The IRS does not audit those using Independent contractors any more than they do employees.

The letter then talks about the risks of using a discount broker, all the ways the agent can net the homeowner as much or more than a discount broker, makes an irresistible, completely risk free offer for a “Free Home Audit” and a “Free Special Report”.The agent also uses a few great testimonials and statistics about their success (proof).

That is not legit, and will not hold up under scrutiny or audit.

Under audit, the IRS may view your cash-out refinance as you taking cash at closing, which is also a taxable event.

Rather than start out new books with a CPA, I'm hoping to hire an accountant for a financial audit going as far back as possible, to confirm the unfortunate workflow (expenses paid from various personal accounts, unreliable reimbursements from building accounts, etc). 

In the event of an audit with a system like this would the IRS request physical receipts, or would the itemization the system generates satisfy them?  

I am a graduate of Temple University and currently working in IT auditing.

Given that a $25K education expense is something that is probably more likely to get scrutinized than your typical expense -- and given that your CPA isn't the one who will be audited -- it's worth keeping in mind. 

http://www.bls.gov/ooh/office-and-administrative-support/bookkeeping-accounting-and-auditing-clerks.htm

[Life Audit] 🤔As Brandon says, there are many ways to skin a cat.Your answers (no right or wrong) to this questions should help you determine your next course of actions.