Developing a Standard Audit
Program Using CCH Teammate
Audit Software.
2012 IFTA/IRP Audit Workshop, Tempe AZ
Managing for Compliance
Presenter: Dan Young CIA, CICA,
Audit Supervisor, Internal Audit Unit,
Montana Department of Transportation
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Each jurisdiction should use an audit program. An audit program provides for
consistent application of audit procedures, serves as a training tool for new
auditors, and facilitates the review of the audit. An audit program does not
preclude the use of auditor judgment. Deviations from an audit program are
acceptable if they are reasonable given the audit circumstances and must be
documented in the audit file and approved by the audit supervisor
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Tax & Fee Audit Program
The Audit Program has
been developed to address
each phase of the audit
process:
1. Planning
• Preliminary Work
• Audit Planning
2. Fieldwork
3. Report
• Report Process
• Report Finalization
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Preliminary Work Program
This program is comprised
of audit procedure steps
which can be performed
prior to assigning the audit
project to the auditor
responsible for completing
the audit engagement.
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Preliminary Work Program
Audit Procedure - Compile
Background Information
• Attach background
reports from ACS-TS,
ACS-RS, Fuel Refund
Voucher Report,
Secretary of State,
SAFER and prior audits
as needed to document
the background
information. (3 hours)
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Preliminary Work Program
Audit Procedure - Compile
Background Information
Additional Guidance:
Pull only information that is useful
in the audit. These are typical
items but all items are always
necessary.
General
• Secretary of State Info
• SAFER Web Snapshots
• Prior audits
IFTA
• Account Core Data
- Alternative Name & Addresses
- Account Tax Type Data
- Credential Inquiry & Detail
- Tax Return Summary Journal
- Tax return Summary
- Detailed Fuel Use Tax Return
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Preliminary Work Program
Audit Procedure - Compile
Background Information
Additional Guidance:
IRP
- Carrier Information
- Carrier Fleet Information
- Supplemental History
- Carrier Mileage Report
- Carrier Vehicle Listing
Note: If the IRP Registration
Years under review are
different from the IFTA audit
period. Print the "Detail Fuel
Use Tax Return" screens for
the applicable quarters.
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Preliminary Work Program
Audit Procedure - Compile
Background Information
Additional Guidance:
REFUND
Cares Report identifying the payments
made.
SU
Account Core Data
- Alternative Name & Addresses
- Account Tax Type Data
- Tax Return Summary Journal
- Tax Return Summary
- Fuel Refund Summary Report
DISTRIBUTOR
- Account Core Data
- Alternative Name & Addresses
- Account Tax Type Data
- Account Balances Bond Balances
- Oracle Motor Fuel System the
Distributor Summary (latest amended
return).
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Preliminary Work Program
Audit Procedure: Returns and
Applications
Pull original copies of the
appropriate tax returns and
applications.
Scan hard copy tax returns
and/or applications.
(2 hours)
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Preliminary Work Program
Audit Procedure: Returns and
Applications
Additional Guidance:
The tax returns/application
should be scanned in as
a one document.
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Preliminary Work Program
Audit Procedure: Returns and
Applications
Additional Guidance:
The tax returns/application
should be scanned in as
a one document.
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Preliminary Work Program
Audit Procedure - Audit Period
Determine the audit periods
and the tax types to be
audited for the taxpayer under
audit. Determine the budget
based on the program steps
required to perform this audit.
Remember to change the
hours in each of the steps to
reflect their final allocation. (2
hour)
Provide the audit supervisor
and audit manager (via email)
the budget breakdown by
phase.
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Preliminary Work Program
Audit Procedure - Audit Period
Additional Guidance:
When determining the audit
period, make sure the
application/license dates
correspond to the audit period.
There was an estimated budget
developed for each procedure. In
this step you identify how many
vehicles the company has or
refunds the company has which
identifies the budget by step. This
step then calculates the total
budget for planning, fieldwork and
report process.
Estimate Budget requirement for
the audit:
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Preliminary Work Program
Audit Procedure - Audit Period
Purpose:
MCA 15-70-355;
Statute of limitations.
Except in the case of a
fraudulent return or of
neglect or refusal to make
a return, every deficiency
must be assessed within 3
years from the due date of
the return or the date of
filing the return, whichever
period expires later.
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Preliminary Work Program
Audit Procedure - Audit
Notification
For IFTA or IRP audits
prepare either the 30 day
audit notification letter, the
Contact Authorization,
vehicle listing/fleet
verification and taxpayer
information form or for
Refund or SU audits
prepare and send the audit
notification letter and the
taxpayer information form..
