Auditor 101 Welcome to a new learning experience!.

Auditor 101

Welcome to a new learning experience!

Auditor 101

• Your hosts for today are:

DerrickBobRichard

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…..


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.


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:


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.


Remember!

Not all Red Flags will determine non-compliance!

Use your knowledge learned to adjust your strategy of what a Red Flag is.


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



• 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!

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 trailersFlatbedsDump 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 accusatoryDo not focus on the immaterialDo not forget to discuss billing and protest

proceduresDo not take assessments lightlyDO 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 371What does Auditor Judgment mean?What is Auditor Independence?What is Reasonable?What is immaterial?