IFTA Compliance / IRP Peer Reviews Overview for Audits Peer Review.pdf · IFTA Compliance / IRP...

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IFTA Compliance / IRP Peer-Review Overview for Audits 2005 IFTA & IRP Audit Workshop 1 IFTA Compliance / IRP Peer Reviews Overview for Audits Paul Johnson – Washington Diane Robichaud-Cormier – New Brunswick Leroy Johnson – South Carolina Mike Dougherty - Maryland 2005 IFTA & IRP Audit Workshop 2 IFTA Compliance / IRP Peer Reviews Reasons for Reviews What Reviewers Look For Compliance Issues • Highlights Get Involved 2005 IFTA & IRP Audit Workshop 3 Reasons for Review Mandated by the Agreement and Plan Preserve integrity between jurisdictions and industry The adage, “Trust through verification.” Improve jurisdictional audit process

Transcript of IFTA Compliance / IRP Peer Reviews Overview for Audits Peer Review.pdf · IFTA Compliance / IRP...

Page 1: IFTA Compliance / IRP Peer Reviews Overview for Audits Peer Review.pdf · IFTA Compliance / IRP Peer Reviews Overview for Audits Paul Johnson – Washington Diane Robichaud-Cormier

IFTA Compliance / IRP Peer-Review Overview for Audits

2005 IFTA & IRP Audit Workshop 1

IFTA Compliance / IRP Peer Reviews Overview for AuditsPaul Johnson – Washington

Diane Robichaud-Cormier – New Brunswick

Leroy Johnson – South Carolina

Mike Dougherty - Maryland

2005 IFTA & IRP Audit Workshop 2

IFTA Compliance / IRP Peer Reviews

• Reasons for Reviews

• What Reviewers Look For

• Compliance Issues

• Highlights

• Get Involved

2005 IFTA & IRP Audit Workshop 3

Reasons for Review

• Mandated by the Agreement and Plan

• Preserve integrity between jurisdictions and industry

• The adage, “Trust through verification.”

• Improve jurisdictional audit process

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IFTA Compliance / IRP Peer-Review Overview for Audits

2005 IFTA & IRP Audit Workshop 4

IFTA & IRP Mandate• R1510.200 – Condition for membership,

Members will submit to a program compliance review to determine compliance with the Agreement.

• Plan 2128 – Each member jurisdiction’s administrative procedures and audit program will be reviewed for compliance with the Plan and Audit Procedures Manual.

2005 IFTA & IRP Audit Workshop 5

What IFTA and IRP Reviewers Look For in Audits• Verify 30-day notification

• Review of Internal Controls

• Verify records are adequately maintained by the licensee

• Audits are properly documented to justify audit findings

2005 IFTA & IRP Audit Workshop 6

What IFTA and IRP Reviewers Look For in Audits (continued)

• Proper procedure followed when records are inadequate

• Audit Sample/Test was representative

• Verify a closing conference was held with licensee and documented in the file

• Audit findings properly calculated

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IFTA & IRP MANDATE FOR COMPLIANCE / PEER REVIEWS IFTA R1510 – CONDITIONS FOR MEMBERSHIP The applicant shall agree to abide by all terms, conditions, and requirements of the

Articles of Agreement, Procedures Manual, Audit Manual, and the Bylaws of the Association and to:

.100 Comply with all audit policies and procedures, including employment of a

sufficient number of auditors to assure that at least 15 percent of the licensees based in the jurisdiction under this Agreement will be audited at least once every five years.

.200 Submit to a program compliance review to determine compliance with the

Agreement. Such review shall be performed after one year of implementation and once every four years thereafter unless a review is ordered as prescribed by his Agreement; and

.300 Submit an annual report to the repository as specified in the Procedures

Manual. IRP ARTICLE XXI ADMINISTRATION 2128 PEER REVIEW

Each member jurisdiction’s administrative procedures and audit program will be reviewed on a periodic basis for compliance with the Plan and Audit Procedures Manual. The peer review period will begin with earliest un-reviewed calendar year and end with the most recently completed calendar year. The Program Compliance Guide utilized for the review will be maintained and updated by the Board or its designee to ensure its compliance with the Plan. The Board will determine the schedule for the periodic review of all jurisdictions assuring each jurisdiction will be reviewed.

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IFTA Compliance / IRP Peer-Review Overview for Audits

2005 IFTA & IRP Audit Workshop 7

What IFTA and IRP Reviewers Look For in Audits (continued)

• Jurisdictions properly notified of audit findings

• Verify audit transmittals are timely

2005 IFTA & IRP Audit Workshop 8

IFTA & IRP Review Highlights

• IFTA Worksheet K and M (copies in notebook)

• IRP Peer Review audit review checklist (copy in notebook)

• Types of non-compliance issues (copies in notebook)

2005 IFTA & IRP Audit Workshop 9

IFTA & IRP Highlights (Cont.)

• IFTA Compliance Review participation

• Updates from IFTA, Inc. and IRP, Inc.

• Comments from the jurisdictions

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JURISDICTION: DATE:

K. AUDITORS √ CITE IFTA auditors have adequate technical training and

proficiency [K100] A210.100

Jurisdiction auditors meet the qualifications of the jurisdiction's

personnel guidelines [K110] A410.100

Jurisdiction's audit and audit support staffs are properly trained in

audit planning and audit procedures [K120] A410.200

Supervisory follow-up and review of the auditor's procedures exists

[K130] A220.200

In all matters relating to an audit assignment, an independence in

mental attitude is maintained by the jurisdiction's auditors [K140] A210.200

The auditors are without bias with respect to a licensee under audit

[K150] A210.200

Due professional care is exercised in performing an audit and in

preparing an audit report [K160] A210.300

All licensees are given equal consideration; no preferential treatment

is given [K170] A420.100

All licensees are audited under a uniform program unless special

circumstances dictate otherwise [K180] (should) A420.300

Each member jurisdiction is given equal consideration in an audit

[K190] A420.200

Auditors conduct themselves in a manner which promotes

cooperation and good relations [K200] (should) A420.400

Auditors are allowed to discuss any discrepancies with a licensee

[K210] (should) A410.400

Auditors are able to make preliminary recommendations to a licensee

[K220] (should) A410.500

Worksheet K Revised July 1998

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JURISDICTION: DATE:

