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2012 IFTA/IRP Audit Workshop, Tempe AZ Managing for Compliance Presenter: Dan Young CIA, CICA, Audit Supervisor, Internal Audit Unit, Montana Department of Transportation
Each jurisdiction should use an audit program. An audit program provides for consistent application of audit procedures, serves as a training tool for new auditors, and facilitates the review of the audit. An audit program does not preclude the use of auditor judgment. Deviations from an audit program are acceptable if they are reasonable given the audit circumstances and must be documented in the audit file and approved by the audit supervisor
Attach background
reports from ACS-TS, ACS-RS, Fuel Refund Voucher Report, Secretary of State, SAFER and prior audits as needed to document the background information. (3 hours)
Additional Guidance: IRP - Carrier Information - Carrier Fleet Information - Supplemental History - Carrier Mileage Report - Carrier Vehicle Listing Note: If the IRP Registration Years under review are different from the IFTA audit period. Print the "Detail Fuel Use Tax Return" screens for the applicable quarters.
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Determine the audit periods and the tax types to be audited for the taxpayer under audit. Determine the budget based on the program steps required to perform this audit. Remember to change the hours in each of the steps to reflect their final allocation. (2 hour) Provide the audit supervisor and audit manager (via email) the budget breakdown by phase.
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Purpose: MCA 15-70-355; Statute of limitations. Except in the case of a fraudulent return or of neglect or refusal to make a return, every deficiency must be assessed within 3 years from the due date of the return or the date of filing the return, whichever period expires later.
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For IFTA or IRP audits prepare either the 30 day audit notification letter, the Contact Authorization, vehicle listing/fleet verification and taxpayer information form or for Refund or SU audits prepare and send the audit notification letter and the taxpayer information form.. (1/2 hour)
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Note: There are no vehicles or equipment associated with a Motor Fuel Distributor tax return or a Agricultural Tax Refund Application.
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IRP Audit Manual 601. Pre-Audit Contact (a) At least 30 days prior to conducting the Audit, the Registrant shall be contacted and advised that an Audit is to be conducted of Operational Records substantiating distance reported on the apportioned registration application(s). Through the initial or subsequent pre-audit contacts, the Registrant should be advised of the Registration Year(s) to be audited, the type of Operational Records to be audited, the person(s) conducting the Audit, and the proposed Audit commencement date. The pre-audit contacts will provide the Registrant the opportunity to make the required Operational Records available. (b) For documentation purposes and to avoid misunderstanding, any pre-audit correspondence and documentation of pre-audit contact shall be incorporated into the Audit file. (c) For just cause, notification requirements may be waived. It is suggested that the auditor obtain an agreement to waive notification requirements from the Registrant prior to conducting an Audit. The Audit may be postponed for just cause.
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Complete the appropriate spreadsheets for each tax type from MDT systems (ACS, HOC reports, and the tax returns & applications): IFTA (Low-2 hours, Med - 4 hours, High 6 hours) IRP (1 hour) SU (4 hours) Refunds (Off-Road, PTO, AG & Refer)(1/2 hour per refund type) Distributor (3 hours)
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Additional Guidance: While entering the information, make sure the spreadsheets balance to the system.
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Document the spreadsheets are balanced to the system and lock the system. (1/2 hour)
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Additional Guidance: The Audit Tech will usually balance the spreadsheets prior to the assigning the audit. If we are unable to complete the balancing process, the Audit Tech will add a step in the planning section of the audit to request the final balance. Once it is balanced, lock this schedule to prevent future changes.
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Scan the completed documents : Contact Authorization Taxpayer Info Vehicle Listing Sample records (1 hour)
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Purpose: IFTA Audit Manual *A680 AUDIT FILE CONTENTS The audit file will contain, but not be limited to, the following: .100 Schedules .005 Summary schedules Summary schedules shall include reported and audited fuel and distance for each affected jurisdiction. They shall also include the assessment or refund for the jurisdictions and the net total assessment or refund due for\ the audit, including all penalties and interest. .010 Supplementary schedules Supplementary schedules shall provide additional detail for results on the summary schedules. Supplementary schedules will contain, but not be limited to, schedules showing how audited fuel and distances were calculated and the computation of adjustment factors determined from a sample, if applicable.
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Additional Guidance:
For IFTA/IRP you need to select 3 quarters that would cover the most jurisdictional miles and tax types. Make sure 2 of the quarters are back to back to test proper cutoff.
The IFTA IRP Sample spreadsheet in TeamStores is useful for helping to identify the quarters and document your analysis.
For SU you need to select 3 quarters that would provide a good representation. Make sure 2 of the quarters are back to back to test proper cutoff.
For refunds, we will select 20% or a minimum of three of the total applications/returns filed.
You will need to justify any sample sizes that do not conform to the above selections. Consult the Audit Supervisor for guidance as necessary.
