AUDIT PROCEDURES SUBCOMMITTEE SURVEY RESULTS

AUDIT PROCEDURES SUBCOMMITTEE SURVEY RESULTS
IFTA AUDIT COMMITTEE AUDIT PROCEDURES SUBCOMMITTEE SURVEY RESULTS

SURVEY RESULTS # OF RESPONDING JURISDICTIONS 51

SURVEY RESULTS RESPONDENTS IFTA Commissioner/Asst. Commissioner 25
Audit Manager/Supervisor 24 Other 2

SECTION #1 JURISDICTIONAL COMPLIANCE
Questions 1 through 25

QUESTION #1 Section A310 of the Agreement sets forth the base requirements for performing audits. This is the requirement to complete audits at an average of 3% per year for the subject program compliance review period. Is this requirement, in your opinion: Too high: 14 Too low: Appropriate: 35

QUESTION #1 NORTHEAST SOUTHEAST APPROPRIATE 11 TOO HIGH 3
TOO LOW 1

QUESTION #1 MIDWEST APPROPRIATE 9 TOO HIGH 5 WEST TOO HIGH 3

QUESTION #1 REVENUE TRANSPORTATON APPROPRIATE 21 TOO HIGH 10
TOO LOW 1

QUESTION #2 COMMENTS Reaching 3% is not and has not been a problem
Established long ago and is still valid % is reasonable 3% is a far greater % than in any other tax program Should be based on other criteria other than numbers (i.e. fleet sizes, total distance, etc.) Substantial numbers of jurs. don’t meet the 3% We have always planned for resources to meet the 3% Too much documentation required per the Agreement

QUESTION #3 Would you support a change to the 3% requirement? Yes 25
No 25

QUESTION #3 NORTHEAST SOUTHEAST MIDWEST WEST YES 8 NO 6 YES 7 NO 3

QUESTION #3 REVENUE YES 15 NO 16 TRANSPORTATION YES 10 NO 9

QUESTION #4 COMMENTS (Recommendation on audit requirement) Lower to 2%
Based on activity (i.e. total distance) Vehicles and distance 1% Somewhere between 2% and 2.5% In line w/IRP (4 qtrs=1 audit)

QUESTION #5 Based on your jurisdiction’s IFTA audit program and your Program Compliance Reviews, (regardless of whether you met the 3% requirement) has your jurisdiction encountered difficulty in meeting the 3% requirement? Yes 32 No 18

QUESTION #6 If “yes” to question #5, these are the deterrents to meeting the 3%: Lack and/or loss of personnel Poor or absent carrier records Other reasons: Inefficient use of resources Lack of carrier cooperation Lacking resources Change in administration Multiple duties

QUESTION #7 Are there any other audit or enforcement functions performed by your jurisdiction which you feel should be included in determining the annual audit requirement? No 35 Yes 9 No answer 7

QUESTION #7 COMMENTS Roadside enforcement activities Desk audits
Include IRP audit numbers Compliance reviews Educational efforts BIA’s

QUESTION #8 Section A320 addresses the Selection of Audits (stratification). There is a mandate to meet at least 15% of your annual audit requirement in the “low distance” strata and to complete at least 25% of your annual audit requirement in the “high distance strata”. Should this requirement be changed? Yes 19 No 30

QUESTION #9 COMMENTS (if “yes” to question #8)
Changed in concert with reduction of the 3% Change to 20% for high and low Change to 25% high and low Reduce high distance requirement Reduce low distance requirement A simple mandate to audit the largest Emphasis on problem carriers Based on total distance; 10% high, 10% low, 80% medium Include a category for “mega carriers” Change the definition of high and low Institute multiple count for larger audits

QUESTION #10 There has been considerable discussion about the so-called “mega carriers” that far exceed (in total operations) the average operations for the typical “high distance” carrier. Should a separate stratification be developed to include the “mega carriers”? Yes 32 No 18