(1/2 hour)
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Preliminary Work Program
Audit Procedure - Audit
Notification
Additional Guidance:
These letters are in Central Stores. For IFTA or
IRP you will need the Vehicle Listing, 30 day
notification letter, contract authorization and the
taxpayer information. For refunds or SU you will
need refund notification letter, contact
authorization and the vehicle listing.
The initial letter should include the period to be
covered by the audit, taxpayer information form,
contact authorization, and from requesting a list of
the vehicles and/or equipment reported on the tax
returns and applications.
TAX RETURNS = IFTA, SPECIAL FUEL USER
APPLICATIONS = IRP, REFUNDS (PTO, OFFROAD).
Note:
There are no vehicles or equipment associated
with a Motor Fuel Distributor tax return or a
Agricultural Tax Refund Application.
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Preliminary Work Program
Audit Procedure - Audit
Notification
Purpose:
IFTA Audit Manual
A610 AUDIT NOTIFICATION
At least 30 days prior to conducting a routine
audit, the licensee should be contacted in
writing and advised of the approximate date
that an audit is to be conducted and the time
period the audit will cover. The notification will
provide the licensee the opportunity to make
the required records available and provide
assurance the tentative audit schedule is
acceptable.
.100 For purposes of documentation and to
avoid misunderstanding, a copy of the
notification letter should be incorporated into
the audit file detailing the tentative audit date
and the documentation the licensee is required
to furnish.
.200 For just cause, notification requirements
may be waived.
.300 All pre-audit contact should be confirmed
in writing.
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Preliminary Work Program
Purpose:
Audit Procedure - Audit
Notification
IRP Audit Manual
601. Pre-Audit Contact
(a) At least 30 days prior to conducting the Audit, the
Registrant shall be contacted and advised that an
Audit is to be conducted of Operational Records
substantiating distance reported on the apportioned
registration application(s). Through the initial or
subsequent pre-audit contacts, the Registrant should
be advised of the Registration Year(s) to be audited,
the type of Operational Records to be audited, the
person(s) conducting the Audit, and the proposed
Audit commencement date. The pre-audit contacts
will provide the Registrant the opportunity to make
the required Operational Records available.
(b) For documentation purposes and to avoid
misunderstanding, any pre-audit correspondence and
documentation of pre-audit contact shall be
incorporated into the Audit file.
(c) For just cause, notification requirements may be
waived. It is suggested that the auditor obtain an
agreement to waive notification requirements from
the Registrant prior to conducting an Audit. The Audit
may be postponed for just cause.
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Preliminary Work Program
Audit Procedure:
Spreadsheets
Complete the appropriate
spreadsheets for each tax
type from MDT systems
(ACS, HOC reports, and the
tax returns & applications):
• IFTA (Low-2 hours, Med - 4
hours, High – 6 hours)
• IRP (1 hour)
• SU (4 hours)
• Refunds (Off-Road, PTO,
AG & Refer)(1/2 hour per
refund type)
• Distributor (3 hours)
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Preliminary Work Program
Audit Procedure:
Spreadsheets
Additional Guidance:
While entering the
information, make sure the
spreadsheets balance to
the system.
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Preliminary Work Program
Audit Procedure:
Spreadsheets
Purpose:
IFTA Audit Manual
*A680 AUDIT FILE CONTENTS
The audit file will contain, but not be limited to, the
following:
.100 Schedules
.005 Summary schedules
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.
.010 Supplementary schedules
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.
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Preliminary Work Program
Audit Procedure - Balance
Document the spreadsheets
are balanced to the system
and lock the system. (1/2
hour)
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Preliminary Work Program
Audit Procedure - Balance
Additional Guidance:
The Audit Tech will usually
balance the spreadsheets
prior to the assigning the
audit. If we are unable to
complete the balancing
process, the Audit Tech will
add a step in the planning
section of the audit to
request the final balance.
Once it is balanced, lock
this schedule to prevent
future changes.
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Preliminary Work Program
Audit Procedure - Taxpayer
Response
Scan the completed
documents :
• Contact Authorization
• Taxpayer Info
• Vehicle Listing
• Sample records
(1 hour)
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Audit Planning Program
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Audit Planning Program
Audit Procedure - Balance Spreadsheet
Verify the tax returns, application and the MDT systems
used to create the spreadsheet balance. Review the steps
performed by the Audit Technician. (Spreadsheets &
Balance)
If there are differences or the spreadsheet(s) require
additional data input, work with the Audit Technician to
balance or complete the data entry. If errors are MDT input
error and are noted on the balanced spreadsheet, establish
an audit issue.