M. AUDIT PROCEDURES Audited Licensee: __________________________ License Number: __________________________ Audit Period: __________________________ Audit Completion Date: _____________________ √ CITE Audit was adequately planned [M100] A220.200

Licensee was contacted in writing at least 30 days prior to audit and

advised of the approximate date that an audit was to be conducted and the time period the audit would cover [M110] (should)

A610

A copy of the notification letter is incorporated into the audit file

[M120] (should) A610.100

All pre-audit contact was confirmed in writing [M130] (should) A610.300 The audit was conducted on a sampling basis, unless a specific

situation dictated otherwise [M140] A530

Sample period(s) selected are representative of the licensee's

operations [M150] A530.100

Licensee was allowed input into sample selection if legitimate

reasons existed [M160] (should) A530.300

An agreement that the sampling methodology was appropriate was

signed by the licensee and the auditor and made part of the audit file [M170] (should)

A530.400

Auditor conducted both an opening and closing conference with the

licensee [M180] (should) A630.100

A650 Audit includes a proper study and evaluation of the licensee's internal

control [M190] A220.100

Auditors, through inquiry and observation, determined the licensee's

prescribed policies and procedures. (An auditor normally documents his understanding in his work papers by completing a questionnaire designed for this purpose, or by diagramming or describing the flow of transactions in flowchart or narrative form) [M200]

A640.100

Worksheet M Revised August 2000

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The auditors reviewed the licensee's accounting system

[M210] A640.100

Auditors identified the records that the licensee keeps to

support his returns [M220] A640.100.015

Auditors determined if there had been changes in the

licensee's accounting procedures or operations during the audit period [M240]

A640.100.005

Audit was conducted on behalf of all member jurisdictions [M250] R1310 Receipts for tax-paid purchases that have been altered or indicate

erasures are not accepted without demonstration from the licensee that the receipt is valid. (Beginning 1/96) [M260]

P570.200

If tax paid fuel documentation was unavailable, all claims for tax paid

fuel were disallowed [M270] A550.200

The auditor made any reasonable attempt to verify distance [M280] A540.300 If the auditor was unable to determine any reasonable method to

assign or allocate unreported miles/kilometers, unreported miles/kilometers were assigned to all jurisdictions on the basis of each jurisdiction’s audited percentage of total miles/kilometers. (Beginning 1/96) [M290]

A520

In the absence of adequate records, 4 m.p.g. was used unless

substantial evidence exists to the contrary. (Beginning 7/96) [M300]

A550.100

Audit documentation accomplishes the following:

(Beginning 7/1/00) [M310] A670

Communicates the results of the audit, showing adjusted

distance, fuel and monetary results [M320] A670.100

Documents and justifies procedures conducted by the auditor

[M330] A670.200

Indicates source of audit results (for example, audited fuel

determined from retail purchase receipts) [M340] A670.300

Communicates suggestions and recommendations made to

the licensee [M350] A670.400

Clearly supports audit findings [M360] A670.500

Worksheet M Revised August 2000

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Net fuel tax adjustment per jurisdiction [M530] A660.100.050 Remarks and recommendations [M540] A660.100.055 Signature of auditor or reviewing jurisdictional official and

date [M550] A660.100.060

In calculating audit interest, overpayments to any jurisdiction quarterly

returns within the audit period were applied to any liability on subsequent quarterly returns on a jurisdictional basis within the audit period [M560] (effective October 23, 1998)

R1230.300.010

In calculating audit interest, interest accrued on the net amount of tax

due each jurisdiction within the period of time audited [M570] R1230.300.010

(effective October 23, 1998)

Interest was calculated from the date the tax was due for each calendar month or fraction thereof. (A fraction of a month accrued a full month’s interest.) [M580]

R1230.300.010

(effective October 23, 1998)

The auditor used the best information available to the jurisdiction in conducting the audit [M590]

A540.200

If a software distance program was used, it was used only as an audit

tool [M600] A540.400

Following the close-out conference and any review period, the

licensee was furnished with the Licensee Audit Report and a customary notice of assessment, billing or other notification which would signify the beginning of the licensee’s appeal period [M610]

A690.100

Within 45 days of the providing the licensee with the Licensee Audit

Report and its customary notification of assessment or billing, the Interjurisdictional Audit Report was prepared and the jurisdiction notified the affected member jurisdictions of the audit findings [M620]

A690.200

Worksheet M Revised August 2000

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The audit file contains at least the following:

(Beginning 7/1/00) [M370] A680

Schedules: A680.100 Summary schedules [M380] A680.100.005 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.

Supplementary schedules [M390] A680.100.010 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.

Support Documentation and Exhibits: A680.200 Detail Information [M400] A680.200.005 Detail information is documentation of actual records

reviewed, which support the audit results. Detail information includes, but is not limited to, the following: detail of retail or bulk purchases, detail of bulk fuel withdrawals and analysis of trips audited, showing audited distance in total and per jurisdiction. This information may be maintained on a workpaper or electronically on a database.

Listing of Records Maintained [M410] A680.200.010 A listing of records maintained shall indicate what records are

maintained and presented by the licensee and whether the records comply with the Agreement.

A synopsis of opening and closing conference notes with

licensee indicating date, and persons attending [M420] A680.200.015

Licensee Audit Report contains at least the following information: Name and address of licensee [M440] A660.100.005 Account number [M450] A660.100.010 Audit period [M460] A660.100.015 Types of records audited [M470] A660.100.020 Description of audit techniques employed [M480] A660.100.025 Net distance adjustment [M490] A660.100.030 Net tax paid fuel purchases adjustment [M500] A660.100.035 MPG/KPL as reported [M510] A660.100.040 MPG as result of audit [M520] A660.100.045

Worksheet M Revised August 2000

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Worksheet M Revised August 2000

Page 5

The jurisdiction utilized an Interjurisdictional Audit Report (Beginning

7/97) [M630] A310

The Interjurisdictional Audit Report contains at least the following

information A660.200

Name of base jurisdiction [M640] A660.200.005 Name and address of licensee [M650] A660.200.010 FEIN or equivalent [M660] A660.200.015 Reported tax by jurisdiction [M670] A660.200.020 Audited tax by jurisdiction [M680] A660.200.025 Penalty [M690] A660.200.030 Interest by jurisdiction [M700] A660.200.035 Total by jurisdiction [M710] A660.200.040

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IRP AUDIT WORKPAPERS EXAMINATION Name: Jurisdiction: Acct#: Audit Reviewers: Fleet#: Reg Yr: (IRP 1502) Verify that written demand for records is made and that assessment does not take place till 30 days after that demand. (IRP 1604) Review notifications to insure determination of fees owed by registrant, net of fees owed to the registrant, are indicated. (IRP 1608) Determine if any appeals have been filed. Did the jurisdiction under review notify other jurisdictions as appropriate?