QUESTION #10 NORTHEAST YES 9 NO 5 SOUTHEAST YES 6 NO 4

QUESTION #10 MIDWEST YES 10 NO 4 WEST YES 7 NO 5

QUESTION #10 REVENUE YES 20 NO 11 TRANSPORTATION YES 12 NO 6

QUESTION #11 COMMENTS (to question #10)
Don’t change the strata, just give more count Don’t add another requirement Have the IFTA Audit Committee schedule, arrange, and monitor mega carrier audits Relax the 3% for doing mega carrier audits The strata would help encourage the auditing of these accounts, may help free up resources One year audited = one audit per jurisdiction

QUESTION #12 Which of the following criteria would meet the definition of what you believe a “mega carrier” is? (Please circle all that apply) Total distance in the top 1% of each jurisdiction’s account base: 17 Total distance in the top 1% of the entire membership’s aggregate account base: 15 Top 100 carriers in the US and Canada (per trades): 0

QUESTION #12 (CONT’D) Top 50 carriers in the US and Canada (per trades): 0 Top 100 carriers in the US and Canada based on # of fleet vehicles: 0 Top 50 carriers in the US and Canada based on # of fleet vehicles: 2 Top 100 carriers in the US and Canada based on the total distance reported for the first 3 quarters: 7 Top 50 carriers in the US and Canada based on the total distance reported for the first 3 quarters: 5 Other: 5

QUESTION #13 There has been considerable talk over the years and several ballot proposals offered relative to “multiple count” for the audit of “mega carriers”. Should the audit count for the examination of a “mega carrier”: (Please circle all that apply): Be greater than one (1) for the base jurisdiction: 8 Be greater than one (1) for each jurisdiction participating in a joint audit: 28 Be limited to one (1) for each jurisdiction participating in a joint audit: 7 One (1) audit for the base jurisdiction only: 4 Other: 1

QUESTION #14 COMMENTS (to the answers given in question #13):
Limit the number of “mega” audits annually Define “mega” carrier first Base jurisdiction has more responsibility; therefore count should be higher for the base Large carriers may not be as difficult Look at the average time for other IFTA audits (i.e. 1 week for the average) Mega carrier audits are time consuming Keep it to one per jurisdiction; further strata becomes too cumbersome Reward “count” based on resource commitment Multiple count for all gives incentive to audit the mega carriers

QUESTION #15 Article 1370 of the Agreement addresses Joint Audits. The IFTA Audit Committee is exploring how joint audits should proceed. Considerable discussion has been held relative to the auditing of the “mega carriers” and the desire to do so under the auspices of Article Should participation in a joint audit be: Voluntary 37 Mandatory 13

QUESTION #16 COMMENTS (to the answer given in question #15):
Mandating gets you nowhere Base jurisdiction reaps benefits from having the mega carrier in their base Time spent auditing mega carriers is a waste of resources Conflict with statutes Start as voluntary Should be mandatory otherwise the same jurs will always participate Travel expense limitations Will tend to guarantee that the majors are audited Would not want an “unwilling” jurisdiction to be forced into participation Mandatory based on certain conditions (distance) Decision should be left up to the affected member

QUESTION #17 Will your jurisdiction participate in joint audits if requested by the base jurisdiction? Yes 39 No 6

QUESTION #18 Article 1370 does not detail the process by which a joint audit is conducted (i.e. rights and responsibilities of the parties). Should the Agreement outline in detail how joint audits are to be conducted? Yes 36 No 14

QUESTION #19 COMMENTS (to the answers given for #18)
Base jurisdiction authority Costs Audit count Member jurisdiction responsibility Would take too long to pass a ballot with guidelines To promote uniformity, there should be guidelines Procedures determined by the auditors Detail should be in the Audit Manual Guidelines should be reviewed by the PCRC Needs to be some general rules, perhaps sign off by all participants, method to record objections

QUESTION #20 There has been considerable discussion over the years about sampling and the application of error rates. The Agreement is not overly detailed in addressing how samples are selected, how much sampling is required, and how error rates are developed and applied. We are seeking assistance from the membership in understanding what, if anything, needs to be done to address sampling and error rates. Which of the following (circle all that apply) do you believe should be considered in developing language to address sampling and error rates?