(IFTA/IRP 1 hour, Multiple tax types 2 hours)
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Audit Planning Program
Audit Procedure - Balance Spreadsheet
Additional Guidance:
You should copy the IFTA spreadsheet, all the IRP
spreadsheets and all the refund spreadsheets from preplanning and bring it forward to this step for use during the
audit. The original should remain untouched in the preplanning section.
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Audit Planning Program
Audit Procedure - Balance Spreadsheet
Purpose:
IFTA Audit Manual
• *A680 AUDIT FILE CONTENTS
• The audit file will contain, but not be limited to, the following:
• .100 Schedules
• .005 Summary schedules
• 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.
• .010 Supplementary schedules
• 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.
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Audit Planning Program
Audit Procedure - Analysis
For each tax type, perform an analytical review. You are
looking for things that are odd or unusual. Document your
analysis and develop questions for the taxpayer interview.
- IFTA (1 hour)
- IRP (1 hour)
- SU (1 hour)
- Refrigerator (1 hour)
- Off Road (1 hour)
- Distributor (1 hour)
- PTO (1 hour)
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Audit Planning Program
Audit Procedure - Analysis
Additional Guidance:
You are looking for things that are odd or unusual. Some
examples are:
• Changes from one return/application to the next;
• Constant or extreme mpg;
• large fluctuations in distance or fuel;
• reported fluctuations in fuel types, numbers of amendments,
changes in the size of operation;
• number of jurisdictions traveled;
• calculation errors;
• seasonal fluctuations; and
• tax paid fuel.
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Audit Planning Program
Audit Procedure - Analysis
Purpose:
IFTA Audit Manual
*A220 EXAMINATION STANDARDS
.100 Preaudit Analysis
Preaudit analysis shall be conducted and documented. Documentation
shall include, but is not limited to, an analysis of information reported on
the IFTA returns for any unusual areas or trends that might need further
examination
IRP Audit Manual
(c) It is suggested that the auditor conduct an analytical review of the
Registrant’s application subject to Audit to become more familiar with the
Registrant’s operations. As a part of the analytical review, the auditor
should summarize application information; note unusual trends or
variances draw conclusions, and include the analytical review
documentation in the Audit file.
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Audit Planning Program
Audit Procedure -Sample Selection
Based on the analysis performed, select sample time periods
for each audit type.
(2 hour)
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Audit Planning Program
Audit Procedure -Sample Selection
Additional Guidance:
For IFTA/IRP you need to select 3 quarters that would cover the most jurisdictional
miles and tax types. Make sure 2 of the quarters are back to back to test proper
cutoff.
The IFTA IRP Sample spreadsheet in TeamStores is useful for helping to identify the
quarters and document your analysis.
For SU you need to select 3 quarters that would provide a good representation. Make
sure 2 of the quarters are back to back to test proper cutoff.
For refunds, we will select 20% or a minimum of three of the total applications/returns
filed.
You will need to justify any sample sizes that do not conform to the above
selections. Consult the Audit Supervisor for guidance as necessary.
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Audit Planning Program
Audit Procedure -Sample Selection
Purpose:
IFTA Audit Manual
A530 SAMPLING
Unless a specific situation dictates, all audits will be conducted on a
sampling basis.
.100 Sample period(s) must be representative of the licensee's
operations.
.200 Sample period(s) may be different for member jurisdictions due to
seasonal operations.
.300 The licensee should be allowed input into sample selection if
legitimate reasons exist.
.400 An agreement that the sampling methodology is appropriate should
be signed by the licensee and the auditor.
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Audit Planning Program
Audit Procedure -Sample Selection
Purpose:
IRP Audit Manual
703. Sampling and Extrapolation Procedures
• (a) After completing the review of internal controls, the auditor should discuss
proposed sample periods and Operational Records with the Registrant. Source
documents/IVDR’s and distance summaries for no less than three representative
months of the Reporting Period for the Registration Year being audited will be
selected for Audit with respect to Jurisdictional distance and other attributes required
by Article IV of the APM. After the auditor reconciles the distance summary (ies),
differences should be summarized and included as a part of the Audit file. Generally,
Audits are to be conducted on a sampling basis. However, a complete Audit of the
Registrant’s distance records for the twelve-month period or actual months of
operation may be necessary if tests of internal controls reveal major weaknesses in
the Registrant’s reporting system, or if there is an absence of distance summaries.
• (b) Auditor judgment is required in determining the nature of errors encountered.
