1) Review Record Keeping Requirements. Licensee / Registrant Record Keeping Responsibilities

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1 1) Review Record Keeping Requirements Licensee / Registrant Record Keeping Responsibilities IFTA and IRP require that the licensee/registrant (trucking company) have an acceptable distance recording system. This means that the trucking company needs to account for all miles/kilometers traveled for each unit in these programs. For IFTA, distance traveled shall be noted as taxable or non-taxable. Both programs require some type of trip documentation for each individual vehicle. The following information is required to be included on the trip sheet to be considered acceptable: date of trip, trip origin and destination, total trip distance, distance by jurisdiction, unit number, and name of trucking company Additionally, both programs list route of travel and beginning and ending odometer/hubometer readings. IFTA allows both of these items (route and odometer/hubometer readings) to be waived by the base jurisdiction, but IRP only allows one to be waived by the base jurisdiction. Capturing this information either manually or electronically is acceptable. IFTA requires that trip information be summarized in monthly fleet summaries. IRP does not have this requirement, but it is implied in Section 403 of the Audit Procedures Manual that monthly or quarterly summaries should be kept. IFTA requires that the licensee maintain complete records of all fuel purchased, received and used in the conduct of its business (P550). It further requires that both retail and bulk purchases be accounted for separately. Supporting documentation for retail purchases is typically a receipt. Information required to be on the receipt includes: date of purchase, seller s name and address, number of gallons/liters, fuel type, price per gallon/liter, unit number, purchaser s name. In order to receive credit from bulk fuel withdrawals, the licensee needs to record the date of withdrawal, number of gallons/liters, fuel type, and the unit number that it went into. Further, it is also required that bulk fuel inventory reconciliations be maintained and records kept to substantiate that tax was paid in the bulk fuel purchase. The trucking company has the option of using onboard recording devices. These devices are not required by either IRP or IFTA. If the trucking company chooses to go with one of these devices, the recording system would have to meet the requirements of both IFTA and IRP. 2) Selection of Test Periods

2 When conducting an IFTA/IRP audit: A. Covering Jurisdictions If the licensee has adequate summaries by month, which can be reconciled to the reported distance and fuel, it will be possible to select test months. Select 1 test quarter or month from each registration year. Select test months or quarters representing as many of the jurisdictions with activity as possible. The auditor should determine the nature of the licensee s operation, i.e. seasonal activity, major changes in the reporting system, increase or decrease in fleet size. The auditor will want to examine test months or quarters that are representative of the licensee s entire operations. B. Selection of Units to Test When auditing a medium or large carrier, the auditor will need to select test units. Units should be selected that are representative of the licensee s entire operations (varying registered weights, jurisdictions traveled, total distance traveled, etc). In order to select test units, a licensee must have unit summaries, or they will need to be created, either monthly or quarterly, that can be reconciled to the reported distance and fuel. An example for selecting the number of sample units to test are: Fleet size Sample size (per test period) 1 3 units All units 4-10 units 2 3 units units 4-5 units units 6-7 units units 8-12 units Over 100 units? Considering the individual licensee s operation, what is reasonable? What is an acceptable sample percentage? If the auditor is examining test months, the number of test units may need to be increased. Should you document the sample? How?

3 3) Testing Distance: A. Total vs. Taxable Distance Some jurisdictions have non-taxable (exempt) distance for IFTA. This distance must be included in total audited distance for MPG/KPL purposes, but not included in that jurisdiction s audited taxable distance. Note that there is no exempt distance under IRP. Examples of non-taxable distance may include distance driven on a toll road, distance driven on logging roads, and distance operated under a fuel trip permit. If the carrier reported non-taxable distance in a jurisdiction, the distance records must reflect the amount of taxable vs. non-taxable distance in that jurisdiction for each affected trip. The auditor should verify the non-taxable status of this distance with the affected jurisdiction before allowing the exemption for audit. B. Distance Software Systems Most jurisdictions use some type of distance software system to verify the accuracy of the carrier s reported distance per jurisdiction on a trip basis. When comparing the carrier s distance per jurisdiction with a software system, the auditor should only test the distance for reasonableness. For example, it would generally not be necessary to change a jurisdiction s distance from 15 to 17, or vice versa, based on a distance software system. C. Documenting Distance The audited distance per jurisdiction for each trip in the test period should be documented in the audit work papers. The audited distance should be compared to the reported distance to calculate error percents for each jurisdiction. These work papers should be included in the audit file even if there are no changes to reported distance. The audit procedures used to calculate the audited distance and the explanation of any differences between audited and reported distance should be noted in the auditor s interjurisdictional audit report. D. IFTA vs. IRP How do you get to your IRP distance Add IFTA quarters together or apply an error rates to reported IRP distance? What I want out of this is to have participants look at a decrease in IRP fees for acceptability. How did we get to the decrease, is the information provided by the registrant good enough to decrease a jurisdiction s fees? What s to stop an auditor from disallowing credit fees based on unacceptable documents?

