Auditor 101
Welcome to a new learning
experience!
Auditor 101
• Your hosts for today are:
Derrick
Bob
Richard
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.
Auditor 101
Points to Ponder:
Who is it we are auditing for?
Why is it important to understand your
auditee?
Auditor 101
• Let’s 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?
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.
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…..
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 <25> out of <100> audits needed to meet
that stratification requirement.
How are Audits selected?
Question:
Because IRP doesn’t have a stratification, do
you think jurisdictions might target smaller
carriers in order to get their quotas met?
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:
How are Audits selected
Red Flag Indicators:
• Rounded numbers on the tax return.
• Set MPG’s used or similar MPG’s.
• 1 or another low number used in multiple
jurisdictions.
• Non-continuous Jurisdictions.
• Low mileage per truck or decal.
How are Audits selected
Remember!
Not all Red Flags will determine noncompliance!
Use your knowledge learned to adjust your
strategy of what a Red Flag is.
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
How are Audits selected?
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 noncompliance.
• Preliminary examinations are just that –
preliminary. Auditors must use discretion to
not pre-determine the finding of an audit
before it is started!
Obtaining Records
• Now that you have your audit selected for you
and have started the audit process, obtaining
the needed records isn’t 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?
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?
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.
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 licensee’s. They
should be firm – but extensions should be
granted. And lastly:
• Follow through if deadline is not met!
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.
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.
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 licensee’s operations?
Obtaining Records
• Here are a few alternative records you could
request during audit:
• Corporate Returns
• Insurance Records
• 3rd Party Records / shipping records
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!
Obtaining Records
Insurance Records
Can be used to:
• Determine when vehicles were under lease.
• Determine a potential operation range.
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
Obtaining Records
But always remember…
The lack of records provided initially does not
correlate with non-compliance but instead
could be a communication issue.
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.
Obtaining Records
Lost and destroyed records happens.
• In these cases 3rd party records become a
must.
• Consult management prior to completing
audit.
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?
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 isn’t that
easy.
In auditing, one thing is certain:
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.
Analyzing Data
Does anyone know the Taco
Bell slogan?
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 don’t
have!
Analyzing Data
Why should you be so diligent reviewing the
documents provided?
Fraud does exist!
Look at what is not there! Why wasn’t that
provided to you?
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!
Entrance Conference
OK – Let’s go back to the
Conference!
It is very important to understand
the entity you are auditing.
Why?
Entrance Conference
What is the best question you can
possibly ask at an entrance
conference?
Entrance Conference
One that you already know the answer to!
• Verifies research
• Earns a trust factor
• Simplifies conference
Entrance Conference
To Do’s:
Learn the titles of the licensee’s 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.
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?
Entrance Conference
Three focal points of discussion:
• Company history
• Fleet makeup
• Tax reporting system
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?
Entrance Conference
• Company history and how they evolved.
• Company ownership and interests in other
companies.
• Operations and changes including:
– Products hauled
– Terminals
– Shipping lanes
Entrance Conference
Fleet Makeup
Understanding the vehicles you are auditing is
just as important as understanding the
company.
Why is that?
Entrance Conference
Do the types of trailers used by the licensee provide
you with any tendencies to look for?
Van trailers
Flatbeds
Dump trailers
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.
Interesting!
What has all the information we discussed
have in common?
Internal Controls
All knowledge gained will help you in your
evaluation of Internal Controls!
So what?
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
Internal Controls
What do you do if your evaluation of Internal
Controls show the company no handle on
their affairs?
Can you sample?
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!
Writing Reports
What should be included in your audit report?
Simple – FACTUAL DATA!
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!
Presenting Audit Results
Strengths and Weaknesses of the licensee
should be discussed.
Focus on the most material first!
Show examples of non-compliance!
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 don’ts:
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
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!
Auditor 101
Don’t 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.
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!
Auditor 101
Open Discussion…….
What is on your mind?
Auditor 101
Potential discussion points
Ballot 371
What does Auditor Judgment mean?
What is Auditor Independence?
What is Reasonable?
What is immaterial?