Auditor 101

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Auditor 101

• Welcome to a new learning experience!

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Auditor 101

• Your hosts for today are
• Derrick
• Bob
• Richard

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Auditor 101

• Interaction is required in the training session.
• Question, comments and personal experiences are
  accepted at any point.
• Stop us at ANY time!
• We are trying to build your knowledge to complete
  better audits.

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Auditor 101

• Points to Ponder
• Who is it we are auditing for?
• Why is it important to understand your auditee?

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Auditor 101

• Lets first start with a demonstration of an
  entrance conference.
• Listen to what is learned from the questions and
  answers and ask yourself Can I improve on my
  entrance conferences?

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Auditor 101

• Ok, so that may not have been the best entrance
  conference ever. There might be some room for
  improvement.
• Before we get back to the entrance conference we
  will share with you thoughts and ideals about the
  audit process as a whole.
• Let us run through different aspects of each
  audit In no particular order.

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How are Audits selected?

• Most auditors as well as industry members are out
  of the loop on audit selection.
• Jurisdictions will use one of these methods, a
  combination of methods, or similar alternative
  methods to select audits.
• Here we go..

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How are Audits selected?

• Pure random sampling
• IFTA requires stratification on audit size.
  IRP does not.
• Jurisdictions will first determine the number of
  high, low, and medium audits needed and then a
  random number generator will select the lt25gt out
  of lt100gt audits needed to meet that
  stratification requirement.

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How are Audits selected?

• Question
• Because IRP doesnt have a stratification, do
  you think jurisdictions might target smaller
  carriers in order to get their quotas met?

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How are Audits selected

• Red Flag Indicators
• A red flag is a potential area of concern that
  may or may not determine non-compliance.
• Several jurisdictions will use red flags to
  select audits.
• Some red flags that are normally used for audit
  selection include

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How are Audits selected

• Red Flag Indicators
• Rounded numbers on the tax return.
• Set MPGs used or similar MPGs.
• 1 or another low number used in multiple
  jurisdictions.
• Non-continuous Jurisdictions.
• Low mileage per truck or decal.

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How are Audits selected

• Remember!
• Not all Red Flags will determine non-compliance!
• Use your knowledge learned to adjust your
  strategy of what a Red Flag is.

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How are Audits selected

• And then there are recommendations from 3rdparty
  sources like
• Enforcement Divisions
• Fraud Hotlines
• Other tips with credible information
• Visual oddities noted by staff
• Shared information between divisions

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How are Audits selected?
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How are Audits selected?

• Even though there could be several red flags
  flying, non-compliance issues are still found by
  the physical examination of documents and not
  every red flag will lead to an issue of
  non-compliance.
• Preliminary examinations are just that
  preliminary. Auditors must use discretion to not
  pre-determine the finding of an audit before it
  is started!

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Obtaining Records

• Now that you have your audit selected for you and
  have started the audit process, obtaining the
  needed records isnt as easy as it seems.
• How many of you have played phone tag with a
  licensee?
• Or, how many times have you had numbers
  disconnected or mailing addresses no longer valid?

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Obtaining Records

• Or have you ever asked for certain records but
  were sent the wrong items or the licensee did not
  send the complete set of records needed?

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Obtaining Records

• In this section we will give you information that
  will make life easier for you as an auditor!
• Establish deadlines!
• Alternative records!
• Why is that information important?
• Availability of supporting documents.

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Obtaining Records

• Deadlines are a must of every auditor. They
  should be reasonable in length based on the
  requested information. They should fit your
  schedule as well as the licensees. They should
  be firm but extensions should be granted. And
  lastly
• Follow through if deadline is not met!

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Obtaining Records

• Set deadlines based on likelihood records
  already exist.
• If they should already have records (like drivers
  logs), set a short deadline.
• If they need to obtain from a third party, the
  deadline should be slightly longer.
• If they need to recreate documents for audit,
  also allow slightly longer time.

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Obtaining Records

• For Example
• I need the 3rd party fuel billing statement
  for the 3rd quarter 2011 sent to me by the 28th
  of this month. At that time the audit will be
  completed and without that document no tax paid
  fuel credits will be allowed.

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Obtaining Records

• We all know record keeping requirements and
  request trip records and fuel records during the
  audit.
• So what else can we request that may shed some
  light on the licensees operations?

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Obtaining Records

• Here are a few alternative records you could
  request during audit
• Corporate Returns
• Insurance Records
• 3rd Party Records / shipping records

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Obtaining Records

• Corporate Return Supporting Documents
• Can be used to
• Determine expenses for fuel, repairs, etc.
• Determine the amount paid to contractors as well
  as the number of contractors.
• Provide information on vehicles owned.
• Even determine an estimate for Total Miles!

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Obtaining Records

• Insurance Records
• Can be used to
• Determine when vehicles were under lease.
• Determine a potential operation range.

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Obtaining Records

• 3rd Party Records / shipping records can be used
  to verify
• Bulk fuel purchases
• Tax paid fuel purchases
• Loads hauled and origins / destinations
• Maintenance and repairs

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Obtaining Records

• But always remember
• The lack of records provided initially does
  not correlate with non-compliance but instead
  could be a communication issue.

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Obtaining Records

• Another Possibility
• Prepare a form with a laundry list of typical
  records required during an audit. Send this list
  with your engagement letter.