(IRP 1700) Determine if audit policy will allow for examinations inclusive of the records retention period, but not beyond. Review audit working papers to determine the jurisdiction's assessment notice or billing to registrant includes adjustments as indicated by effective provisions of Articles XV and XVI. (2000+)

(IRP 1704) Determine the disposition of the jurisdiction's assessment or billing notice. Determine if credits based on inadequate records were not included in any fee adjustments, or procedures exist to prevent such a circumstance.(2000+) (IRP 1706) Trace examined audits into appendages to the jurisdiction transmittal and transmittal recaps. (2000+)

(APM 204) Audit Program consistently utilized during the review period?

(APM 204) Office policies require review and approval of all audit documentation?

(APM 203) Determine if jurisdictional internal control testing procedures were followed.

(APM 601) Determine if pre audit contact with the registrant occurs. (APM 206) Determine if working papers are maintained, and adequately support audit results, without additional oral explanation. (APM 206) Determine if the documentation is reviewed and approved by supervisory personnel.

(APM 701) Determine that credits are not reflected in the netted fees. (Inadequate records) (APM 702) Determine if monthly fleet recaps are added and compared to the yearly recap and application for each fleet. (APM 702) Determine whether or not a minimum of three months were selected in order to test jurisdictional mileage allocations. (APM 702) Determine if IVDR's are examined to insure that required information is documented by the registrant. (APM 703) Determine if expanded testing, up to and including testing of all reported distance, was performed in instances where major discrepancies were identified.

(APM 704) Insure that applications based on estimated distances are not being audited. (APM 801) Verify that exit conferences are held and documented, or that reasons for an exit conference not taking place are documented. (APM 802) Determine that copy of the report was retained, and that all required information is included. (APM 802) Verify that sufficient information is included with the report to verify adjustments made. (APM 803) Determine whether the Interjurisdictional Report was sent at the same time that the Registrant Audit Report was sent.

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IFTA Program Compliance Review Audit Findings 1998 - 2001

A220.100/A640 4 2 2 3A310 8 9 9 9A310 7 7A310 3A320.100 5 14 10 11A320.200 1 1 2A320.400 2 0A520 2 1 3 1A530 1 1A530.100 3 7 2A540 3 1A550.100 1 2 2A550.200 2 1A610 1A640.100 2 2 1A640.100 2 4A640.100 1 2A640.100 1 1A640.100.005 1 2 2A640.100.010 1 7 10A640.100.015 1 1 2A660.100 2 9 2A660.100.010 1 1A660.100.020 1 1 2A660.100.025 1 2A660.100.030 1 2 2A660.100.035 1 2 2A660.100.040 2 1 1A660.100.045 2 1A660.100.050 1 1A660.100.055 3 3A660.100.060 3 2 3

IFTA Manual Cite Reference 2001 (16)2000 (12)1998 (18) 1999 (16)

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IFTA Program Compliance ReviewAudit Findings 1998 - 2001

A660.200 1 2 4A660.200.010 1A660.200.015 1 3A660.200.020 2 2A660.200.025 1A670 10 10 1 1A670.100 2A670.200 5 2A670.300 1A670.400 2A670.500 2A680.100 1A680.100.005 1A680.100.010 1A680.200 4A680.200.005 2A680.200.010 2A680.200.015 6A680.200.020 4A690 3 1 3 6P1040/A680.400 4 2 1 4P910.150 1R1230.300 5 6 5 7R1310/A420.300/A540.300 1 1 1R1510.100 1 1 2 1

2000 (12) 2001 (16)IFTA Manual Cite Reference 1998 (18) 1999 (16)

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Section 2000 2001 2002 2003 Sep-04 Total

110 Registrant from a non-member jurisdiction 1 1204 Apportionable Vehicle Restricted Plates 1 1210 Base Jurisidction 2 2218 Established Place of Business 1 5 3 3 12236 Preceding year 1 1 2256 Total Distance 1 1 2262 Audit 1 1300 Determination of Fees 3 2 1 6306 Fee Change Notification 1 1400 Application filed with Base Jurisdiction 5 5 6 4 4 24408 Jurisdiction Notification of Application Filing 8 4 4 3 1 20500 Base Jurisdiction Registration 1 1502 Identification Plates and Cab Cards 1 1 1 3700 Vehicle Withdrawn: Dispostion of Fees 1 2 4 4 3 14702 Replacement Vehicles 1 1 1 3800 Application for Initial Registration 7 7 7 4 2 27904 Lessee Carrier as Registrant 1 1906 Place of Business (Owner-Operators) 1 5 1 7910 Hunter Permits 1 2 1 1 51104 Rental Fleet 1 11116 Rental Passenger Cars 2 1 31118 Rental Trailers and Semi-Trailers 1 11120 Utility Trailers 1 11122 One-Way Vehicles 1 11202 Owner-Operator Leased Equipment 1 1 21204 Registration in Base of Service Representative 2 1 31206 Registration in Base of Carrier 2 1 31304 Determination of Total Bus Miles 3 31404 Interjurisdiction or Intrajurisdiction Operation 3 31600 Frequency of Audits 1 1 1 31604 Notification of Audit Findings 1 2 1 41610 Reexamination 1 11614 Finality of Audit Findings 1 1 21704 Netting of Audit Adjustments 2 1 31706 Audit Transmittals 2 1 3