Depending on the nature of the errors, they may be treated as isolated errors (and
included in findings without being projected) or they may be projected. Sampling and
extrapolation procedures performed by the auditor should be documented in the
Audit file.
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Audit Planning Program
Audit Procedure -Sample Selection
Purpose:
IRP Audit Manual
703. Sampling and Extrapolation Procedures
(c) Documentation such as source documents/IVDR’s and distance summaries odometer and
hubodometer readings, and other Operational Records used by a Registrant to substantiate Total
Distance traveled, must be considered by an auditor in determining the acceptability of the
Registrant’s reporting system. In the event an auditor is unable to determine any reasonable
method to assign a portion of the unreported distance traveled by a Registrant, such distance
traveled shall be assigned to Member Jurisdictions on the basis of each Member Jurisdiction’s
audited Jurisdiction Distance. Allocation of such distance traveled must not be done in such a way
as to unjustifiably increase the In-Jurisdiction Distance percentage of the Base Jurisdiction
conducting the Audit.
(d) Before making projections to the Registrant’s distance per summary or application, the
suitability of the use of the distance per summaries or application for projection purposes shall be
ascertained. It is generally preferable to project to summary distance (corrected as necessary)
than to application distance. Differences between the distance per summary and distance per
application should be investigated to determine their cause. Also, the auditor shall make a
determination as to whether the distance per summary or application includes only the operations
of Apportionable Vehicles during the Reporting Period (Section 701(b)). The auditor shall
document in the Audit file the conclusions made as to whether the distance per summary or
application has sufficient accuracy and reliability to be used in sampling projections.
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Audit Planning Program
Audit Procedure -Entrance Conference Prep.
Prepare entrance conference questions. Use existing
questionnaires as a guide and include questions from the
analytical review. (2 hours + 1 hour for each additional tax
type)
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Audit Planning Program
Audit Procedure -Entrance Conference Prep.
Additional Guidance:
Pull appropriate questionnaires from TeamStores.
These questionnaires are guidance only and should be merged or
changed based on the analytical work. DO NOT GIVE THESE TO
THE TAXPAYER TO COMPLETE.
Available questionnaires are:
• AG
• Distributor
• Motor Fuels
• Off Road
• Refer
• Retail
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Audit Planning Program
Audit Procedure -Entrance Conference Prep.
Purpose:
IRP Audit Manual
701. Initial Audit Procedures
• (a) It is suggested that the auditor determine if the Registrant was previously
audited. If a previous Audit was conducted, any findings of non-compliance
should be documented in the Audit file.
• (b) The auditor should review the Registrant’s registration files to identify the
population of Vehicles in the Registration Year and in the Reporting Period
that pertain to the Fleet subject to Audit. The auditor should then either
• (i) list the Vehicles to be audited, indicating equipment number, unit weight,
make of Vehicle, Vehicle identification number and inclusive months each
Vehicle was in the Fleet; or
• (ii) Document an alternative method of identifying the Vehicles (and the time
periods they were registered).
• The auditor should use the Vehicle listings, or alternative method
documented, to select Vehicles for Audit with respect to sampling distance
records. The Vehicle listings or alternative method of identifying the Vehicles
shall be included as a work paper in the Audit file.
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Audit Planning Program
Audit Procedure -Opening Conference
Contact the taxpayer and do the following:
• Identify yourself as the auditor that will be performing the examination
• Answer any initial questions
• Explain the audit process
• Ask the taxpayer to explain the processes and procedures used to
record and compile the information reported for each tax type.
• Document the Internal Controls. Ensure you obtain sample records to
document the process flow.
• Discuss whether the audit will be conducted on-site.
• Discuss the sample selection and verify that the sample is
representative of the company’s operations.
• Schedule a time and date to conduct the audit.
(2 hours – add ½ hour for each additional tax type)
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Audit Planning Program
Audit Procedure -Opening Conference
Additional Guidance:
In order to structure your interview with the taxpayer you
should have reviewed the questionnaire template and based
on your analysis developed any additional discussion points
or issues needing clarification.
Note: We intend to perform most audits on site. If the taxpayer
does not have a business office, you may arrange a suitable
location to conduct the fieldwork: Discuss with audit supervisor if
you are not sure.
