AuditCover, an insurtech solution for tax audit insurance and risk mitigation, has closed its inaugural seed round to fund future expansion plans and tech development.

AuditCover offers a fully digital insurance solution, underwritten by Lloyds, to enable accountants to quickly and easily manage tax audit insurance for their portfolio of clients to protect them against the rising cost and frequency of tax audits.

AuditCover General Manager Adi Snir said existing tax audit insurance options were cumbersome and were unable to offer broad portfolio coverage and protection.

“The Australian Tax Office (ATO) has been increasing its tax auditing activities* targeting millions of individuals and small businesses. But this process is far from transparent and often results in unexpected audits that lead to costly legal and accounting bills,” Snir said

“Because of this, accountants are now spending a significant amount of time trying to manually promote and manage tax audit insurance policies. AuditCover simplifies, automates and optimises this process. We aim to not only transfer the risk, through insurance, but also reduce the risk of an audit in the first place through our data-driven approach.”

AuditCover’s seed round has been led by Insurtech Gateway Australia – the first independent incubator authorised and regulated by ASIC. Being accepted into the Insurtech Gateway program is a big boost to AuditCover’s credentials, placing them among a cohort of the world’s leading insurtech companies and founders.

Insurtech Gateway Australia CEO Simon O’Dell said the AuditCover business model was a market-leading proposition that anticipated key industry changes and used data to synchronise dynamic risk with dynamic insurance.

“AuditCover is in market with a competitive edge, built on digitising the user journey for the accountant and the insured client,” he said.

“But we’re particularly excited about their tech development roadmap, which includes integrating data analytics tools for accountants to help them strike at the root of the audit problem by identifying and managing risky returns prior to lodgement.”

“This should ultimately save the client, the accountant, the insurer and auditing bodies money and resources.”

Mr Snir said he was excited to have the expertise and backing of Insurtech Gateway Australia to help accelerate AuditCover’s scaling and product road map.

“Our model has been validated by accountants and we know the risk of audit is increasing every day,” Snir said.

“During 2020 the ATO stopped carrying out many of its typical tasks, but we believe with the economy now improving, the ATO will be poised to double down its debt recovery and audit activity efforts.

“It is no secret that there is now a deep-seated financial shortfall incurred by the ATO as a result of inactivity during 2020, which includes, roughly 10% loss in its $15B anticipated compliance revenue; and a burgeoning debt portfolio that in 12 months ballooned by $8B to $53B**.”

Snir said AuditCover was now poised to fill the gap in the market for smarter tax protection, and with the help of investor funding, would accelerate its growth plans to service accountants and their clients.

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AuditCover is the brainchild of three serial founders and harnesses key disciplines brought from each founder; insurance, data, and digital marketing. These disciplines coalesce to create two key products shaped around accountants’ needs.

Firstly, a fully digital tax audit insurance solution, underwritten by Lloyds, covering professional fees incurred to prepare and respond to tax audit activity from auditing bodies. The solution is aimed at optimising two elements; the user experience for the accountant and client, and portfolio coverage rates.

The second product, under development, will utilise data analytics to help accountants reduce the risk of a tax audit at the point of lodgement.

AuditCover features include a live partner dashboard, a broader portfolio coverage, faster client acceptance, rapid claims service, increased compliance and streamlined policy and renewal management.

* Audit yield by ATO has increased from $9.6B in 2015-16 to 11.8B in 2017-18. In 2019-20 the ATO completed 3.9m compliance interventions. Between 2011 and 2012 the ATO increased the number of compliance staff by 51% (ATO Annual Report 2011)
** Source: Page 36 ATO Annual Report 2019-20