Article XXIII Dispute Resolution 3 3IRP Audit Program 1 1

APM 203 Study and Evaluation 2 2APM 204 Adequate Planning & Supervision 1 1APM 205 Auditor Independence 1 1APM 301 Auditor Qualification 1 1APM 601 Pre-audit contact 2 2APM 700 Audit Procedure 1 1APM 702 Evaluation of Internal Control 1 1APM 703 Sampling & Extrapolation Procedures 2 2APM 704 New Operations/Change(s) in Operation 1 1 2APM 800 Audit Completion and Audit Reporting Procedures 1 1APM-801 Exit Conference 1 1 2 4APM 802 Registrant Audit Report 1 1 2APM 803 Interjurisdictional Audit Report and Distribution of Audit Findings 2 4 3 9

Audit Jurisdiction Accountability 3 3 6Audit Standards of Reporting 2 1 3Audit Due Professional Care 2 2 4Audit Field Work Standards 2 2 4Audit Independence 1 1 2Audit Auditor Qualifications 1 1

IRP PEER REVIEWS - ISSUES OF NON-COMPLIANCE 2000-2004

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IFTA PROGRAM COMPLIANCE REVIEW Participation by Background 1996 - 2004

JURISDICTION Audit

Representative Administrative Representative

AB 20032002199919981997

1996

AL 200220001998

*19971996

*1997

AZ 200319981996

AR 200420012000199919981996

BC 20031999

1997

CA 1999 200320001996

CO 2003200219981996

CT 19991996

200320001997

DE 200420011999

1998

FL 20042000

*19971996

GA 20042000

*1997ID 2002

19971996

IL 2002

IFTA PROGRAM COMPLIANCE REVIEW PARTICIPATION BY BACKGROUND 1996 - 2004

PAGE 1 Revised 11/30/2004

* Indicates participation on more than one review for that year.

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IFTA PROGRAM COMPLIANCE REVIEW Participation by Background 1996 - 2004

JURISDICTION Audit

Representative Administrative Representative

IN 200320022001200019991998

*1997IA 2004

20032000

*19991998

*1997KS 2004

20012000

*19991998

*19971996

KY 200420011998

LA 200420021999

200120001997

ME 200420032002

*200120001998

MB 20031999

1997

MD 2003*2002*2001200019991998

*1997

*1997

MA 20032002

*2001

*2001

IFTA PROGRAM COMPLIANCE REVIEW PARTICIPATION BY BACKGROUND 1996 - 2004

PAGE 2 Revised 11/30/2004

* Indicates participation on more than one review for that year.

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IFTA PROGRAM COMPLIANCE REVIEW Participation by Background 1996 - 2004

JURISDICTION Audit

Representative Administrative Representative

MI *2002 *20021997

MN 20042003199919971996

MS 2004*200220011998

*2002

MO 200419991998

MT *20031998

*2003

NE 200219981997

NV 2004200320021998

2000

NB 200220011997

NF 2001 1997NH 2004

20001997

NJ 2001 1997NM 2004

*2001*1999

NY 200420012000

*19981997

NC 200220011998

*1997

2000*1997

ND 2004*19991998

2002*199919971996

IFTA PROGRAM COMPLIANCE REVIEW PARTICIPATION BY BACKGROUND 1996 - 2004

PAGE 3 Revised 11/30/2004

* Indicates participation on more than one review for that year.

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IFTA PROGRAM COMPLIANCE REVIEW Participation by Background 1996 - 2004

JURISDICTION Audit

Representative Administrative Representative

NS 2002200120001998

OH *2004*20032002

*20011997

OK 2004199919981996

ON 2002199919981997

OR 200119991997

1996

PA 200319981997

PEI 2001 20021997

QC 2003 1996RI 2003 1997

1996SK 2001

199919981997

SC 20041998

1997

SD 20022000199819971996

TN 200420001997

1996

TX 20041998

IFTA PROGRAM COMPLIANCE REVIEW PARTICIPATION BY BACKGROUND 1996 - 2004

PAGE 4 Revised 11/30/2004

* Indicates participation on more than one review for that year.

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IFTA PROGRAM COMPLIANCE REVIEW Participation by Background 1996 - 2004

IFTA PROGRAM COMPLIANCE REVIEW PARTICIPATION BY BACKGROUND 1996 - 2004

PAGE 5 Revised 11/30/2004

* Indicates participation on more than one review for that year.

JURISDICTION Audit

Representative Administrative Representative

UT 20032000199819971996

VT 1999 2001VA *2003

200220012000

*19991998

WA 2004200320022001

1996

WV 200220011999

1997

WI 2001*2000199919981997

*1996

20032002

*2000*1996

WY 2003199919981997

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Develop an Audit Review Checklist from Section I and Section II.

From the Peer Review findings, we developed an Audit Review Checklist that covers all the points listed in the Peer Review Compliance Guide. Since then, we review every audit to ensure that it covers those points. In order for it to be effective, if the auditor fails to satisfy a particular checkpoint the audit is returned for additional work.

o The main thing I have learned in this process is what exactly IFTA requires in the audit process. As the

review member is required to complete worksheets related to a jurisdiction's audit processes, it brings forth possible weaknesses in that review member's own jurisdiction. I think it is a great learning environment just in sharing experiences with other review team members.

We learned different things from each of the experiences as a jurisdiction subject to a

review. First, and overall, we were encouraged that our jurisdiction's program was substantially compliant with the Agreement. The citing (if any) was not what we would consider "cardinal sins." For example, almost every jurisdiction gets cited at some point for a late (returns processing) transmittal for a specific (taxpayer) return filing. We saw many (what I would consider) inconsistencies between teams. What was acceptable to one team was not to another. What would (in their opinion) warrant a recommendation from one team would not even be mentioned by another. From the perspective of a team member, it seems that there is a propensity to "ding" someone in an effort to validate the process.

o One of the main things I found is that the audit staff should periodically take one of their audits through

the checklists to see if they are following the plan and meeting our procedures. In addition, a periodic check for the administrative staff to see what has changed due to ballots, etc is also a good idea. I have printed the IRP Peer Review Questionnaire and several IFTA worksheets to do a mid years review. Getting every one involved is a good idea, too. I think if the staff understands some of the reasons as to why we do things the way we do, they will have an easier time following the plans.

