MANAGING FOR COMPLIANCE

1. MANAGING FOR COMPLIANCE 2007 IFTA/IRP WORKSHOP TEMPE AZ Dawn Lietz – Nevada Presenter

2. Joe’s Mega Fleet International Transport Company, Inc. • Scenario: • As the Audit Manager of your jurisdiction, you must decide the best way to instruct your staff regarding the audit of a mega carrier based in your jurisdiction. To assist you in the decision making process, we will look at some company history and facts discovered by the auditor during the fieldwork.

3. History • Joe’s Mega Fleet began operations in the mid 1980’s. They travel throughout the 48 Continental United States and 10-Canadian Provinces. Joe’s Mega Fleet continually expands its operations and is well known throughout the US and Canada.

4. Facts • Joe’s Mega Fleet has approximately 1,500 vehicles • Audit period covers four (4) full years (sixteen (16) quarters) • No odometer readings or routes of travel are generated by the driver, or maintained by the company. • All distance is pre-recorded by Joe’s Mega Fleet based on mapping software.

5. Facts continued • Distance is calculated from origin and destination mailing addresses, not physical addresses. • Recaps of mileage are completed from the pre-recorded trip routes for the purposes of filing the IRP registration schedules and IFTA quarterly tax returns, but reconciliations to original source documents or adjustments for different routes of travel are not conducted.

6. Facts continued • Fuel receipts are complete and show all of the required information. • Recaps of the fuel purchases are completed based on bi-monthly statements from third party fuel vendors.

7. Questions asked by staff • Without required mileage documents, is this auditable? • Are the records adequate?

8. Questions continued • How many vehicles should we sample? • How many quarters? • How many auditors will assist? • Can we ask other jurisdictions if they would be interested in joining us?

9. Discussion

10. Audit continues • After discussing with the auditors, you have decided there is enough information available to conduct the audit. As the auditor(s) work through a sample period, they discovered the following information:

11. Additional Facts • From fueling records, it was determined that routes taken by some of the trucks sampled are different than the pre-recorded routes mapped for the trip. • Some duplicate entries were made. • Total miles traveled by the vehicles sampled appear to be greater than reported miles for those vehicles. • Errors in reported fuel were also found. The auditor found unreported fuel, reported fuel with no receipt or record of purchase, and fuel purchases recorded in the wrong jurisdiction.

12. Question – At this point, how would you instruct your staff to proceed? • Stop the audit, apply the percent of difference for the mileage adjustments to the jurisdictions and allow the ‘chips to fall where they may’? • Would you apply the difference to the entire audit period, or just the sample period? Explain. • Apply a 4-MPG for lack of required mileage records, make adjustments for fuel variances and disallow any fuel credit for fuel without receipts or record of purchase?

13. Questions continued 3. Disallow jurisdictional credits and assess the carrier for the underpayments? • Is the disallowance of jurisdictional credit even allowed in IFTA? 4. Maintain (or lock in) the reported MPG and make the fuel adjustments? 5. Expand the sample and see if the differences are material? 6. Other?

14. Discussion

15. Subsequent Audit of Joe’s Mega Fleet • Scenario: • As the Audit Manager of your jurisdiction, you must decide the best way to instruct your staff regarding a follow up audit of Joe’s Mega Fleet International Transport Company, Inc. It has been nearly five (5) years since the company was last audited and you want the auditor(s) to begin the audit period where the prior audit ended.

16. Facts • During the new audit period, Joe’s Mega Fleet has more than 3,000 vehicles at the start of the selected audit period and more than 4,000 vehicles by the end of the audit period. • Audit period covers seventeen (17) quarters. • No odometer readings or routes of travel are generated by the drivers, or maintained by the company for long-haul trips. However during the last six quarters of the audit period, the carrier implemented a new tracking system for short haul deliveries, which captures odometer readings.

17. Facts continued • Distance is still pre-determined through mapping software. • Due to recommendations made during the first audit, distance is now calculated from origin and destination physical addresses for most trips. • Recaps of mileage are completed from the pre-determined trip routes, but reconciliations to original source documents or adjustments for different routes of travel are not conducted. • Fuel receipts are complete and show all of the required information. • Fuel recaps are completed based on weekly statements from third party fuel vendors.

18. Question – How would you respond? • Without required mileage documents, is this auditable? • Are the records adequate? • How long should Joe’s Mega Fleet be given to achieve record keeping compliance?

19. Questions continued • How many vehicles should we sample? • How many quarters? • How many auditors will assist? • Can we ask other jurisdictions if they would be interested in joining us?

20. Discussion

21. Audit continues • After discussing with the auditors, you have decided there is enough “best information available” to proceed with the audit. The auditors work through the audit and they discover the following information:

22. Additional Facts • Based on information found on fuel records, routes taken by some of the trucks sampled are still different than the pre-determined routes mapped for the trip. • Although changes have been made to route travel between physical locations, some mailing addresses, instead of physical addresses, are still being used to map the miles. • Several test units selected could not be audited because the available documentation was not adequate. No documentation, inadequate documentation, etc.

23. Additional facts continued • Driver’s logs with origin/destination information, fuel stops, total miles driven each day are maintained, but not used for reporting purposes. • Records used to complete tax returns do not provide all the information needed for accounting and auditing purposes. • Errors in reported fuel were also found. The auditor found some unreported fuel, reported fuel with no receipt or record of purchase, and fuel purchases (totaling several million gallons) were reported in the wrong jurisdiction. • Audited adjustments for route of travel corrections and fuel adjustments, results in a higher MPG than reported.

24. Discussion

25. Question – How would you instruct your staff to proceed? 1. Stop the audit, apply the percent of difference and allow the ‘chips to fall where they may’? 2. Apply a 4-MPG for non-compliance of required mileage records, make adjustments for fuel reported in the wrong jurisdictions, and disallow any fuel credit for fuel without receipts or record of purchase?

26. Questions continued 3. Disallow jurisdictional credits and assess the carrier for the underpayments? 4. Maintain (or lock in) the reported MPG and make the fuel adjustments? 5. Expand the sample and see if the differences are material? 6. Other?

27. Questions to ponder – • Would you proceed differently than you did the first time, given this is a subsequent audit of the same company? • Why or why not? • If this had been a smaller carrier, would you have advised your auditor(s) to proceed differently?

28. Discussion

29. Where do we go from here? • How can we ensure each jurisdiction is auditing the carrier consistently? • How does auditor judgment affect an audit? • Does IRP or IFTA provide enough direction for a jurisdiction to consistently conduct an audit?

30. Where do we go from here, continued • What is your jurisdiction willing to do to ensure you protect the interests of the other member jurisdictions when a carrier is non-compliant? • What does “making the carrier whole at any cost” mean to you? • Are you willing to vote for the needed changes?

31. Thank you for your participation. IRP/IFTA

32. MANAGING FOR COMPLIANCE 2007 IFTA/IRP WORKSHOP TEMPE AZ Dawn Lietz – Nevada Presenter