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Developing a Standard Audit Program Using CCH Teammate Audit Software.

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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, – PowerPoint PPT presentation

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Title: Developing a Standard Audit Program Using CCH Teammate Audit Software.


1
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

2
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
3
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

4
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.

5
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)

6
Preliminary Work Program
  • 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

Audit Procedure - Compile Background Information
7
Preliminary Work Program
  • 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. 

Audit Procedure - Compile Background Information
8
Preliminary Work Program
  • 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).

Audit Procedure - Compile Background Information
9
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)

10
Preliminary Work Program
  • Audit Procedure Returns and Applications
  • Additional Guidance
  • The tax returns/application should be scanned in
    as a one document.

11
Preliminary Work Program
  • Audit Procedure Returns and Applications
  • Additional Guidance
  • The tax returns/application should be scanned in
    as a one document.

12
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.

13
Preliminary Work Program
  • 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
  • Audit Procedure - Audit Period

14
Preliminary Work Program
  • 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.
  • Audit Procedure - Audit Period

15
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)

16
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, OFF-ROAD).
  •  
  • Note
  • There are no vehicles or equipment associated
    with a Motor Fuel Distributor tax return or a
    Agricultural Tax Refund Application.

17
Preliminary Work Program
  • 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.
  •  
  • Audit Procedure - Audit Notification

18
Preliminary Work Program
  • Purpose
  •  
  • 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.
  • Audit Procedure - Audit Notification

19
Preliminary Work Program
  • 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)
  • Audit Procedure
  • Spreadsheets

20
Preliminary Work Program
  • Additional Guidance
  • While entering the information, make sure the
    spreadsheets balance to the system.
  • Audit Procedure
  • Spreadsheets

21
Preliminary Work Program
  • 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.
  • Audit Procedure
  • Spreadsheets

22
Preliminary Work Program
  • Audit Procedure - Balance
  • Document the spreadsheets are balanced to the
    system and lock the system.  (1/2 hour)
  •  

23
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.

24
Preliminary Work Program
  • Audit Procedure - Taxpayer Response
  • Scan the completed documents
  • Contact Authorization
  • Taxpayer Info
  • Vehicle Listing
  • Sample records
  •  (1 hour)

25
Audit Planning Program
26
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)

27
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
    pre-planning and bring it forward to this step
    for use during the audit.  The original should
    remain untouched in the pre-planning section.
  •  

28
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.

29
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)

30
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.

31
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 Registrants application
    subject to Audit to become more familiar with the
    Registrants 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.

32
Audit Planning Program
  • Audit Procedure -Sample Selection
  • Based on the analysis performed, select sample
    time periods for each audit type.  
  • (2 hour)

33
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.

34
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.

35
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/IVDRs 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
    Registrants 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 Registrants
    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.

36
Audit Planning Program
  • Audit Procedure -Sample Selection
  • Purpose 
  • IRP Audit Manual
  • 703. Sampling and Extrapolation Procedures
  • (c) Documentation such as source documents/IVDRs
    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 Registrants
    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 Jurisdictions 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 Registrants
    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.

37
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)

38
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

39
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 Registrants
    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.

40
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 companys
    operations.
  • Schedule a time and date to conduct the audit.
  • (2 hours add ½ hour for each additional tax
    type)

41
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.

42
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 jurisdictions 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
    Registrants 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.

43
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.

47
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-gatheri
    ng 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.

48
Audit Planning Program
  • Audit Procedure -Internal Control Assessment
  • Purpose
  •  
  • IFTA Audit Manual
  • A640 EVALUATION OF INTERNAL CONTROL (Contd.)
  •  .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 auditors study and evaluation of the
    Registrants 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
    Registrants 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 Registrants 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 Registrants 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 (Contd.)
  • (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 auditors judgment.
  • (g) Weaknesses identified in the Registrants
    internal control system shall be reported to the
    Registrant and documented in the Audit file.

51
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.

55
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.

58
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.

60
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.

66
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
    isnt, 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. 
  • 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.)

Fleet Size Sample Size
1,000 units 30
1,000 units 25
500 units 20
100 units 15
50 units 8
10 units 3
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)

79
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 cant 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
86
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.

91
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