QUESTION #20 ANSWERS (By rank) Representative nature of sample periods
Auditor judgment Sample size Jurisdictional coverage Immaterial errors Recurring errors Non-recurring errors

QUESTION #20 Use of standard sampling procedures (i.e. random, block, etc.) Licensee input Fleet operations (line haul vs local) Employees vs. Owner operators Fleet composition (tractors vs straight trucks)

QUESTION #21 Auditor independence is critical to maintaining an unbiased approach to auditing. Section A of the Agreement addresses this concept. Should these General Standards be expanded and amended to reflect what standards exist for organizations such as the GAO (General Accounting Office)? Yes 15 No 35

QUESTION #22 COMMENTS (to the answers given for question #21)
Will provide additional guidance Jurisdictions already have codes of ethics, etc. Would mirror the standards for other governmental organizations

QUESTION #23 There has been some concern and confusion as to what the minimum period for audit is under the Agreement as it relates to the granting of a “count” for program compliance review purposes. Section A310 says, “Such audits shall cover at least one registration year.” In your opinion, does this mean: At least four quarters 38 Any period within a year 11

QUESTION #24 Should the concept of a Minimum Audit Period be addressed? Yes 23 No 27

QUESTION #25 COMMENTS (based on answers to question #24)
Is this a problem? It should be four consecutive quarters It should be defined It should be left up to auditor discretion If it’s a problem account (i.e. delinquent, law enforcement lead), why shouldn’t I get credit? The current language seems obvious It will clarify the minimum standards

SECTION #2 LICENSEE COMPLIANCE
Questions 26 through 37

QUESTION #26 There has been discussion relative to the terminology used in determining whether or not a licensee’s records conform to the Agreement standards, jurisdictional statute, regulation, or policy. The terminology used is “Adequate/Inadequate” to describe the condition of the records. It has been opined that these terms are interpretive and not necessarily objective in nature. It has been suggested that the terminology and the criteria be based on the concept of compliance or non-compliance. Should the governing documents be amended to define and include terms such as “Compliant or Non-Compliant” in dealing with the licensee’s records?

QUESTION #26 Yes 35 No 15

QUESTION #27 COMMENTS TO QUESTION #26:
Comments were posted, no results could be extracted. Show of hands: Should the governing documents be amended to define and include terms such as Compliant or Non-Compliant? Perhaps a third category? i.e. “Minimally acceptable” Concern about a licensee that is compliant in some areas, but not others

QUESTION #28 Sections P500 and P600 of the Agreement outline the various recordkeeping requirements imposed upon an IFTA licensee. Two of those requirements (Route of Travel, Beginning and Ending Odometer or Hubodometer Readings of the Trip) may be waived by the base jurisdiction. Please answer the following questions based on how your jurisdiction audits motor carriers subject to the IFTA.

QUESTION #28a Does your jurisdiction waive the requirement for a carrier to maintain route of travel per trip? Yes 14 No 36

QUESTION #28b COMMENTS IF THE ANSWER WAS “YES” TO QUESTION 28a:
Use fuel receipts Pickup and delivery information Use drivers’ log entries Use toll receipts Other stops (meals, breaks, etc.) Mileage software routing per the carrier Standard routing guide Jurisdictional line odometers Load tickets

QUESTION #28c Does your jurisdiction waive the requirement for a carrier to maintain beginning and ending odometer or hubodometer readings per trip? Yes 11 No 39

QUESTION 28d COMMENTS if you answered “yes” to Question 28c; what do you use to verify total distance? Most used a variety of: Distance software Trip continuity Date continuity Odometers from another document Total Fuel x a reasonable MPG Drivers’ logs Fuel analysis

QUESTION #28e Should IFTA allow for a waiver of (circle all that apply): Route of travel Odometers Either routes or odometers 11 Neither routes nor odometers 37

