Sampling and Error Rates

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

2. 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.”

3. IFTA / IRP Sampling Requirements IRP - Audit Procedures Manual 703 • 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.

4. Example – Sample Quarter Selection

5. Types of Non-Statistical Sampling • 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. • 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. • 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. • Judgmental sampling – here, the sample is selected based on the sound reasoning and judgment of the auditor. • Block sampling – items are selected in sequence, This is generally used when choosing a “time” sample. The sequence is usually three consecutive months.

6. 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.

7. Sample Size Guidelines

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

9. 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?

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

11. Non-Recurring (Isolated) Errors • WHAT ARE THEY? • EXAMPLES

12. Recurring Errors • Commonly Occurring Errors • EXAMPLES

13. 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.

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

15. Same Fuel Error Two Options

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

17. Support and Documentation • For MILES • For FUEL