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Purpose: IRP Audit Manual 703. Sampling and Extrapolation Procedures (a) After completing the review of internal controls, the auditor should discuss proposed sample periods and Operational Records with the Registrant. Source documents/IVDRs and distance summaries for no less than three representative months of the Reporting Period for the Registration Year being audited will be selected for Audit with respect to Jurisdictional distance and other attributes required by Article IV of the APM. After the auditor reconciles the distance summary (ies), differences should be summarized and included as a part of the Audit file. Generally, Audits are to be conducted on a sampling basis. However, a complete Audit of the Registrants distance records for the twelve-month period or actual months of operation may be necessary if tests of internal controls reveal major weaknesses in the Registrants reporting system, or if there is an absence of distance summaries. (b) Auditor judgment is required in determining the nature of errors encountered. Depending on the nature of the errors, they may be treated as isolated errors (and included in findings without being projected) or they may be projected. Sampling and extrapolation procedures performed by the auditor should be documented in the Audit file.
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Purpose: IRP Audit Manual 703. Sampling and Extrapolation Procedures (c) Documentation such as source documents/IVDRs and distance summaries odometer and hubodometer readings, and other Operational Records used by a Registrant to substantiate Total Distance traveled, must be considered by an auditor in determining the acceptability of the Registrants reporting system. 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 Jurisdictions 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. (d) Before making projections to the Registrants distance per summary or application, the suitability of the use of the distance per summaries or application for projection purposes shall be ascertained. It is generally preferable to project to summary distance (corrected as necessary) than to application distance. Differences between the distance per summary and distance per application should be investigated to determine their cause. Also, the auditor shall make a determination as to whether the distance per summary or application includes only the operations of Apportionable Vehicles during the Reporting Period (Section 701(b)). The auditor shall document in the Audit file the conclusions made as to whether the distance per summary or application has sufficient accuracy and reliability to be used in sampling projections.
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Contact the taxpayer and do the following: Identify yourself as the auditor that will be performing the examination Answer any initial questions Explain the audit process Ask the taxpayer to explain the processes and procedures used to record and compile the information reported for each tax type. Document the Internal Controls. Ensure you obtain sample records to document the process flow. Discuss whether the audit will be conducted on-site. Discuss the sample selection and verify that the sample is representative of the companys operations. Schedule a time and date to conduct the audit.
(2 hours add hour for each additional tax type)
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IFTA Audit Manual A630 OPENING CONFERENCE .100 Except as defined in A630.200, a documented opening conference shall held with the licensee outlining the licensee's operation, audit procedures, records to be examined, sample period, sampling procedures, etc. The method by which said conference takes place is subject to the base jurisdictions discretion and may include, but is not limited to, the following: in person meetings, telephone discussions, written correspondence, facsimile transmission, and electronic mail messaging. The licensee and auditor should determine who has the responsibility for the final acceptance of audit findings and who should be involved in the closing conference. .200 In those circumstances where an opening conference is not held and/or completed in accordance with A630.100 because the audit is being performed in accordance with IFTA Articles of Agreement R1210, documentation must be provided as to why the opening conference was not held and/or completed. .300 Open communication between the licensee and auditor is desirable.
IRP Audit Manual 602. Initial Audit Conference A documented initial Audit conference should be held with the Registrant to discuss the Registrants operations and record keeping system, Audit procedures, Operational Records to be examined, sample period, sampling procedures, etc. Open communication between the auditor and Registrant is desirable.
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Additional Guidance: By studying and evaluating the internal control procedures, the auditor identifies apparent weaknesses in the internal control system. To assist in evaluating the system of internal control the auditor should consider the following: Types of errors and irregularities that could occur. Control procedures to prevent or detect such errors and irregularities. Whether the procedures have been adopted and are being followed satisfactorily. Weaknesses which would enable errors and irregularities to pass through existing control procedures. The effect these weaknesses have on the nature, timing, and extent of auditing procedures to be applied.
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(1/2 hour)
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The text you are entering in the specific areas of the profile related to the report is the text which will be brought into the 360 report.
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Fieldwork Phase
Within the Fieldwork Audit Phase we developed specific Fieldwork Audit Programs for each audit type performed and for specific elements we deemed necessary to preform IFTA and IRP audit procedures. For each of the Audit Programs, we have developed audit procedures that allow the auditor to review and test the records provided by the audit client. After performing the audit procedures the auditor should have sufficient and reliable evidence to support any opinions or conclusions about the clients records and the accuracy and completeness of the distance and fuel information reported on the returns and registrations.
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10 units
Select the units that would give you the best coverage of miles. Note: For the single quarter, you do not need to select the same units as the other 2 quarters. (1 1/2 hrs.)
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Enter audit adjustments in the spreadsheet(s) for each tax type and reconcile them to make sure all items are accounted for properly. Complete the comment section at the bottom of the spreadsheet for each adjustment. (1 hr. per spreadsheet)
(Note: if multiple entries are made, you should save each one along the way to document your process.)
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To assist you in making the determinations, you can pull IFTA-IRP Records Evaluation
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information into the spreadsheet. This is when you should finalize the decision on whether there should be a penalty assessment for IFTA/IRP. (2 hours)
Copy the spreadsheet completed and balanced during the pre-
planning step to use for each audit finding/or adjustment. These spreadsheets will be used to support your issue(s).
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QUESTIONS ????????