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Audit Planning Program
Audit Procedure -Opening Conference
Purpose:
IFTA Audit Manual
A630 OPENING CONFERENCE
• .100 Except as defined in A630.200, a documented opening conference shall held with the
licensee outlining the licensee's operation, audit procedures, records to be examined, sample
period, sampling procedures, etc. The method by which said conference takes place is subject to
the base jurisdiction’s discretion and may include, but is not limited to, the following: in person
meetings, telephone discussions, written correspondence, facsimile transmission, and electronic
mail messaging. The licensee and auditor should determine who has the responsibility for the
final acceptance of audit findings and who should be involved in the closing conference.
• .200 In those circumstances where an opening conference is not held and/or completed in
accordance with A630.100 because the audit is being performed in accordance with IFTA
Articles of Agreement R1210, documentation must be provided as to why the opening
conference was not held and/or completed.
• .300 Open communication between the licensee and auditor is desirable.
IRP Audit Manual
602. Initial Audit Conference
A documented initial Audit conference should be held with the Registrant to discuss the
Registrant’s operations and record keeping system, Audit procedures, Operational Records to be
examined, sample period, sampling procedures, etc. Open communication between the auditor
and Registrant is desirable.
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Audit Planning Program
Audit Procedure -Background Information
Compile the background section for the audit report and
document it in the profile.
(1 hour)
44
Audit Planning Program
Audit Procedure -Background Information
Additional Guidance:
Select the Profile tab for the project:
Select the "Background" Tab: Enter the information to be included in the
Background section of the report. (Note: This is exactly how the report will
look, remember to have the amount of detail required for your audit
activity.)
• Describe the type of business
• Number of vehicles
• Number of jurisdictions effected
• Date of original license
When you are entering text in the specific areas of the profile related to
the report this is the text which will be brought into the 360 report.
45
Audit Planning Program
Audit Procedure -Internal Control Assessment
Based on the Internal Controls documented during the
opening conference. Determine the adequacy of Internal
Controls as described. (1 hr.)
46
Audit Planning Program
Audit Procedure -Internal Control Assessment
Additional Guidance:
By studying and evaluating the internal control procedures, the
auditor identifies apparent weaknesses in the internal control
system. To assist in evaluating the system of internal control the
auditor should consider the following:
• Types of errors and irregularities that could occur.
• Control procedures to prevent or detect such errors and
irregularities.
• Whether the procedures have been adopted and are being
followed satisfactorily.
• Weaknesses which would enable errors and irregularities to pass
through existing control procedures.
• The effect these weaknesses have on the nature, timing, and
extent of auditing procedures to be applied.
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Audit Planning Program
Audit Procedure -Internal Control Assessment
Purpose:
IFTA Audit Manual
A640 EVALUATION OF INTERNAL CONTROL
The auditor's study and evaluation of the licensee's internal accounting control system has several identifiable
phases.
.100 Review and Documentation
• The review of the system is an information-gathering phase in which the auditor, through inquiry and
observation, determines the licensee's accounting policies and procedures. The auditor's objective is to obtain
an understanding of the flow of transaction processing. As part of this process, the auditor will:
.005 Find out if there have been changes in the licensee's accounting procedures or operations during the audit
period;
.010 Identify the records that the licensee keeps to support the tax return;
.015 Audit the support documentation and check with the licensee to determine if any pre-auditing of support
documentation is done prior to data entry;
and
The auditor documents the understanding of the licensee's system of internal control in the work papers by
completing a questionnaire designed for this purpose or by diagramming or describing the flow of transactions in
flowchart or narrative form. To clarify this understanding, the auditor may select a few transactions of each
transaction type and trace them through the accounting system from initiation to ultimate recording.
.200 Preliminary Evaluation
By studying and evaluating the internal control procedures, the auditor identifies apparent weaknesses in the
internal control system.
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Audit Planning Program
Audit Procedure -Internal Control Assessment
Purpose:
IFTA Audit Manual
A640 EVALUATION OF INTERNAL CONTROL (Cont’d.)
.300 Tests of Compliance
If controls are inadequate to permit reliance, the auditor may make a more
extensive review and perform tests of compliance. If weaknesses
identified in the preliminary evaluation preclude reliance, or if the auditor
believes that more efficient or effective audit tests are possible without
reliance, the auditor will plan audit procedures without any further study
and evaluation of accounting control.
.400 Report on Weaknesses
The extensiveness of the review of the system and whether tests of
compliance are made are matters of the auditor's judgment. Any serious
weaknesses identified will be formally reported promptly to the licensee
rather than at completion of the audit.
49
Audit Planning Program
Audit Procedure -Internal Control Assessment
Purpose:
• IRP Audit Manual
• 702. Evaluation of Internal Control
• (a) The auditor’s study and evaluation of the Registrant’s internal accounting control
system has three identifiable phases:
• (i) review and documentation;
• (ii) tests of compliance; and
• (iii) report on weaknesses.
