Transcript What Constitutes an Audit? Presenters: Diane Robichaud-Cormier, NB Terry Hing, ON Michele Snow, ON What is an Audit? IFTA – R209 IRP – Article II – 262

What Constitutes an
Audit?
Presenters:
Diane Robichaud-Cormier, NB
Terry Hing, ON
Michele Snow, ON
What is an Audit?
IFTA – R209
IRP – Article II – 262 Audit
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IFTA Audit Definition
IFTA Articles of Agreement R209
Audit means:
.100 The physical examination of
the source documentation of the
licensee’s operations either in
detail or on a representative
sample basis;
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IFTA Audit Definition (Cont’d)
R209.200
The evaluation of the internal
controls of the licensee’s accounting
system and operations; and
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IFTA Audit Definition (Cont’d)
R209.300
The accumulation of sufficient competent
evidential matter to afford a reasonable
basis for determining whether or not there
are any material differences between
actual and reported operations for each
affected jurisdiction in accordance with the
provisions of the International Fuel Tax
Agreement and all affected jurisdictions’
fuel use tax laws.
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IRP Audit Definition
Article II – 262 Audit
“Audit” means a physical
examination of a registrant’s
operational records including source
documentation to verify fleet
distance and accuracy of a
registrant’s record keeping system
for that fleet.
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IRP Audit Definition (Cont’d)
Article II – 262 Audit Continued
The examination will be of the
records maintained for a fleet during
the respective preceding year. The
purpose of the audit is to determine
the proper total distance traveled
and the percentage of distance
traveled in each jurisdiction.
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Audit Definition
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An audit is an examination of the
taxpayers records to determine if the
internal control system is reliable
and the reported information is
accurate.
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During the Audit, the Auditor will:
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ascertain the validity and reliability
of information reported
assess the system’s internal control
mechanisms
provide reasonable assurance that
the information is materially accurate
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Uniformity
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Audits must be acceptable to all
member jurisdictions
It must be conducted professionally
and competently
The results must be clearly
documented for all member
jurisdictions to be satisfied
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The Audit Process
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Audit notification
Audit communication between
jurisdictions
Opening conference
Evaluation of internal controls
Closing conference
Audit reports
Audit documentation
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IRP Audit Process Differences
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Pre-audit contact
Request for records
No pre-audit communication between
jurisdictions
Initial audit procedures
Sampling and extrapolation
procedures
New operation / changes in
operations
Contents of audit reports
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Would You Consider This An Audit?
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Case # 1
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100 qualified vehicles
travels in 20 different jurisdictions
purchases fuel in 15 jurisdictions.
No quarter has travel in all 20 jurisdictions
10 vehicles are broker
90 vehicles are company
5 company vehicles have limited travel
Audit period is 3 years
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Scenario - Case 1
The auditor selected a quarter for
which travel was reported in 18
jurisdictions and fuel purchased in 14
jurisdictions. No errors for both fuel
and distance were found. No error
was projected to other quarters.
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Questions – Case 1
Was the sample size reflective of the company
operations? Why or Why not?
Is one quarter enough of a sample to draw
conclusions on the accuracy of the information
reported on the tax returns for the audit period?
As your jurisdiction’s representative responsible for
reviewing this audit would you accept these audit
findings?
Would you consider this an audit?
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Case # 2
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10 qualified vehicles
Travels in 10 different jurisdictions
Purchases fuel in 5 jurisdictions
2 quarters have travel in all jurisdictions
8 vehicles are company owned
2 vehicles are brokers
The audit period is 3 years
During the first half of the audit period the
company prepared their own returns, the
second half of the audit period an agent
prepared the returns.
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Scenario – Case 2
The auditor selected the two quarters that had
travel in all jurisdictions for his sample. The
sample consisted of two company owned
vehicles. The sample periods were in the first
half of the audit period. There were no errors
found in the fuel reported. The auditor
discovered five trips in the first sample period
that misallocated distance between the
jurisdictions. The auditor discovered two trips in
the second sample period that misallocated
distance between the jurisdictions. The auditor
projected the distance errors for the audit period.
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Questions – Case 2
Was the sample size reflective of the
company operations? Was it
representative?
Should the errors have been projected?
As your jurisdiction’s representative
responsible for reviewing this audit would
you accept these audit findings?
Would you consider this an audit?
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Case # 3
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Farm Operation
20 licensed vehicles
8 qualified vehicles
12 licensed vehicles travel within the farm only
per the taxpayer
Travels in 3 jurisdictions
Majority of fuel is drawn from bulk storage
Qualified and unqualified vehicles are fuelled
from bulk storage
No records kept for bulk storage disbursements
The audit period is 3 years.
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Scenario – Case 3
The auditor tested two sample
quarters for two trucks. No distance
errors found. Fuel purchases
reviewed for the entire audit period
due to lack of disbursement records.
Auditor judgment to allow 75% of
bulk fuel purchases to be attributed
to qualified vehicles. KPL
determined to be 2.4.
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Questions – Case 3
Was the sample size reflective of the company operations?
Should the auditor have used the IFTA agreement stipulated
1.7KPL/4.0MPG?
Would you deny or grant tax paid purchases credit for
disbursements from bulk storage? Why or why not?
As your jurisdiction’s representative responsible for reviewing
this audit would you accept these findings?
Would you consider this an audit?
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Case # 4
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30 qualified vehicles
15 vehicles are company owned
15 vehicles are brokers
Travels in 20 jurisdictions
Purchases fuel in 15 jurisdictions
Jurisdictional distance assigned using
mileage software
The audit period is 3 years.
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Scenario – Case 4
The auditor tested all vehicles for one
quarter. No fuel errors found. The review
of the distance records for the sample
period indicated that for certain trips the
mileage software used the practical route
which routed the trucks through two
jurisdictions. Supporting documents
indicated that the trucks used a different
route which caused them to travel through
three jurisdictions and increased the total
distance traveled. A distance error rate
was calculated and projected over the
audit period.
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Questions – Case 4
Was the sample size reflective of the
company operations?
Should the errors have been projected?
As your jurisdiction’s representative
responsible for reviewing this audit would
you accept these findings?
Would you consider this an audit?
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Case # 5
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IRP audit
4 qualified vehicles
Reported actual travel in 15
jurisdictions
Only traveled in 13 jurisdictions
Purchase fuel in 10 jurisdictions
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Scenario – Case 5
The auditor tested all vehicles for one quarter. No
fuel errors found. The carrier declared distance in
two jurisdictions on its application. However, the
carrier did not travel in those jurisdictions in the
record year reporting period. The taxpayer had
under reported distance in three jurisdictions and
over reported distance in two jurisdictions.
The auditor reduced the reported distance (on the
application) in the two jurisdictions to zero and
projected the distance error rate over the other
jurisdictions in which there was travel.
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Questions – Case 5
Was the sample size reflective of the company
operations?
Should the errors have been projected?
Should the reported distance have been zeroed
out?
As your jurisdiction’s representative responsible for
reviewing this audit would you accept these
findings?
Would you consider this an audit?
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Thank You
Questions?
Comments?
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