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IFTA / IRP 2010 Annual Audit Workshop Breakout Session # 1 – Part 1 IFTA / IRP 2010 Annual Audit Workshop Breakout Session # 1 – Part 1 Ø Ø Ø Distance – It’s a Long, Long Road; Dealing With Those Pesky Gaps. Derrick Rumph (AR) Gene Hall (VA) Drake Israel (IL) 1

Gaps Definition: a break in continuity. When used in auditing distance, a gap signifies Gaps Definition: a break in continuity. When used in auditing distance, a gap signifies an interruption in odometer readings and/or trip continuity (i. e. , the current trip origin and ending destination of the preceding trip are not the same). 2

Distance Examination An auditor must test for accuracy and completeness which addresses the issue Distance Examination An auditor must test for accuracy and completeness which addresses the issue of whether all distance traveled has been properly recorded and allocated among the affected jurisdictions. 3

Distance Examination Continues…. § To verify fleet distance, source documentation such as trip reports, Distance Examination Continues…. § To verify fleet distance, source documentation such as trip reports, summaries, odometer/hub odometer readings, and other documents used by the registrant to substantiate distance traveled must be provided as evidence to give validity to the recorded data. The documentation provided must be both valid and relevant. 4

Distance Examination Continues… v Note: Summaries alone are not considered sufficient support for the Distance Examination Continues… v Note: Summaries alone are not considered sufficient support for the registrant’s reporting system or the fleet distance as reported on the registrant’s IRP application for apportionment and quarterly IFTA tax returns. 5

Distance Examination Continues… § One of the most effective methods of testing the accuracy Distance Examination Continues… § One of the most effective methods of testing the accuracy of distance traveled is using a distance program and recapping the odometer readings on a trip/unit basis. 6

Distance Examination Continues… v Note: A distance program can be used as a tool Distance Examination Continues… v Note: A distance program can be used as a tool to provide reasonable assurance of the fleet distance reported, using the route of travel and origin/destination. Using a distance program alone may not be sufficient to determine the accuracy of the fleet distance traveled. 7

Areas of Gaps § Origin/Destination ØPreceding trip destination is not the same as successive Areas of Gaps § Origin/Destination ØPreceding trip destination is not the same as successive trip’s origin ØUnexplained period of time or distance (missing vehicle records) v Note: For an unexplained period of time, please consider whether the registrant’s type of operation is seasonal. 8

Areas of Gaps Continue… § Odometer readings ØBeginning odometer reading does not agree with Areas of Gaps Continue… § Odometer readings ØBeginning odometer reading does not agree with prior ending odometer reading ØBroken or incorrectly calibrated odometer v Note: Odometer readings should be corroborated by additional documents (i. e. , maintenance reports, fuel reports, annual safety inspection, etc. ), when possible. 9

Areas of Gaps Continue… § Odometer readings exceed total distance reported or audited ØFailure Areas of Gaps Continue… § Odometer readings exceed total distance reported or audited ØFailure to record all deadhead or interjurisdictional distance ØInaccurate distance recorded and/or reported 10

Issues with Gaps § § Improper fee recognition or fuel tax paid for affected Issues with Gaps § § Improper fee recognition or fuel tax paid for affected jurisdictions Inability to determine carrier’s true liability 11

Auditing Guidelines IRP APM 703(c) states in part, “…In the event an auditor is Auditing Guidelines IRP APM 703(c) states in part, “…In the event an auditor is unable to determine any reasonable method to assign a portion of the unreported distance traveled by a Registrant, such distance traveled shall be assigned to Member Jurisdictions on the basis of each Member Jurisdiction’s audited Jurisdiction Distance. Allocation of such distance traveled must not be done in such a way as to unjustifiably increase the In-Jurisdiction Distance percentage of the Base Jurisdiction conducting the Audit. ” 12

Auditing Guidelines Continue… *A 520 (IFTA Audit Training Manual) states in part, “…In the Auditing Guidelines Continue… *A 520 (IFTA Audit Training Manual) states in part, “…In the event that an auditor is unable to determine any reasonable method to assign or allocate unreported miles/kilometers, such miles/kilometers shall be assigned to all jurisdictions on the basis of each jurisdiction’s audited percentage of total distance. Any audit adjustment to total fleet miles/kilometers of individual jurisdictions will require recomputation of the licensee's miles per gallon/kilometers per liter and, consequently, the fuel tax obligation to various jurisdictions. ” 13

Things to Consider § § § The methods used in determining if gaps exit Things to Consider § § § The methods used in determining if gaps exit (odometers, vehicle mileage records, or trip information. ) If gaps are determined, are additional inquires made of the registrant and/or registrant’s representative? What source documents or available trip data, including fuel purchases and odometer data, must be considered when determining whether distance should be allocated to specific jurisdictions or among all jurisdictions? 14