• (b) Review and documentation includes the following steps:
• (i) determine if there have been changes in the Registrant’s accounting procedures
or operations during the Audit period;
• (ii) identify the Operational Records that the Registrant maintains to support the
registration application; and
• (iii) review the supporting documentation and determine if any review of the
supporting documentation is performed by the Registrant prior to data entry.
• The auditor should document his/her understanding of the Registrant’s distance
accounting system by completing an internal control questionnaire designed for this
purpose or by diagramming or describing the flow of transactions in flowchart or
narrative form. It is suggested that a sample copy of the Registrant’s reports, trip
records or other documents examined by the auditor be included in the Audit file.
50
Audit Planning Program
Audit Procedure -Internal Control Assessment
Purpose:
IRP Audit Manual
702. Evaluation of Internal Control (Cont’d.)
(c) To clarify understanding gained from performing these steps, the auditor may select
a few transactions of each transaction type and trace them through the accounting
system from initiation to ultimate recording.
(d) By studying the internal control procedures, the auditor can identify potential
weaknesses in the internal accounting control system.
(e) Tests of compliance are performed to determine the effectiveness of the internal
controls. Based on the result of the compliance tests, the auditor makes an
assessment of the degree of reliance that can be placed on the internal controls. If
reliance on the internal controls is high, then the substantive tests to be performed may
be reduced. Conversely, if reliance on the internal controls is low, then the substantive
tests to be performed may be increased.
(f) The nature of the review of the system and whether tests of compliance are made
are matters of the auditor’s judgment.
(g) Weaknesses identified in the Registrant’s internal control system shall be reported
to the Registrant and documented in the Audit file.
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Audit Planning Program
Audit Procedure -Sample Notification
Confirm your sample selection based on the
interview. Prepare a sample agreement form to be signed by
the taxpayer.
Note: You will need to prepare a sample audit notification if you
will be mailing this to the taxpayer.
(1/2 hour)
52
Audit Planning Program
Audit Procedure -Sample Notification
Additional Guidance:
If this is not a desk audit, the auditor should prepare the form
and have the audit client sign the form when the auditor goes
on site.
If it is a desk audit, complete the send the agreement along
with the Sample Notification Letter and the records release
form.
Forms you may need in TeamStores are:
• Records Release (if desk audit)
• Sample Agreement
• Sample Audit Notification (if desk audit)
53
Audit Planning Program
Audit Procedure -Desk Audit
If this will be a desk audit, provide the audit technician with
the sample form that includes the information for
records; sample notification, sample agreement and a
records release. (1/2 hour)
Note: We intend to perform most audits on site. If the taxpayer
does not have a business office, you may arrange a suitable
location to conduct the fieldwork: Discuss with audit supervisor if
you are not sure.
54
Audit Planning Program
Audit Procedure -Desk Audit
Additional Guidance:
You will need to consider several factors when deciding whether to
perform the audit on site or in the office:
• What are the average miles traveled?
• What is the size of the fleet?
• Does the taxpayer have a business location other than their
home?
• Where is the business located?
• How many jurisdictions are effected?
• Use common sense. If this is a small one truck operation, e.g.
farm or ranch, requiring hours of travel to reach the taxpayer is
it really cost effective to do an on-site audit? If in doubt, discuss
the options with the audit supervisor.
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Audit Planning Program
Audit Procedure -Statute of Limitations
Based on your audit planning and the scheduling of field work
determine whether we will run into a Statute of Limitation
problem with any of the IFTA quarters, IRP years, or Refund
Applications. If there is, request the audit supervisor to
download the SOL adjustment steps. (1 hr.)
56
Audit Planning Program
Audit Procedure -Statute of Limitations
Purpose:
• MCA 15-70-355; Statute of limitations. Except in the case
of a fraudulent return or of neglect or refusal to make a
return, every deficiency must be assessed within 3 years
from the due date of the return or the date of filing the
return, whichever period expires later.
57
Audit Planning Program
Audit Procedure -Finalize Audit Scope and Budget
Contact the Audit Supervisor. Discuss whether the scope
and objectives established are adequate, discuss the status
of the audit, determine if we need to pull additional steps (like
steps to create the summaries), when you plan on going on
site and any audit concerns you may have.
Finalize the scope of the audit and the objectives of the audit
and document them in the profile.
(2 hrs.)
Note: This is the point you should review your budget and
discuss any issues that you see that will prevent you from
delivering the project within budget and within the established
schedule.