QUESTION #29 Section A550 of the Agreement addresses Inadequate Licensee Records/Assessment. A base jurisdiction may estimate the carrier’s fuel use based on the provisions of Section A If substantial evidence is not discovered using the provisions in A through A , then a standard of 4 MPG/1.7 KPL will be used. Is the default 4.0 MPG/1.7 KPL fuel use factor:

QUESTION #29 Too High 3 Too low 7 Appropriate 36

4.0 is appropriate if no attempt is made to keep records There needs to be some sort of punitive measure to deal with licensees that do not comply with recordkeeping requirements Agreement should state 4.0 or the lowest reported factor Original intent was to not be punitive

It should be lower to help compliance efforts Too much emphasis on recordkeeping requirements, should focus on arriving at the true tax liability Perhaps consider a percentage reduction of the reported factors An adequate MPG/KPL could be lower than 4.0/1.7 Perhaps a developed range based on vehicle size Ensures that jurisdictions are protected

QUESTION #31 Section A550 of the Agreement addresses fuel use estimation. It also addresses the requirement to disallow tax paid credit when no documentation exists to support the credit. There is no provision for estimating distance (either in total or per jurisdiction). Should the Agreement be amended to include a provision allowing a base jurisdiction to estimate distance (either in total or per jurisdiction) when the records are inadequate or absent?

QUESTION #32 COMMENTS (to the answers provided for question #31)
Use past returns, IRP documents, pay records Should be permissive to the base jurisdiction Use a reasonable MPG Unit averages, other types of data available Perhaps the Agreement already allows it Explore the ballot language once offered (11-02?) Run sufficient distance in an unreported jurisdiction to at least support the fuel gallons bought in that jurisdiction

QUESTION #33 Currently IFTA provides (Article R1220) for the base jurisdiction to impose and retain a penalty of $50.00 or 10% of the tax due (whichever is greater) for the underpayment of the quarterly tax. The base jurisdiction may also impose other penalties provided for in jurisdictional statute. In your opinion, should the IFTA provide for the imposition of additional penalties paid to the member jurisdictions (in addition to the base jurisdiction) for the underpayment of taxes due?

QUESTION #34 COMMENTS (based on answer given for question #33)
“No”- Sovereign rights, the 4.0 is sufficient penalty “Yes”- Auditor discretion, failure to maintain records

QUESTION #35a It is prior to IFTA implementation in your jurisdiction and your agency is auditing the records of ABC Trucking (located in Jurisdiction X, not in your jurisdiction). The audit reveals poor recordkeeping. There were no odometer readings, routes of travel were either absent or difficult to verify, audited fuel was less than reported fuel, fuel receipts were missing, fuel receipts lacked proper documentation, and your auditor discovered missing trips and underreported distance in your jurisdiction. When the various errors rates are calculated the miles per gallon (or kilometers per liter) rises (due to the discovery of additional distance coupled with the discovery of fewer units of fuel). The overall result of this audit is a $ credit. If the credit audit is allowed, the $ will be refunded to the taxpayer. Does your audit staff:

QUESTION 35a i. Process the credit per the findings and issue the refund 7 ii. Disallow the credit (refund) and accept the reported data (no change audit) 6 iii. Implement the reported MPG/KPL, pick up the tax liability for the additional fuel use based on the discovered additional distance, deny unverified tax paid fuel 13

QUESTION #35a iv. Impose an audited MPG/KPL (i.e. best information or 4.0), pick up the tax liability for the additional fuel use based on the discovered additional distance, deny unverified tax paid fuel 24 v. Comments: Use a combination of ii, iii, iv Poorly crafted question Confusing scenario Not sure how jurisdictions did motor carrier audits pre-IFTA

QUESTION #35b Your Jurisdiction (Jurisdiction A) is a member of IFTA. Jurisdiction X is auditing the records of ABC Trucking (IFTA licensee in Jurisdiction X). The audit reveals poor recordkeeping. There were no odometer readings, routes of travel were either absent or difficult to verify, audited fuel was less than reported fuel, fuel receipts were missing, fuel receipts lacked proper documentation, and the auditor discovered missing trips and underreported distance in member jurisdictions including Your Jurisdiction. When the various errors rates are calculated the miles per gallon (or kilometers per liter) rises (due to the discovery of additional distance coupled with the discovery of fewer units of fuel). The audit result for Your Jurisdiction (Jurisdiction A) is a $ credit. If the audit is processed based on the initial findings, Jurisdiction X will extract the $ from Your Jurisdiction in the monthly transmittal pursuant to Section P1040 of the Agreement. In your opinion, how should Jurisdiction X process this audit?