Overall, I did not have any issues with the audit review process. What was helpful was that some of our

staff was familiar with the review process from previous reviews. The information packet the review committee sent us was helpful for us to gather data in a reasonable time. We were found to have a few non-compliant items in that we were fully aware of going into the review. Most of the items had already been addressed prior to the review with the exception of an item that is a contract issue.

o IFTA compliance reviews and IRP peer reviews have been positive experiences. The best part of both has

been the opportunity to talk to the auditor on the review team to see if or how they do things differently than us and to gather good ideas when we see them.

One of the main things that I learned from the process is the actual IRP/IFTA requirements and what the

compliance review team is looking for. Another thing that I learned is how other jurisdictions do things. o IFTA - To shorten our audit scope from 3 to 1 year. Cut out fluff that we had in our audits that took too

much time. Nebraska was not making its audit count. We are now. o To kick out carriers that has not traveled out of state within 15 months or 5 quarters. This helped also. IRP - That our Internal Controls review sheet was weak. We did not ask enough questions on our I.C.

report. (Later, I find my I.C. Report was more detailed than the reviewers. More detailed than most I have seen from other jurisdictions.... I was a little bothered by that fact.

COMMENTS BY AUDIT MANAGERS Page 2 of 7

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That there was an issue on when to transmit audit money when the account was not collected in full. I felt

the issue was not defined in the Plan or the APM. 2. What would you recommend to others that helped you prepare? o Once again, I did not prepare for the Compliance Review. I simply pulled the sample audits and prepared

workspace for the Compliance Review team. I also cleared my calendar so I was available to answer any questions for the team.

The best thing we have done here is review every audit that has been selected for possible review by the

Compliance Review team. By going through these audits before the team arrived, we identify exactly what the short falls might be with each audit on the selection list. This way there are no surprises when the review team gives their final report to us.

o I keep running totals of audits completed in our tracking system so that it is simple to print the reports for

the reviewers. You need to mentally go through the Plan and Agreement to check whether you comply with the listed requirements, before the reviews begin.

To properly prepare for a Peer Review we recommend self-examination of your audit operations. Create a

checklist from the Peer Review Compliance Guide and look at yourself. Be honest. o Definitely, go over the audit worksheets prior to going on the review. Also review all material provided

by IFTA, Inc. about the jurisdiction's processes. This info is sent to IFTA, Inc. for preliminary purposes. In addition, if the team member is from the audit side, they need to spend some time learning about the administrative side in their own jurisdiction prior to going on the review. Moreover, the reverse is true, if the team member is from the administrative side, they need to spend some time learning about the audit side prior to the review.

I would strongly recommend that the jurisdiction do its homework. For example, they should read all of

the reviews on the IFTA website and digest the information to see if their program would be similarly cited. Additionally, be VERY familiar with the PCR worksheets and the Agreement. Be confident of what IS a requirement and what IS NOT. Much like the job folks like you, I, and our respective staffs do, the PCR teams are really auditors. They are mostly trained to dig, dig, dig. Be a step ahead (to the extent you can) and know exactly what is a "citable" offense.

o Review the requirements, talk to the compliance review officers, and talk to jurisdictions that have

recently been through a review. 3. What would you do next time that you did not do this time? The time to start preparing for Compliance Review is now. Establish mandatory verification comments.

This has been conveyed to the audit staff in e-mail format as well as in audit staff meetings.

One of the recommendations was to use an audit checklist covering the IFTA requirements. Not a bad idea, for training purposes. It seems like over kill on a continuing basis.

o The only thought I have on this right now is I want to prepare better annual reports of our completed

audits so when the next review comes up I will not have to pull the information together, instead I will already have each years totals ready to go.

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COMMENTS BY AUDIT MANAGERS FOR IFTA COMPLIANCE & IRP PEER REVIEW

1. What one or two main things did you learn from the process? I treated the peer review process as primarily a learning tool. I took over the audit function for IFTA in

October 2000. I did nothing special to prepare for Compliance Review. I wanted to see how the audits completed during my tenure compared to those completed prior to my joining Motor Carrier Section - IFTA.

What I learned is that although audits completed during my tenure had fewer problems than those

completed prior to my arrival, some minor changes were still needed to come into complete compliance. The compliance issues cited involved comments on sampling and internal controls. So, as is the case with most audits, more clarifying comments are needed to accurately describe audit procedures used in the audit process.

Additionally, the Compliance Review team recommended a better indexing system. Although our audits

do have an index, the Compliance Review team had some trouble following the audits. Therefore, a more elaborate index system, using tabs would be beneficial.

o The two main things I have learned from the IFTA process are no two Jurisdictions audit reports are the

same and no matter how hard one tries, it is virtually impossible to have each audit 100% correct 100% of the time.

Always have a member of the audit section attend the closing conference. This was our first peer review

and we were advised that it was not necessary for someone form the audit section to attend the closing conference.

o IFTA - I have been through three IFTA Compliance Reviews and all have been good, helpful experiences.

The key to the experience is preparation on the part of the jurisdiction. We make sure, on a day-to-day basis, that the audits are complete and in good order. We also conduct an informal review to make sure we are doing all that we are supposed to do.

o I prepare a notebook with all the necessary background material required by the review procedures. I also

make sure the required number of audits are listed and sorted by account size with the computed percentages accompanying each year.

o IRP - I have a slight advantage on the IRP side since I have been on the Peer Review Committee. I was

able to prepare the needed materials for the review in advance and anticipate the needs of the review team. Be familiar with the Peer Review Compliance Guide, revised May 2003.

Section I of the Guide contains the Administrative Review Procedures that are broken into two portions, Preliminary Review and On-Site Review. Each step in the review process lists the specific Rule from the Plan/Procedures/Audit Manual.

Section II contains the Audit Review Procedures that are also broken into two portions, Preliminary Review and On-Site Review. Again, each step in the review process lists the specific Rule from the Audit Manual.

