Jurisdiction Joint Audit Presentation Mike Dougherty - MD Wayne Brown - ME Della Golden - OH Mark Byrne - NE This presentation is a proposal introducing a concept of how jurisdictions can come together to share resources in conducting joint audits.
Jurisdiction Joint Audits 2006 IFTA/IRP Audit Workshop Last year during the general session, there was some discussion of jurisdictions selecting fewer and fewer large distance carriers for audit. At the top of that issue, was how to deal with the mega carrier audit. Several jurisdictions have achieved great success by joining with other member jurisdictions in the effort to conduct an audit of a large carrier. These efforts have been presented at previous audit workshops. The purpose of this session is to discuss how we can work together to increase the number of audits of large carriers, conducted jointly by several jurisdictions. We also plan to discuss the advantages that conducting joint audits will have for all participating jurisdictions. With shrinking budgets and smaller audit staff’s, jurisdictions have to be resourceful in finding ways to complete their yearly audit counts. Many jurisdictions have either cut back the number of large audits, or have become “size sensitive” when determining who will be selected for a IFTA/IRP carrier audit. There are two issues at the root of this discussion. Both, of these issues focus on “fairness” and “responsibility”. A) Are all carriers being audited on a regular basis regardless of size and location? If your not, is it fair to the small and medium distance carriers? Is there an increasing lack of a “level playing field” between carrier sizes, and/or the number of units or miles traveled? B) Fairness to each other as a whole. Is it fair that some jurisdictions avoid selecting and conducting an audit on their largest carriers? Do you realize that those carriers might be traveling in your jurisdiction? The problem is not unique to any one jurisdiction. Large distance carriers and the “Mega Carrier” audit can be very time consuming and can cost a jurisdiction its yearly audit count. This could possibly place the jurisdiction out of compliance with the IRP and IFTA audit counts and/or stratification. Staffing a mega carrier audit can also be a major challenge, since many jurisdictions do not have the audit staff available to complete a meaningful examination. What can we do to solve the problems of completing a mega carrier audit? What can we do to help each other? Mega carriers impact all jurisdictions. For example: Some large distance carriers can travel or will travel in nearly all jurisdictions. As a result, even the smallest audit adjustment can create a shift of registration and/or fuel taxes from jurisdiction to jurisdiction. As a result, the decisions you make in the field can financially impact every jurisdiction. 1
Jurisdiction Joint Audits 2006 IFTA/IRP Audit Workshop Special challenges of auditing a large carrier can also be a deterrent: • An overwhelming number of units to sample. • Complex auditing issues. • Fear of a lengthy protest and possible legal action. • Political ramifications. • Fear of another jurisdiction filing a dispute. While some jurisdictions do attempt to audit the largest of their carrier base, there has also been some talk about the number of mega carrier audits that appear to be “questionable”. In other words: • Questionable audit adjustments • Questionable audited MPG’s • Questionable error percents • Projection of errors • Sample selection methodology • Sample size in relationship to the total population • Incomplete or poorly written auditor narratives • Confusing or incomplete work papers. The issue of questionable audit adjustments has raised other questions such as auditor sample methodology vs. auditor time. • Did the auditor have enough time to complete a reasonable audit? • Can an auditor complete a thorough examination of a large or high distance mega carrier in 2 or 3 weeks? Are the audit results solid? • Are we spending more time trying to cut corners in attempts to save time? • Did you feel confident that the audit was well represented? (Vehicle sample size, inclusion of all jurisdictions, etc). Can you justify an audit billing that can exceed a million dollars and the shift of hundreds of thousands of dollars between jurisdictions? The findings Over the past several years we have spent time discussing with many jurisdictions, the success and failures of doing joint audits. The success stories have far out numbered the problems encountered. There is no disadvantage to using joint audits to accomplish the task of auditing the largest of the large distance carriers. The advantages not only extend to the member jurisdictions, but to industry (yes, industry ) as well. When asked what the biggest success issues were, the responses were: • We get help! • Each participating jurisdiction gets an audit count. • The educational value to the participants is immeasurable. The interaction between auditors and a clearer understanding of regional issues will help for future audits. If, as a jurisdiction, you decline the opportunity to participate you are in a more difficult position to take issue with the results. • To properly insure that yours and your neighbors’ revenue stream is correctly adjusted. • We get additional input! With more help, we were able to take a closer look at the operations, internal controls, and look deeper into problems/issues. A more 2
Jurisdiction Joint Audits 2006 IFTA/IRP Audit Workshop representative and ultimately, larger and more reliable sample was developed. With a proactive approach between the audit team members and the carrier, a better sample can be crafted. This will help alleviate any issues with other member jurisdictions and the carrier. • We felt more confident in a hearing, since there were several “other” jurisdictions involved in the audit. “There is strength in numbers”. • The more jurisdictions on the audit report, the less likely another jurisdiction will question the audit results. • We wanted to participate since the possibility of large adjustments could result in a large impact to our jurisdictions fuel tax revenues and or registration fee’s. • The sharing of technology between jurisdictions. What does the industry gain? • The “leveling” of the playing field. The perception of fairness. With these accounts audited, the playing field will be far more equitable than it is now. It isn’t fair that Joe’s Trucking from Podunk with one truck is constantly being audited while Big Carrier, Inc. with 5,000 vehicles is never reviewed. The tables have almost completed reversed themselves from the pre-IFTA days. • Industry can rely on a more complete audit. • There should be a diminished exposure to protest by the taxpayer. This will in turn save the taxpayer money. There were also several opinions given for not conducting a joint audit…. • No money in our travel budget to send auditors. • No time in our audit year to send an auditor. • We need to make our audit count here at home. • Not enough staff. • Nobody has asked for help. • We didn’t ask for help because we didn’t think anyone would come. The argument that “we can’t afford” to send someone out to do a large carrier elsewhere is inaccurate. Quite honestly, with an opportunity to protect the revenue that belongs to you and your closest neighbors you can’t afford not to. Do you look at the interjurisdictional audit reports being sent to your jurisdiction? Did you realize that one adjustment resulting from one mega carrier audit conducted by another jurisdiction, can result in your jurisdiction transmitting out more dollars than possibly all the dollars you will bring in from all your audits for the entire year? (We all agree as auditors, it’s not about the money, but the issue of compliance). However, if your jurisdiction is worried about travel expenses, can your jurisdiction afford to not send an auditor when asked for help? Can your jurisdiction charge travel expenses to the carrier? What can we do to solve the problems of completing more large distance audits, or completing a mega carrier audit? What can we do to help each other? Mega carriers impact all jurisdictions. 3
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