4 4) Testing Fuel: A. Bulk Fuel

5 If the carrier maintained a bulk fuel tank that was used by one or more of the IFTA units, tax-paid credit can only be given for this fuel if bulk withdrawal records were prepared detailing the unit, date, and amount of fuel for each bulk withdrawal. Bulk fuel inventory records must also be maintained documenting that the bulk fuel withdrawn was indeed tax-paid. In the absence of bulk withdrawal logs, the auditor may still choose to allow tax-paid credit for part or all of the tax-paid bulk fuel located and purchased in the base jurisdiction. This should only occur if the auditor can determine the portion of the tax-paid bulk fuel that was used by the IFTA unit(s) versus the non-ifta units through other means. However, the auditor should not make this decision for taxpaid bulk fuel located and/or purchased in another jurisdiction, without the consent of that other jurisdiction. B. Over-the-Road Fuel Tax-paid credit can only be given for over-the-road fuel purchases if the information required in the IFTA Procedures Manual is listed on the fuel receipt (date, vendor name, amount of fuel, unit number or identification, etc.). Although a fuel receipt may not have the actual unit number recorded, if the unit can be identified through other means (fuel purchase recorded on a unit specific trip report or some other type of unit identification is recorded on the fuel receipt), tax-paid credit could still be allowed. The base jurisdiction may choose to use more discretion in allowing tax-paid credit for over-the-road fuel purchased in the base jurisdiction, but should not allow taxpaid credit for fuel receipts from other jurisdictions that do not meet the IFTA requirements. C. Documenting Fuel If the carrier maintained bulk fuel storage, audit work papers should be prepared to show that the bulk fuel withdrawn from the bulk tank was tax-paid fuel. These work papers should be in the form of a bulk fuel inventory analysis, showing that there was sufficient tax-paid fuel available to support the total audited withdrawals of all units IFTA and non-ifta. If total audited bulk withdrawals exceed total tax-paid fuel available, tax-paid credit can only be given for bulk withdrawals equal to the total tax-paid fuel available. The audit procedures used to document the bulk fuel inventory analysis should be noted in the auditor s interjurisdictional audit report. The audited bulk fuel withdrawals and/or over-the-road fuel purchases in the test period should be documented in the audit work papers. The audited fuel should be compared to the reported fuel to calculate error percents for each jurisdiction. These work papers should be included in the audit file even if there are no changes to reported fuel. The audit procedures used to calculate the audited fuel and the

6 explanation of any differences between audited and reported fuel should be noted in the auditor s interjurisdictional audit report. 5) Creating Error Rates Major points to cover: When creating error rates, take into account the makeup of the IFTA and IRP fleets, are they the same or not. Additional things to take into account are changes in bookkeeping, personnel and operations. If multiple IRP Mileage years are being audited, an error rate for each

7 should be created. Or is it acceptable to add the IFTA quarters together after applying error rates to them? (Example A) A. Adequacy of Error Rates Now that you ve done all this work to get to an error rate, it doesn t mean that it s acceptable. An evaluation of the error rate and its consequence at a jurisdictional level, when applied, should be done. (Example B) Is the information used in the error rates adequate? If an error rate would double tax paid fuel or distance in a jurisdiction, is the information used in the error rates adequate? What if it was to decrease distance dramatically? In other words, what effect will the error rate have on jurisdictions? We could also give several examples of when to apply and when not to apply error rates. B. Adjusting Error Rates If you re not confident all distance traveled is accounted for, why reduce a jurisdictions distance? ALL WE RE TRYING TO DO IS TO GET THEM TO THINK ABOUT THE ERROR RATE ITSELF, BEFORE APPLYING IT. C. Applying Error Rates A decision needs to be made when applying error rates as to which error rate should be applied to which quarter and/or distance year. Can you use information outside a distance year for an error rate? 6) Audited MPG/KPL After calculating the audited MPG/KPL, an analysis for acceptability needs to be done. A. Adjusting MPG/KPL

8 High MPGs/KPLs can be adjusted to the average of the acceptable ones. This is done by increasing total fuel. Low MPGs/KPLs should you adjust these? If you do, how? Do you adjust the distance or fuel? If you adjust the total fuel down to get a higher MPG/KPL, you end up making a credit return. If you adjust the total distance up, you ll need to distribute this increase amongst the jurisdictions. With the increased distance and increased MPG/KPL, the fuel used in each jurisdiction stays the same; you have not changed the financial side of the return. (Example C)