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I would meet with the person responsible for reviewing our audits after his or her review is complete and before the draft, findings are released. The purpose would be to discuss the findings prior to the issue of the draft finding report.

o In the future, we will honestly critique ourselves; find our shortcomings and correct what we can. I have been on at least eight IRP reviews and conducted three reviews on behalf of IFTA, Inc. Each one is

a new and unique experience. You have to take each one as it comes and be open-minded yet firm to IFTA requirements.

o Nothing, really. We would not tinker with what we feel is a compliant program. There will certainly be

small (usually unavoidable) errors made, but these are not worth sweating over. We know for sure that we comply with the most important articles.

Prepare. This includes necessary, compliance review materials, reports, documents, etc. should all be

organized/archived. 4. Did you have enough "lead" time to prepare for the examination? o Once again, since I treated the examination as a learning tool, I did not do much preparation for the

examination. Next time I would spend more time organizing the audits. This would involve the previously mentioned indexing system, making sure the audits included sampling plans, audit questionnaires, and all related correspondence. Still I believe there was adequate lead-time to prepare for the examination.

Yes, there was plenty of lead-time for the examination. We knew months in advanced when the team

would be here and we had plenty of time to pull the audits for the team to review. o For both programs, I have always had enough "lead" time to prepare. You can go to the web sites to get

schedules as to when the reviews should take place. You can also call either IFTA, Inc. or IRP, Inc. to get a date for your next review

We had sufficient lead-time however, we did not know what to expect from the Peer Review team.

Having said that, we now know what to expect and have taken steps to eliminate future findings. o Yes, there was plenty of lead-time. In addition, there is usually a time the night prior to the beginning of

the review that the team gets together to discuss things. Yes, there is plenty of lead-time.

5. Did you receive good ideas in addition to official recommendations? o The suggestions provided by the review team were beneficial. Suggestions included:

a) Develop a better indexing system. The review thought the audits were not in any particular order. California follows the same format for all audit programs. However, the review team thought a more detailed indexing system would be beneficial. b) Sampling agreements should include language stating selected periods are representative of licensees operation.

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c) Both the auditor and the licensee should sign the sampling agreements. If not signed by the licensee there should be comments why this did not occur. d) Expand comments on licensees policies and procedures. e) Comments should be expanded on what the auditor did and why he/she chose the audit techniques used in the audit. f) Audit files should contain copies of taxpayer summaries, lease agreements, sample trip reports, etc. g) When an audit is conducted less than 30 days after the initial contact, and explanation should be made regarding why the licensee was not given the customary 30-day notification. h) Auditors should enhance remarks and recommendations to the licensee to ensure future compliance.

o Overall, the recommendations are beneficial. Some seem to be guided by jurisdictional preference.

However, all the suggestions would enhance the audit for both the licensee and this jurisdiction. We received a few recommendations for improvement, some of these we generally follow in practice but

the audit selected did not contain, and some of the recommendations we should implement. However, the biggest thing I got out of the review is the need to have more details in the audit report. Canned programs have so many limitations when you only can check a box. This is also learned by reviewing audit reports from other Jurisdictions. My opinion is there is a strong needs to include more information in the audit reports that are sent out.

o No, person reviewing the audits felt that we had a good audit program and that it was not necessary to

change anything. We always receive helpful suggestions because of our participation in the process. Being part of the

process on both IFTA and IRP review teams has helped even more with implementing good ideas from other jurisdictions.

o The report we received was just that, a report of findings. I have brought something back from each review; either from the team members or the jurisdiction I was

reviewing. Some were ideas that we have implemented and some were things I wanted to make sure our staff was not doing.

o I am not a big fan of the "Recommendations.” I do not believe they should appear ANYWHERE in the

written report. They are most frequently based on opinion, have no basis in Agreement mandates, and bring no real value to the report. Additionally, recommendations could be (incorrectly, I believe) construed to have the same value as a citing, which I think is inappropriate. Recommendations and suggestions should either be preceded with a clear caveat that they do not have a bearing on the subject jurisdiction's compliance level or they should be left out altogether and be simply verbalized at the Closing Conference. That said, yes we did receive some that were of value; but most were opinion based and not worthy of making the recommended change.

Yes. They did not nickel and dime my time or my program. They gave solid advice that I took.

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6. Any other information you would like to add.... o It would be good to have feedback on proposed findings before they are included in the draft peer review

finding report. I think its helpful to keep the audit staff involved in compliance issues. Their ownership of the issues is

one of the keys to compliance. o Overall, we learned that although the Peer Review Compliance Guide is written as an objective guideline,

the individual checkpoints are open enough to allow subjective interpretations.

o In addition, there are eleven (11) attachments associated with the IRP Peer Review Compliance Guide that are of interest.

o As was mentioned earlier, we developed an Audit Review Checklist from Section I and Section II of the Peer Review Compliance Guide. For our own internal purposes though, we added additional non-compliance checkpoints to the Audit Review Checklist. The completed checklist is then maintained with our copy of the audit.

o We have not had a recent IFTA Compliance Review to learn from but we did develop an IFTA Audit Review Checklist. Essentially, this checklist draws its checkpoints from the IFTA Audit Manual. We use this checklist in the same manner as the IRP Audit Review Checklist.

Everyone should have the opportunity to participate in an IFTA or IRP compliance review.

o It makes a big difference who is doing your peer review. The more experienced reviewer, the better off

you are.

o I was very impressed with the way the auditor handled the peer review. He got to the point, did not waste time, offered great advice. He was up-front. He stayed neutral. The most important thing I got from the auditor was he sees things from both sides of the fence. When I got that impression, I backed off and relaxed. I am not trying to hide the ball, or felt our system was bad.