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Obtaining Records

• Lost and destroyed records happens.
• In these cases 3rd party records become a must.
• Consult management prior to completing audit.

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Analyzing Data

• Now that you have the records and can start
  your work, its time to pay close attention to the
  records you have.
• Are there gaps and hopes?
• Is there still missing information?
• Are there additional red flags to investigate?

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Analyzing Data

• All records support on each other. Miles
  trace to fuel, fuel to miles, MPG is based on
  both factors.
• Looking for Red Flags sometime isnt that easy.
• In auditing, one thing is certain

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Analyzing Data

• The best auditors are the one who spend time
  looking at the records that are potentially not
  there instead of only examining the records
  sitting in front of them.

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Analyzing Data

• Does anyone know the Taco Bell slogan?

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Analyzing Data

• To uncover missing operation or operations that
  are incorrectly reported
• Cross check all available documents.
• Ask yourself if the operations make sense and
  cents!
• Most importantly Look at what you dont have!

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Analyzing Data

• Why should you be so diligent reviewing the
  documents provided?
• Fraud does exist!
• Look at what is not there! Why wasnt that
  provided to you?

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Analyzing Data

• And one more thought!
• Who is being harmed by the decisions you are
  making in the audit?
• If you feel there might be harm, you should
  consider an optional approach!

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Entrance Conference

• OK Lets go back to the Conference!
• It is very important to understand the entity
  you are auditing.
• Why?

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Entrance Conference

• What is the best question you can possibly ask
  at an entrance conference?

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Entrance Conference

• One that you already know the answer to!
• Verifies research
• Earns a trust factor
• Simplifies conference

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Entrance Conference

• To Dos
• Learn the titles of the licensees
  representatives who will be attending the
  conference.
• Tailor the questions towards the attendees.
• Ex The President may not know what papers the
  drivers fill out just as a shop foreman may not
  understand how the tax return is prepared.

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Entrance Conference

• If the conference is at a service provider you
  may not be able to get certain bits of company
  history information that you might need.
• Request the conference includes company
  officials if possible. Use these modern day
  communication tools!
• Are there special questions to ask at a service
  provider?

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Entrance Conference

• Three focal points of discussion
• Company history
• Fleet makeup
• Tax reporting system

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Entrance Conference

• Company history
• Your goal as an auditor is to learn as much
  about the company in a short period of time.
• What are some of the items you should ask about
  during this stage of the conference?

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Entrance Conference

• Company history and how they evolved.
• Company ownership and interests in other
  companies.
• Operations and changes including
• Products hauled
• Terminals
• Shipping lanes

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Entrance Conference

• Fleet Makeup
• Understanding the vehicles you are auditing is
  just as important as understanding the company.
• Why is that?

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Entrance Conference

• Do the types of trailers used by the licensee
  provide you with any tendencies to look for?
• Van trailers
• Flatbeds
• Dump trailers

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Entrance Conference

• Tax Reporting System
• Understand the system you are auditing so you
  can make the best choices for sampling.
• Determine if there are system flaws that can be
  outside of standard error rates.

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Interesting!

• What has all the information we discussed have
  in common?

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Internal Controls

• All knowledge gained will help you in your
  evaluation of Internal Controls!
• So what?

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Internal Controls

• Your Evaluation of Internal Controls will assist
  you in making proper choices in
• Sample size
• Sampling of sample
• Reliance of findings
• Likelihood or recurring errors

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Internal Controls

• What do you do if your evaluation of Internal
  Controls show the company no handle on their
  affairs?
• Can you sample?

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Remember

• A good auditor will use their understanding of
  the Licensee and their audit to create an audit
  report that will be easy to read and understand
  by all!

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Writing Reports

• What should be included in your audit report?
• Simple FACTUAL DATA!

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Presenting Audit Results

• Audit results should not be conveyed to the
  licensee at closing.
• Instead the audit MUST convey issues found as
  soon as they arise!

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Presenting Audit Results

• Strengths and Weaknesses of the licensee should
  be discussed.
• Focus on the most material first!
• Show examples of non-compliance!

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Exit Conference

• Having confidence in your abilities and being as
  open as possible with the licensee will allow the
  exit conference to flow smoother and be less
  painful for all.
• Exit conference donts

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Exit Conference

• Do not be accusatory
• Do not focus on the immaterial
• Do not forget to discuss billing and protest
  procedures
• Do not take assessments lightly
• DO NOT get into a shouting match

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Auditor 101

• Tips to Succeed at your job as an auditor
• Document Everything! Having complete notes of
  all procedures will help you in the long run.
• Look for patterns and variations of those
  patterns! We are all creatures of habit!

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Auditor 101

• Dont take everything told to you at face value.
  There should be verification and proof available
  to support comments.
• You will get out of the job what you put in it.
  All positions have life benefits if you only look
  for them.

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Auditor 101

• Have a passion for your job!
• Strive to do the best you can!
• The skills you learn in your position will be
  valuable as you proceed through life!

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Auditor 101

• Open Discussion.
• What is on your mind?

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Auditor 101

• Potential discussion points
• Ballot 371
• What does Auditor Judgment mean?
• What is Auditor Independence?
• What is Reasonable?
• What is immaterial?