As Patrick Swayze says in the movie Road House, "be nice."
Do not tell your staff, "You know that room in basement, behind the furnace, where we used to keep the asbestos? Put the auditor there. And whatever you do, don't let him have any Krispy Kremes"
I'll talk about the geographic placement of the auditor in another article, so let's talk about some other things to do.
1. If you get notification of what the auditor is going to be looking at, familiarize yourself with that law, and any forms and publications before the audit happens. This will help when dealing with questions and issues. See below.
2. Have an audit contact. This person will be involved in every meeting and will review all paperwork going to the auditor. This way, you have one person who knows everything that is being communicated to the auditor. This person will hopefully be able to build a relationship with the auditor, and see issues coming before they get out of hand. And it's not bad to have a witness to every conversation with the auditor.
Beware, however, of making the audit contact a tool of obstructionism. You want the auditor to do their job and get out of your hair. I don't recommend obfuscating and playing games resulting in they're feeling the need to stay for years.
3. Answer their questions, but don't volunteer more than is necessary.
4. When questions or issues come up, try to research them and resolve them as quickly as possible. It helps if you've done your research early (see above). You want to avoid problems being formally noted in the auditor's work papers. When that happens, it becomes harder to brush them aside. Managers get involved, formalities kick in, etc.
5. Most auditors are not experts in sales and use tax law. They know how to audit and they can follow their audit manual, but that may be the level of their sophistication. I had a guy in my seminar once whose auditor claimed to have a college degree. Even so, he had to spend half a day with the "graduate" explaining depreciation to him. So, if an auditor says something, don't assume they are correct. Ask them, in a non-confrontational way, for citations and research it yourself. "You know, it's not that I don't believe you. But could you show me where it says that because my boss is going to want to see something on this."
6. Consider wasting their time. If the auditor is only assigned for two weeks, consider making them less efficient than they would otherwise be. Take 'em out for long alcohol-related lunches. Engage in long bull sessions.
The controller for a video game company told me how they would put auditors in the show room. Employees would constantly whisper to him,"Hey, the auditors are in the showroom playing video games!" The controller would respond, "That's just what we want them to do!"
7. Be nice. I've had more than one auditor tell me that if they are treated professionally, they will be professional as well.
Here are some other articles about what to do during an audit.
Sales Tax Guy