I am a proponent of allowing different individuals from our staff to participate in these reviews. This

allows different personalities to participate that may see something different from the reviews. o This Membership needs to (once and for all) come to grips with what is REALLY important. It starts (I

believe) with amending the governing documents (Agreement, Procedures, Audit) to reflect what issues are most important between the jurisdictions. All Agreement articles that either a) Do not address the jurisdiction to jurisdiction relationship and/or b) Do not bring any real value or overall potential compromise of tax revenue to the members should be stricken from the governing documents and placed (if applicable) in a "best practices" manual. To affect this, we need to recognize, in my opinion, the following:

1. ISTEA was designed to establish a relationship between member jurisdictions known as the International Fuel Tax Agreement. It established the concepts of qualified motor vehicle and base jurisdiction. These are the ONLY two principles embodied in the legislation that speaks to the taxpayer (carrier). ALL other regulations in the governing documents should be limited to the jurisdiction-to-jurisdiction relationship, not the relationship with the taxpayer. Case in point, this lengthy debate over Section A660 of the Audit Manual and the failure of many jurisdictions to comply with all of the requirements therein is really about the jurisdiction/licensee relationship. So, when a

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COMMENTS BY AUDIT MANAGERS Page 7 of 7

citing is established (for A660) the jurisdiction is being cited as being out of compliance with the licensee. That is just nuts. If the taxpayer has an argument or a need to see the entire case file, that is what the appeals process and all the various due process laws, regulations, and policies are for. We should NOT be regulating the parameters of the jur/licensee relationship. 2. As was discussed at the ABM, there is no hierarchy to the "sins" committed. A jurisdiction that is late (by one month) with the transmittal of a single return result is treated the SAME way as a jurisdiction that audits <1% of their base accounts. There is something inherently wrong with that and imminently more dangerous. It tends to minimize the importance of the entire process. In my opinion, there should be a "scorecard" and a scoring system. We do not really care if Washington misses the transmittal of $.26 to us by a month; however, we would care greatly if Washington (if you'll pardon the use of our jurisdictions as an example) never comes close to the 3% audit requirement or fails to transmit AT ALL for months on end. See the difference? 3. The PCR teams need to get away from making Recommendations. As stated earlier, they are not citing but could be construed as weaknesses in the jurisdiction's program. I am not an advocate of putting these in writing if a jurisdiction otherwise has a clean bill of health. To me, it smacks of what we auditors have long been accused of. That is, if you cannot find anything substantive, you have to come up with something to justify your job. Besides, one's team's recommendation may not even be considered an issue by another because of the varied opinions of the teams' members. This brings to mind, the fact that if a jurisdiction is IN compliance (or substantively so), then let it be. Additionally, if a jurisdiction has complied with the Agreement, then it should be so said and they should be publicly (in the report) commended for their efforts. What needs to be remembered is that many other people in the Agency administration will read the report, not just those directly involved in the IFTA. Additionally, I believe that Recommendations should augment the citing. That is, giving the subject jurisdiction a recommended way to bring them into compliance. 4. I seriously doubt that the member jurisdictions treat ANY other tax with quite the voracity that they do the IFTA. We certainly do not agonize over pennies in sales, corporate, income, motor fuels, or any other taxes. I doubt that if John Doe taxpayer owed you $.20 in the days before IFTA you would wring your hands over him being one month late in paying you (alluding to the transmittal process). Why all the hand wringing now? As far as audits go, we do not have a laundry list of rules as to how the taxpayer must receive information for any other tax. Do you? What did you do before IFTA? What do you do with other taxes? Doesn't it seem just a little bit incongruous that we have many lengthy sections in the Audit Manual that addresses how, what, and when we give the taxpayer information and we have preciously few words dedicated to (Interjurisdictional Audit Report) the jurisdiction-to-jurisdiction communications? That is because, I believe, the members always have the right to request the audit file contents, the right to re-examine, and the right to re-audit. As I said earlier, the taxpayer has his appeals rights. That should be good enough, and the membership should not interfere in the direct relationship between the taxpayer and the base jurisdiction.

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IFTA Compliance / IRP Peer-Review Overview for Audits

2005 IFTA & IRP Audit Workshop 10

Get Involved

• Review Audits with IFTA/IRP check lists to verify Compliance.

• Volunteer for IFTA Compliance Reviews (very educational)

• Read and understand changes in the Agreement/Plan by ballot – Implement changes early.

2005 IFTA & IRP Audit Workshop 11

IFTA Compliance / IRP Peer Reviews Overview for Audits

• “Round table” Discussion

2005 IFTA & IRP Audit Workshop 12

IFTA Compliance / IRP Peer Reviews Overview for Audits

• Thank you!

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Name of Licensee:

License Number:

Audit Period:

Auditor's Verification Date: Date Reviewed:Initials Initials

IFTA CITE

Yes No N/A Yes No N/A Audit Manual

Audit was adequately planned. - A220.200

Licensee was contacted at least 30-days prior to the audit. Audit period was - A610included

A copy of the notification is in the audit file. - A610.100

An audit date was set with the licensee. - A610

All pre-audit contact was confirmed in writing, or noted in the Audit Activity Log, - A610.300and detailed conversations were recorded in supplemental logs.

Sampling was used in the audit. If not, detailed reason is included in the Report. - A530

Sample periods are representative of the licensee's operations. - A530.100

Licensee gave input into the sample selection. - A530.300

A sample agreement was signed by the licensee and the auditor, and a copy is - A530.400in the audit file. If no sample agreement was filed, it was fully explained.

An opening and closing conference was held and included in the audit report. - A630.1/A650

An evaluation of the licensee's internal controls was included in the audit report. - A220.100

Auditor determined the licensee's policies and procedures, and documented them - A640.100in the audit report.

The licensee's accounting system was reviewed. The auditor clearly defined the - A640.100adequacy, or inadequacy, and made recommendations if applicable.

A waiver was signed by the licensee if, due to audit delays, an audit period would fall beyond the statute of limitations time constraints.

Records used by the licensee to support his application were listed in the audit - A640.1.015report.

The licensee's accounting codes were listed, or lack of were explained, in the - A640.1.010audit report.

Changes in licensee's accounting procedures or operations were explained in - A640.1.005the audit report.

Audit was conducted on behalf of all affected jurisdictions. - R1310

Tax refunds were disallowed if receipts of tax-paid purchases were altered or - P570.200indicated erasures.

Tax refunds were disallowed if tax paid fuel documentation was unavailable. - A550.200

The auditor made reasonable attempts to verify reported distances and fuel - A540.3/A520purchases, and the auditor explained the adequacies, or inadequacies, of the

IFTA AUDIT PROCEDURES CHECK-OFF LIST

Auditor Reviewer

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IFTA CITE

Yes No N/A Yes No N/A Audit Manual

Auditor Reviewer

licensee's distance and fuel accounting system.

