Tax Audit Risk Analysis Visual Management

Every year about this time in the United States, people scramble to get their taxes done. I’m no exception. But thankfully, with the help of tax professionals and Turbotax, there is plenty of help to decode and understand the convoluted tax laws that we have to abide by. And, for those of us who don’t know what we’re doing, they provide a nice tax audit risk analysis visual thermometer.

In the course of doing my taxes, I’ve found Turbotax very helpful in walking me through the process of what I need to report and what I need to do. In the workflow of filing my federal taxes, Turbotax has a nice feature that they call the “Audit Risk” results. This temperature gauge is meant to show the risk level of a potential IRS Tax Audit. Below is an example of the Audit Risk Result:

Visual Control

We know that the principles of Visual Management are the following:

1. Make Problems Visible
2. Make Problems Obvious
3. There Must be a Standard
4. In a Glance

In general, we want to make “normal” and “abnormal” easily visible. But, we must also make our responses to the specific abnormality standardized.

Given the Audit Risk Report, it dawned on me that it was a simple but effective mode of visual control. In fact, it was a type of Andon to alert the tax preparer.

What is Andon?

Andon (Japanese for lantern) is a tool for visual management and refers to a system of signals used to indicate the operational status (at a glance) of a machine or work center. It can be used manually or automatically. It also one of the principle elements of the Jidoka, or smart automation or automation with a human touch.

General Uses of Andon

In general, Andon can be used for the following:

1. Alerts management and other workers to quality or process problem.
2. Gives the worker the ability to stop production when a defect is found, and immediately call for assistance.
3. Indicates where the alert was generated, and may also provide a description of the trouble whether shortage of material or maintenance call or supervisor call.

The Tax Audit Risk Thermometer is an example of a visual Andon, which accomplishes the task of

• alerting the tax preparer that there’s a problem and
• specifies the next steps of how to respond to the problem

This goes to show that the principles of lean can be found everywhere, if we but learn to look and see.

And, yes, even in tax software.