QUESTION #35b i. Process it as is based on the findings thereby granting the credit of tax in Your Jurisdiction, refunding Your Jurisdiction’s tax (used to offset other liabilities through netting) to the taxpayer, and extracting the credit in the next monthly transmittal 7

QUESTION #35b ii. Deny any calculated credits (including the credit in Your Jurisdiction) based on a lack of proper documentation supporting the credit. The “amount due” Your Jurisdiction would be set to “zero” (effectively accepting the reported tax return data for Your Jurisdiction). 15

QUESTION #35b iii. Lower the audited fleet MPG/KPL to a threshold where no credits would exist 12 iv. Lower the MPG to 4.0 and let the debits and credits fall into a calculated figured based on the 4.0 4

QUESTION #35b iv. COMMENTS
Would like to see language similar to IRP where credits can be denied Would like the issue clarified Unlikely that a credit would exist Unjust enrichment? More specifics needed Process the audit as per the results, don’t manipulate the results Preferred method would be “ii”, but rules need to be more specific; gray area between “sorta bad (sic)” records and “no records”

QUESTION 35c After a review of questions “a” and “b” above, do you believe the scenarios are: The Same 35 Different 9

QUESTION 35d COMMENTS (on whether 35a and 35b are the same or different) Auditor cannot alter the netting process Any credits generated as a result of poorly kept records should be denied Jurisdictions should not be adversely affected by inadequate records If the records are sufficient enough for an assessment, they are sufficient enough for a refund

QUESTION 35d Believes that the Agreement already allows for credit denial Make it (denial) mandatory when records are absent or poor Agreement doesn’t allow for lowering an MPG to eliminate credits Auditor discretion/flexibility Why should any jurisdiction have revenue taken from them when the credit cannot be supported?

QUESTION 35d Scenarios are exactly the same; membership in IFTA was supposed to enable the same level of protection of jurisdictional taxes due Findings would reward a taxpayer for not keeping records required Scenarios are different; pre-IFTA concerns are different than post-IFTA concerns The difference is in who is performing the audit, the outcome is the same If you have sufficient records to audit then the results should be processed regardless of outcome All jurisdictions should have equal consideration and protection Scenarios are the same and the results should be the same

QUESTION #36 The scenarios and questions in item 35 were designed to determine what your jurisdiction believes the IFTA should accomplish in maintaining the integrity and accuracy of the taxes due your jurisdiction. Under the Agreement, your jurisdiction has authorized the member jurisdictions to administer, enforce, and collect your jurisdiction’s fuel use tax. Should unverified tax credits for tax due your jurisdiction be refunded to the licensee by the member jurisdictions?

Question #36 Yes 10 No 37

QUESTION #37 It has been opined in the audit community that the Agreement is unclear on the issue of credit denial. Should the Agreement be amended to define a member jurisdiction’s right to deny jurisdictional credits for lack of verifiable documentation?

QUESTION #37 10 27 Yes, but permissive to the base jurisdiction
Yes, mandatory when records are inadequate or non-compliant 27 No 10

POSTSCRIPTS Where do we go from here? Hazards
Release results to the Commissioners Continue a healthy dialogue Potential ballot language Leave the status quo Hazards Re-examinations Re-audits Disputes Lessened faith in the intent and mission of IFTA Potential malaise by auditors Increased loss of resources Single jurisdiction fuel use tax audits

THANK YOU!

AUDIT PROCEDURES SUBCOMMITTEE SURVEY RESULTS

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AUDIT PROCEDURES SUBCOMMITTEE SURVEY RESULTS

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