Because of inadequate records, the audit was adjusted to 4-mpg. - A550.100

The audit documentation accomplished the following:

It communicates the results of the audit, showing adjusted distance, fuel, and - A670.100fees.

It documents and justifies the auditor's audit procedures, and audit findings. - A670.200

It indicates the source of the audit results. (IVMRs, fuel receipts, etc.) - A670.300

It supports the findings, suggestions, and recommendations made to the licensee. - A670.4/.5

The audit file contains at least the following:

Summary schedules that include reported, and audited, distances and fuel for - A680.1.005each jurisdiction, and net total determination, including penalties and interest.

Supplemental schedules showing how the audited distance and fuel was - A680.1.010calculated, and how samples were determined, if applicable.

Detail documentation and exhibits of actual records reviewed supporting the - A680.2.005audit results showing audited distance and fuel purchases, both by jurisdiction and combined totals for the period.

A list of the records maintained and provided by the licensee, and notation - A680.2.010regarding compliance with the IFTA Agreement.

In the report, a synopsis of the opening and closing conferences indicating the - A680.2.015date, time and persons attending.

Supporting exhibits that have been dated to indicate when received by the auditor. - A680.2.020

As part of the audit report, at least the following CAS reports have been included:

IFTA Audit Cover Sheet

Assessment Summary by Period

Assessment Summary (by Jurisdiction)

Assessment Worksheet and Summary

IFTA Detail Report (by Jurisdiction)

Application of Fuel Factor

Application of Mileage Factor

Fuel Adjustment Report

Mileage Adjustment Report

Fuel Sample Report by Unit, Date (If applicable)

Mileage Sample Report by Unit, Date (If applicable)

Other Information:

The audit was done in a procedure uniform with similar audits.

The audit who, what, when, why, and how have been addressed.

The results were fully explained in a manner understandable to the licensee.

Audit work papers/spreadsheets are cross-referenced, explained, and

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IFTA CITE

Yes No N/A Yes No N/A Audit Manual

Auditor Reviewer

licensee's VISTA # and name are on them.

The CAS IFTA complies with the Inter-jurisdictional Audit Report requirements.

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Name of Licensee:

License Number:

Registration Years: Audit Period:

Auditor's Verification Date: Date Reviewed:Initials Initials

IRP CITE

Yes No N/A Yes No N/AAudit Procedures

Manual

Audit was conducted on behalf of all affected jurisdictions. - APM 202

Audit was adequately planned. - APM 204

Licensee was contacted at least 30-days prior to the audit. Audit period was - APM 601included.

A copy of the notification is in the audit file. - APM 601

An audit date was set with the licensee. - APM 601

All pre-audit contact was confirmed in writing, or noted in the Audit Activity Log, - APM 601and detailed conversations were recorded in supplemental logs.

Sampling was used in the audit. If not, detailed reason is included in the Report. - APM 703

Proposed sample periods and records were discussed with the licensee. - APM 703Select a minimum of three (3) month to test jurisdictional applications.

A sample agreement was signed by the licensee and the auditor, and a copy is - APM 703in the audit file. If no sample agreement was filed, it was fully explained.

A waiver was signed by the licensee if, due to audit delays, an audit period would - APM 401fall beyond the statute of limitations time constraints.

An opening conference was held and included in the audit report. - APM 602

An evaluation of the licensee's internal controls was included in the audit report. - APM 702

Auditor determined the licensee's policies and procedures, and documented them - APM 702in the audit report.

The licensee's accounting system was reviewed. The auditor clearly defined the - APM 702adequacy, or inadequacy, and made recommendations if applicable.

Records used by the licensee to support his application were listed in the audit - APM 702report.

The licensee's accounting codes were listed, or lack of were explained, in the - APM 702audit report.

Changes in licensee's accounting procedures or operations were explained in - APM 702the audit report.

The auditor made reasonable attempts to verify reported distances, and the - APM 703auditor explained the adequacies, or inadequacies, of the licensee's distance accounting system.

Unreported miles, found during the audit, that could not be applied to specific - APM 703jurisdictions, were apportioned throughout the listed jurisdictions by their

IRP AUDIT PROCEDURES CHECK-OFF LIST

Auditor Reviewer

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IRP CITE

Yes No N/A Yes No N/AAudit Procedures

Manual

Auditor Reviewer

established percentage of reported miles.

The audit report communicates the following:

An exit conference was held and documented in the audit report. If not feasible - APM 801for an exit conference to take place, document the reasons for it not taking place.

It communicates the results of the audit, showing adjusted distance and fees. - APM 802

It documents and justifies the auditor's audit procedures, and audit findings. - APM 802

It indicates the source of the audit results. (IVDRs, etc.) - APM 802

A list of the records maintained and provided by the licensee, and notation - APM 802regarding compliance with the IRP Agreement.

It supports the suggestions and recommendations made to the licensee. - APM 802

The audit file contains at least the following:

Summary schedules that include reported, and audited, distances for each - APM 803jurisdiction, and net total determination, including penalties and interest.

Supplemental schedules showing how the audited distance was calculated, and - APM 803how samples were determined, if applicable.

Detail documentation and exhibits of actual records reviewed supporting the - APM 803audit results showing audited distance both by jurisdiction and total distance.

In the report, a synopsis of the opening and closing conferences indicating the - APM 803date, time and persons attending.

Supporting exhibits that have been dated to indicate when received by the auditor. - APM 803

As part of the audit report, at least the following CAS reports have been included:

IRP Audit Cover Sheet

Reported Values Listing

Supplement & Original Fees Reports #1 and #2

Application of Mileage Factor

Mileage Adjustment Report

Mileage Sample Report by Date, Origin (If applicable)

Other Information:

The audit was done in a procedure uniform with similar audits.

The audit who, what, when, why, and how have been addressed.

Audit work papers/spreadsheets are cross-referenced, explained, and licensee's VISTA # and name are on them.

The deficiency determination advises that Nevada collects penalty and interest on only Nevada's deficiency. Other jurisdictions may issue penalty and interest fees, if appropriate, for their individual jurisdictions.

The report includes the completion date and the name(s) of the auditor(s).

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