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Audit Planning Program
Audit Procedure -Finalize Audit Scope and Budget
Additional Guidance:
Select the "Audit Scope and Methodology" Tab: Enter the
information to be included in the Audit Scope and
Methodology section of the report. (Note: This is exactly how the
report will look, remember to have the amount of detail required for
your audit activity.)
The text you are entering in the specific areas of the profile
related to the report is the text which will be brought into the
360 report.
59
Audit Planning Program
Audit Procedure -Finalize Audit Scope and Budget
Purpose:
IFTA Audit Manual
*A230 REPORTING STANDARD
The report shall contain a clear statement of the scope of the
audit and must also clearly state and describe the results of
the auditor's examination.
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Audit Planning Program
61
Audit Planning Program
Audit Procedure -Contact Information
Complete the contact information form in planning and
administration section. Only MDT employees should be on
the contacts tab. Non-MDT employees should be added to
the contact sheet in the administration section.
(1hour)
62
Audit Planning Program
Audit Procedure -Contact Information
Additional Guidance:
If there are no MDT staff, please insert the Ghost employee
on the contacts tab.
63
Fieldwork Phase
Within the Fieldwork Audit Phase we developed specific
Fieldwork Audit Programs for each audit type performed and for
specific elements we deemed necessary to preform IFTA and
IRP audit procedures.
For each of the Audit Programs, we have developed audit
procedures that allow the auditor to review and test the records
provided by the audit client. After performing the audit
procedures the auditor should have sufficient and reliable
evidence to support any opinions or conclusions about the
clients records and the accuracy and completeness of the
distance and fuel information reported on the returns and
registrations.
64
Fieldwork Program: General Fieldwork
Audit Procedure - Review Data
• Review the information provided by the taxpayer to
determine if all requested information was submitted for
review. (If not, contact the taxpayer to obtain missing
records or determine why records were not provided.) (1/2
hour)
65
Fieldwork Program: General Fieldwork
Audit Procedure - Review Data
Additional Guidance:
Be sure the taxpayer has provided or has made available all of
the information necessary for you to perform an audit of all tax
types under review. Consider what information you will need to
evaluate the tax returns and/or applications.
Communicate with the taxpayer: If you need additional
information, make sure the taxpayer understands exactly what is
needed and why. We cannot have an audit delayed because
records are not being provided. If there will be a significant
delay, make sure you communicate this to the audit supervisor.
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Fieldwork Program: IFTA/IRP Testing
67
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - Sample Agreement
Review the sample agreement with the taxpayer, verify
the taxpayer agrees with the sample agreement and
obtain the taxpayers signature. Scan in the signed
document. (1 hr.)
68
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - Mathematical Correctness
Check the mathematical accuracy of the tax return for
each sample return. (1 hr.)
69
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - Mathematical Correctness
Additional Guidance:
The best way to do this is to pull in the tax return and use
tick marks to demonstrate what you tested.
70
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - Quarterly Recaps
For each sample quarter, tie the tax return to the quarterly
recap. Ensure the fuel and mileage is properly reported
on the tax return. Document differences. (1 hr.)
71
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - Quarterly Recaps
Additional Guidance:
If the taxpayer does not keep quarterly recaps, request
the audit supervisor to pull the new steps for your audit
and put NA on all of these procedure steps.
72
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - Monthly Summaries
For the sample quarters tie the quarterly recaps to the
information on the monthly summaries. Document
differences.
Determine whether the monthly recap is the best form to
use for your further testing. If it isn’t, consult the audit
supervisor and revise steps accordingly.
(3 1/2 hours)
73
Fieldwork Program: IFTA/IRP Testing
Audit Procedure - IF/IR Sample Units
Based on the table below, determine how many sample
units you will use for testing.
Fleet Size
Sample Size
1,000 + units
30
1,000 units
25
500 units
20
100 units
15
50 units
8
10 units
3
Select the units that would give you the best coverage of
miles. Note: For the single quarter, you do not need to
select the same units as the other 2 quarters. (1 1/2 hrs.)
74
Fieldwork Program: IFTA/IRP Testing
Audit Procedure -Jurisdictional Testing
Determine if jurisdictional distance and fuel is reasonably
allocated. (2 hrs.)
75
Fieldwork Program: IFTA/IRP Testing
Audit Procedure -Jurisdictional Testing
Additional Guidance:
If odometers readings are recorded at jurisdictional lines
recalculate jurisdictional distance from odometers for sample
units to determine if jurisdictional distances are accurately
recorded on the trip report. If not, judgmentally select trips
from sample units and test for reasonableness of the
jurisdictional mileage using distance software.
