Welcome to:

1. Welcome to: • Auditing in the Grey, or • Auditing in the Gray

2. Auditing in the Grey • Have you ever had a scenario come up during in an audit that just wasn’t plain Black and White? • Something that just doesn’t fall into one category or another? • Or an event that just doesn’t seem right handling it in method A or method B?

3. Auditing in the Grey • That is the nutshell of this presentation. • We will provide you real life scenarios describing the situation found and the path taken to resolve the situation.

4. Auditing in the Grey #1 • XYZ Trucking is a Road Contractor hired build, rebuild, and pave roadways in many jurisdictions. • They purchase tax paid bulk fuel in all jurisdictions where they have road construction jobs. The fuel is stored in a tanker truck that is used to dispense fuel on the job site. • The fuel is used to fill all vehicles on the job site including taxable and non-taxable vehicles. But…

5. Auditing in the Grey #1 • No bulk fuel withdraw logs exist and the auditor can’t tell what jurisdiction tax paid fuel was placed into what unit. • Remember – This company can show you 10,000’s of gallons of tax-paid bulk purchases. • What do you do????

6. Auditing in the Grey #1 • Fuel was allowed for the base jurisdiction only. • But only allowed up to base jurisdiction consumption. • No fuel credit was given in other jurisdictions. • MPG was based on industry averages and 4.0.

7. Auditing in the Grey #2 • What do you do when you find unreported operations but are unsure who was responsible for reporting them?

8. Auditing in the Grey #2 • While conducting an audit it was noticed there was comingled operations between two licensees. • Reviewing lease agreements and DOT sightings did not help determine whose license trips were being run under. • Several vehicle were registered to people without IFTA authority.

9. Auditing in the Grey #2 • Without a clear picture, it was decided to charge 100% of the operations found to both licensees.

10. Auditing in the Grey #2 • In the end the two companies came to agreement as to when each company was operating each vehicle. • The audit results were adjusted to now reflect 100% of the whole instead of 100% to each licensee. • The assessments were promptly paid.

11. Auditing in the Grey #3 • Can an auditor use information from well outside the 2 – 4 year statute of limitation period most audits cover?

12. Auditing in the Grey #3 • During an IFTA audit you determine records are mostly non-compliant. • The only bit of information you find valuable is odometer readings obtained from when the trucks were purchased new and the current odometer readings. • The Equipment list was consistent yearly.

13. Auditing in the Grey #3 • The average mile per truck show operations of about 8,000 miles per quarter for each of the six trucks. Or, around 48,000 per quarter total miles averaged through the life of the trucks. • Operations could be described as local in nature only traveling within 50 miles of the base location. • The licensee has only been reporting around 4,000 miles per quarter during the three audit period.

14. Auditing in the Grey #3 • Applying the 1100% error rate would be too harsh in this audit. • Better information was available!

15. Auditing in the Grey #3 • During the entrance conference the licensee stated their operations did change significantly a few years ago and the number of miles driven annually was greatly reduced. • The auditor reviewed all IFTA returns filed for an extended time period of 10 years. • Did this help create a clearer picture?

16. Auditing in the Grey #3 • By looking at IFTA returns filed for 10 years, it was noted the licensee averaged reporting around 44,000 miles per quarter instead of the 4,000 miles per quarter during the last three years. • Using the longer reporting averages, the error rate applied dropped from 1100% to less than 10%.

17. Auditing in the Grey #4 How far would your jurisdiction go to collect on an audit bill? Would you:

18. Auditing in the Grey #4 • Send threatening notices? • Cancel authorities? • Garnish or seize payments? • Jail terms for taxpayers?

19. Auditing in the Grey #4 • Ontario’s tax laws provides civil penalties, fines, and jail terms for taxpayers! • A taxpayer could be sentenced to a jail term of two years!

20. Auditing in the Grey #5 • TIP LINE LEAD

21. Auditing in the Grey #5 • BASE JURISDICTION SYSTEM INDICATES: • ACTIVE IRP REGISTRATION • One tractor, 80,000 CGVW • Three bordering jurisdictions • ACTIVE IFTA LICENSE • Two quarters – no activity • One quarter - base jurisdiction distance only • One quarter - distance and fuel in four jurisdictions • Three sets IFTA Decals Purchased

22. Auditing in the Grey #5 • INITIAL CONTACT WITH CARRIER • No distance records • No DOT Daily Logs • Maybe a few OTR fuel purchase receipts • Alternative Records (requested) • Bank Statements • Schedule C • Depreciation Schedule

23. Auditing in the Grey #5

24. Auditing in the Grey #5MC - UPDATE

25. Auditing in the Grey #5 • MCS -150 – UPDATE • Required Document for IRP Renewal • Company Snapshot and UCR Registration • http://safersys.org/ • To Be Continued …

26. Auditing in the Grey #6 • AUDITS REQUESTED BY OTHER DIVISIONS OR AGENCIES

27. Auditing in the Grey #6 • Agent from Administration Division appears in Auditor’s Office ~ extremely flustered. • What’s the first thing the auditor should do? • A. • B. • C. • D.

28. Auditing in the Grey #6 • Agent explains ongoing conversations and issues with a fairly new Licensee/Registrant. • A. Monthly queries – “How do I. . .?” – then the same query in the following month/quarter etc… • B. Incomplete/Inaccurate and Late quarterly filings • C. Etc..

29. Auditing in the Grey #6 • FACTS OF THE CASE: • New Account – New Company – • IFTA Operations effective 2Q10 • 10 decals purchased April - December • IRP Effective date April 2010 - expires August 2010 • 1 truck registered – 80,000 • 43 Jurisdictions – all actual or 1st year estimates

30. Auditing in the Grey #6 • FACTS OF THE CASE: (continued) • SECOND Year IRP Application 2011 • Application Distance matched carriers 2Q10 IFTA Return • Requested Registration files 2010 and 2011 from Admin • No documentation indicating if/when/where there may have been previous operations.

31. Auditing in the Grey #6 • FACTS OF THE CASE: (continued) • Carrrier’s contact phone number – not a Base Jurisdiction phone number. • Registration personnel remembers carrier discussing driving for a company in another jurisdiction.

32. Auditing in the Grey #6 • Auditor contacts neighboring Jurisdictions with the limited information available. • Within 3 days – Previous operations were discovered, validated, and verified. • This is why we are HERE!!! • To be continued . . .

33. Have you seen this truck?

34. Or this one?

35. Maybe this?

36. Certainly you would remember this!

37. Auditing in the Grey Remember : Auditing is about examining and documenting the big picture and not just the printing on a sheet of paper. Don’t focus so hard on the fine details that you miss the big picture

38. Auditing in the Grey Say… Did anyone notice what was wrong with the slides of the Trucks?

39. Auditing in the Grey They are the same truck. Isn’t it amazing what someone can create for you when you pay close attention? Thank You for your time!