Things to Consider Continue… If gaps are allocated/ assigned to the affected jurisdictions, how Things to Consider Continue… If gaps are allocated/ assigned to the affected jurisdictions, how should the allocation be determined? Should it be based on the entire fleet, a quarter, a month, a specific vehicle(s) or trip, or should it be assigned to the base jurisdiction? If gaps are based on odometer readings, what procedures are taken to determine the level of accuracy of the distance indicated? The auditor should always document the reason or methodology for the approach that was utilized. If gaps are determined, what recommendations are made to the registrant? 15

Scenario –A During an audit, an examination reveals that the distance by jurisdiction (recap) Scenario –A During an audit, an examination reveals that the distance by jurisdiction (recap) did not reconcile to the total odometer readings (198, 915 -recap vs. 208, 795 -total odometer. ) Also, the auditor noticed that the ending/beginning trip destination was not the same on various occasions. The registrant operated two vehicles during the distance reporting period. One of the units was located in Ft. Smith, AR and the other in Little Rock, AR. The registrant failed to maintain recaps by vehicle and all other supporting documents; however, the registrant maintained IVDR’s to support the distance traveled. 16

Scenario –A Questions What inquiries would you make of company personnel? What additional information Scenario –A Questions What inquiries would you make of company personnel? What additional information would you request? What procedures or method should be applied to appropriately allocate the additional distance traveled? What would be the impact for IRP vs. IFTA reporting? 17

Scenario-B During an audit, it was determined that total distance traveled was not reported. Scenario-B During an audit, it was determined that total distance traveled was not reported. The odometer readings totaled 78, 863; with unreported distance of 3, 896 based on a summary of the vehicle recaps. Based on the IVDR’s, the omitted distance was a result of two weeks of additional travel not reflected within the records. Fuel receipts revealed destinations such as Denver, Colorado and Cincinnati, OH; dated five days apart. After discovery, the registrant provides information as to the unusual time lapses existing between the recorded trips. 18

Scenario-B Questions What additional documents should be requested to substantiate the omitted distance traveled, Scenario-B Questions What additional documents should be requested to substantiate the omitted distance traveled, if any? Should a distance program be utilized to recreate the trip? If so, should the distance traveled be entered as part of the audited data? Should denying credits/refunds be considered? 19

Key Points: If gaps exist, due professional care should be taken when allocating unreported Key Points: If gaps exist, due professional care should be taken when allocating unreported distance. The auditor should always document the reason or methodology used in allocating unreported distance. Allocation of such distance must not be done in such a way as to unjustifiably increase the In-Jurisdiction Distance percentage of the Base Jurisdiction conducting the Audit (IRP Training Manual). However, this does not prevent the auditor from assigning the distance to the base if facts warrant such. If an estimate of the registrant’s true liability can be determined, the jurisdiction would generally opt to deny credits (IRP Training Manual). It is never appropriate to refund money on a guess 20

Key Points Continue… If an estimate of the registrant’s true liability cannot be determined, Key Points Continue… If an estimate of the registrant’s true liability cannot be determined, the registrant may be assessed 100% of the original apportionable fees for the base jurisdiction in accordance with APM 603(a) (IRP Training Manual). In most cases, depending on the fleet size, it would not be possible to examine 100% of the registrant’s operational records; therefore, it generally will not be practical or possible to obtain assurance beyond all doubt. No matter how difficult it may be to obtain sufficient information, the difficulty is not a valid basis for omitting proper procedures. However, it is important to note that the auditor’s role does not encompass serving as the carrier’s bookkeeper. Consequently, auditors occasionally find that it is not practical to expend the time/energy required to secure the necessary information and are therefore forced to conduct the audit per the best information available. Most importantly, the auditor must exercise professional judgment in determining the procedures to be performed and methodology that will be applied. 21

Alternate Source Documents: § 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Alternate Source Documents: § 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. If a carrier does not provide IVDRs (Individual Vehicle Driver Record), IVMRs (Individual Vehicle Mileage Record), Trip Reports, or Driver Logs, the following list reflects other source documents that could potentially be used to substantiate distance travel. In order to be considered “adequate” support, they must reflect the data required in Article 4 of the APM and Section P 500 of the IFTA Procedures Manual; however, that data need not be contained on a single document. Maintenance Records Receiving Contracts Bill of Ladings Dispatch Reports Settlement Sheets Scale Tickets Trip Permits Over dimensional Load Permits Computer Mileage Printouts Fuel Receipts Hotel Receipts Phone Records 22