduced inconsistencies, particularly when dealing with high-volume vendors. We identified a subtle shift in their process: vendors flagged in previous audits were now assigned a new use tax instruction of “See invoice” instead of a standardized tax treatment. This adjustment, though well-intended, created unintended gaps in tax application.

Our analysis revealed this change had a direct impact on high-spend vendors, particularly with a technology/software vendor. The misapplication of use tax for purchases resulted in an underpayment totaling $373,000. Because invoices were not consistently reviewed under the new instruction, taxable transactions were overlooked, leading to significant financial exposure. Further review uncovered additional discrepancies across other vendors, bringing the total recovery in this category to $413,886.46.

The audit not only resulted in significant financial recoveries, but as importantly provided the hospital with clear insights into improving its tax compliance process. By addressing inconsistencies and reinforcing invoice-level tax validation, the client reduced their exposure to future tax miscalculations.

Following our recommendations, the client has since implemented stronger internal controls to ensure use tax decisions are applied consistently across all vendors and transactions. This case highlights Broniec Associates’ expertise in uncovering financial risks, improving compliance, and delivering long-term value through tailored audit solutions for our clients.