Sampling and Error Rates IFTA / IRP AUDIT WORK SHOP BREAK OUT SESSION #3 Presenters: AnnMarie Chamberlain – Massachusetts Chris Turnwall – South Dakota Hoa Quach - Alberta

Merriam-Webster’s Online Definition of “Sample” “Representative part or single item from a larger whole or group especially when presented for inspection or shown as evidence of quality.” “Finite part of a statistical population whose properties are studied to gain information about the whole.”

IFTA / IRP Sampling Requirements IRP - Audit Procedures Manual Review of internal controls. - Discuss sample periods and records with registrant. - No less than three representative months. - Audits are to be conducted on a sampling basis. IFTA - Audit Manual A530 - All audits conducted on a sampling basis. - Sample period(s) must be representative. - Sample period(s) maybe different due to seasonal operations. - Licensee should be allowed input into sample selection. - Agreement on sampling methodology should be signed and licensee and auditor.

Example – Sample Quarter Selection JURISDICTIONMAR-05JUN-05SEP-05DEC TOTAL AB 16,313 33,751 2,489 26,158 78,711 BC 16, MB ,150 NB ,064 NS ON - 2,124 2, ,239 QC ,252 SK ,408 TOTAL 32,699 38,628 7,285 26, ,770 AVERAGE 26,193 Non-IFTA KM 16, Total KM 48,776 38,628 7,285 26, ,847 KPL

Types of Non-Statistical Sampling 1. Haphazard sampling – units have been selected without regard to size, source or other attributes. Using this method the auditor is trying to select a sample without any bias. This is the most commonly used method by both IFTA and IRP auditors. 2. Random sampling – generally, this method is useful for larger licensees. A vehicle is assigned a number, one to …, and a random table or computer program is used to choose the sample vehicles. 3. Systematic sampling – again, this method may be used when dealing with larger licensees. The auditor simply selects every “nth” unit. This method is convenient for an auditor in the field, provided the population is in random order. 4. Judgmental sampling – here, the sample is selected based on the sound reasoning and judgment of the auditor. 5. Block sampling – items are selected in sequence, This is generally used when choosing a “time” sample. The sequence is usually three consecutive months.

General Sampling Guidelines The following is found in the IFTA Guide:  Sample period selected to prevent bias.  Sample period can be changed, modified and deleted.  Sampling should consider multiple weight classes, long haul vs. local, divisions or fleets.  Use professional judgment and common sense.  Sample size should be documented.

Sample Size Guidelines FLEET SIZESAMPLE SIZE 1,000+ units30+ 1,000 units units units units units2-3

Mini-Breakout Examples  Break into 4 groups.  Each group will review and provide an overview of their examples for discussion.

ERROR RATES QUESTIONS TO CONSIDER Do source documents contain all data elements necessary to determine; Total and In-jurisdiction Distance Total and In-jurisdiction Fuel Apply Error Factors to: GIGO Other Options?

Error Rates HOW and WHEN do ERROR RATES OCCUR HOW ERROR RATES ARE CALCULATED

Non-Recurring (Isolated) Errors  WHAT ARE THEY?  EXAMPLES

Recurring Errors  Commonly Occurring Errors  EXAMPLES

IFTA and IRP Suggested Course of Actions When Errors are Found  Isolate the error and estimate an error rate.  Project error rate if the sample is representative of the population.  Expand sample if the sample is not representative of the population.  Materiality.

APPLICATION of ERROR RATES Distance Total and/or Taxable FUEL Total and/or Tax-Paid

Same Fuel Error Two Options

Discretionary Powers for Error Rates  Compliance and the ability to proceed with application of error factors  Alternatives to Application of Error Rates

Support and Documentation  For MILES  For FUEL