Does the taxpayer report non-taxable miles? If yes, determine
if miles qualify under ARMS 18.10.103 & 104 and recalculate
off road miles and tie back to the tax return.
76
Fieldwork Program: IFTA/IRP Testing
Audit Procedure -Spreadsheet Adjustments
Summarize the issues noted, complete the records evaluation
form and finalize audit issues.(2 hrs.)
Enter audit adjustments in the spreadsheet(s) for each tax type
and reconcile them to make sure all items are accounted for
properly. Complete the comment section at the bottom of the
spreadsheet for each adjustment. (1 hr. per spreadsheet)
(Note: if multiple entries are made, you should save each one
along the way to document your process.)
77
Fieldwork Program: IFTA/IRP Testing
Audit Procedure -Spreadsheet Adjustments
Additional Guidance:
Discuss the issues with the Audit Supervisor before
entering the information into the spreadsheet. This is
when you should finalize the decision on whether there
should be a penalty assessment for IFTA .
To assist you in making the determinations, you can pull
IFTA-IRP Records Evaluation
78
Fieldwork Program: IFTA/IRP Testing
Audit Procedure -Conclusions
Conclude on:
• Whether the tax return(s) is (are) supported by the
records.
• Whether all IFTA taxes have been paid by the company.
(1 hour)
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Fieldwork Program: IFTA/IRP Testing
Audit Procedure -Conclusions
Additional Guidance:
• Finalize audit issues and determine if we can combine any of the
findings. (2 hours)
• Discuss the issues with the Audit Supervisor before entering the
information into the spreadsheet. This is when you should finalize
the decision on whether there should be a penalty assessment for
IFTA/IRP. (2 hours)
• Copy the spreadsheet completed and balanced during the pre-
planning step to use for each audit finding/or adjustment. These
spreadsheets will be used to support your issue(s).
80
Fieldwork Program: IFTA/IRP Additional
Steps
81
Fieldwork Program: IFTA/IRP Additional
Steps
Audit Procedure - Noncompliance
Document the non-compliance. Discuss the alternate
approach with the audit supervisor and revise the hours to
complete the audit as appropriate. (1 hour)
82
Fieldwork Program: IFTA/IRP Additional
Steps
Audit Procedure - Mileage Calculation
Using records with odometer readings and/or jurisdictional
miles from trip sheets build the monthly mileage
summaries.
(2 hours + ¼ hour for each sample unit – round up to the
nearest ½ hour)
83
Fieldwork Program: IFTA/IRP Additional
Steps
Audit Procedure - Fuel Calculation
Using fuel invoices build the monthly fuel summaries. If you
can’t determine the reasonableness of fuel, you will need to
disallow the reported gallons.
(2 hours + ¼ hour for each sample unit – round up to the
nearest ½ hour)
84
Fieldwork Program: IFTA/IRP Additional
Steps
Audit Procedure - Tax Return Comparison
Compare these summaries to the tax return and document
the differences. Then complete the records evaluation form.
(2 hours)
85
Fieldwork Program: IRP Analysis
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Fieldwork Program: IRP Analysis
Audit Procedure - IRP Findings
Based on the exceptions identified through the detailed
testing above, determine whether the IFTA quarterly
summaries can be used to test IRP. If not, contact the
Audit Supervisor to determine what additional steps should
be taken. (1 hour)
87
Fieldwork Program: IRP Analysis
Audit Procedure - IRP Testing
Pull the IFTA Tax Return for the 4 quarters of IRP. Total
these tax returns and compare the information to the IRP
Schedule B and to the annual summary. Investigate any
differences. (4 hours per fleet).
88
Fieldwork Program: IRP Analysis
Audit Procedure - Spreadsheet
Summarize the exceptions noted and finalize audit issues.
Enter audit adjustments in the IRP spreadsheet(s) for
each fleet and reconcile them to make sure all items are
accounted for properly.
(1 hour per fleet)
89
Fieldwork Program: IRP Analysis
Audit Procedure - Spreadsheet
Additional Guidance:
Discuss the issues with the Audit Supervisor before
entering the information into the spreadsheet. This is when
you should finalize the decision on whether there should be
a penalty assessment for IRP.
90
Fieldwork Program: IRP Analysis
Audit Procedure - Conclusions
Conclude on:
• Whether the application(s) is (are) supported by the
records.
• Whether all Fees have been paid by the company.
(1 hour) add .5 hours for each additional fleet.
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QUESTIONS ????????
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Montana Audit Program