Compliance Audit Working Group

Audit WorkshopFebruary 2-5, 2010San Antonio, Texas

Analysis of Audit Requirement

• January 2007 - Ad Hoc Committee was created by the IRP Board of Directors to analyze various options to the 3% audit requirement and present those options to the Board.

Analysis of Audit Process

• May 2007 – The IRP Board discussed the need to analyze the audit process to determine if the current 3% audit requirement is appropriate, or if there is a better formula for meeting audit requirements. The Board directed the CEO to prepare an RFP in order to contract with a third party to conduct the analysis.

Analysis of Audit Process

• January 2008 – The IRP Board approved Jefferson-Wells to analyze the IRP audit process, specifically the 3% audit requirement.

• Jefferson-Wells is a organization that provides professional services in the areas of risk advisory, tax, and finance and accounting

• Upon completion of the analysis, Jefferson-Wells provided its findings to the Board.

Jefferson-Wells Study

• Objective - Provide recommendations which may enhance the efficiency and effectiveness of the existing audit practices, thereby protecting the interests of the jurisdictions, increasing registrant compliance and controlling the cost of audits.

Jefferson-Wells Study

• Work Performed by Jefferson-Wells:– General overview of audit expectations and

practices.– Review of APM against the Inst. Of Internal

Auditor (“IIA”) Standards.– Survey of all 59 jurisdiction. – Benchmark interviews.– Attended the 2008 IFTA/IRP Audit

Workshop.

Jefferson-Wells Findings• A population of auditors exists who are

committed to improvement.• The APM provides little direction and the

scope may be incorrect.• There are 59 separate audit procedure

standards.• IRP Inc. has little insight to audit results.• 3% audit requirement is arbitrary, and likely

excessive.• Handling of audit testing and treatment of

exceptions is inconsistent.• Registrant non-compliance is high.

Jefferson-Wells Recomendations

1. Centralized recordkeeping/analysis of audit results.

2. Centralized selection of audits.3. Expand the scope of audits.4. Develop specific audit standards, work

paper templates and reporting.5. Reduce number of audits.6. Restructure peer review function.7. Formal training process for registrants.

CAWG

• May 2008 – The IRP Board created a Task Force to review the Jefferson-Wells recommendations and present its findings to the Board. The task force presented the following findings to the Board:

Centralized Records & Analysis

• Agreed that analysis is needed.

• Questioned if centralization was a permanent solution or for analysis purposes only?

• Suggest use of IRP Clearinghouse to analyze audit data.

• Change annual reporting requirement.

Centralized Selection of Audits

• Agreed with concept of centralization as an option available to jurisdictions.

• Unsure if this should be the responsibility of the IRP, Inc or jurisdictions?

• Believes that CH seems to be the logical application for centralization.

• Believes that CH modernization will allow detailed analysis of audits to be conducted.

• Believes that audit analysis will identify useful audit selection criteria (risk based audits).

• Believes audit selection report feature could be developed for CH using selection criteria.

Expand Audit Scope

• Increase audit requirement from “distance reported” to “basis for apportionable fee”.

• Task Force disagreed with JW recommendation for following reasons:– Would require jurisdictions to audit ALL 3rd

structure taxes/fees administered by every jurisdiction.

– Jurisdictions may currently audit IRP transmittals/recaps.

– Annual PRC fee test already verifies proper fee calculation by jurisdictions.

Specific Audit Standards

• Task Force agreed that standardized audit procedures are needed from planning, evaluation of internal controls, treatment of distance and report writing (APM).

• Task Force questioned ability to develop standard sample selection criteria since it was difficult to legislate among jurisdictions.

• Task Force reinforced importance of auditor judgement throughout audit process.

Reduce Number of Audits

• Agreed with Jefferson-Wells that 3% audit requirement is arbitrary.

• Disagreed that 500 audits would provide 90% to 100% confidence to understand registrant compliance.

• Recommended that audit analysis should be conducted before audit requirement is determined.

• Unsure if Jefferson-Wells understands the purpose of an audit.

Restructure PCR Function

• Agree to update Plan and APM so that subjective provisions are reviewable (should versus shall).

• Agree that uniform audit procedures will enhance compliance review function.

• Agree that the CH should be utilized to identify potential non-compliance issues prior to conducting a program compliance review.

Training

• Move record keeping requirements from APM to the Plan.

• Develop record keeping and reporting training opportunities for registrants.

• Develop training for audit procedures and reporting.

• Establish IRP penalty structure within Plan for lack of compliance.

• Establish follow up audit procedures for non-compliant registrants.

Creation of CAWG

• IRP Board determined that a working group should be formed to analyze Plan compliance and audit issues.

• Issues to consider:– 3% audit requirement– JW recommendations– APM and Plan audit requirements– Failed audit ballots– Training for jurisdictions and industry

Creation of CAWG

• October 2008 - The board approved the creation of the Compliance Audit Working Group to begin work.

• The group will be composed of both administrative and audit jurisdiction members as well as industry representatives.

CAWG Members• Jay Starling (AL) – Chair• Jeff Hood (IN) – Vice Chair• Matthew Poirier (MA) - Admin• Bob Weber (CT) - Audit• Bobby Johnson (TX) - Admin• David Nicholson (OK) - Audit• Deann Williams (KS) - Admin• Jerri Hunter (ID) - Admin• Gerald Jackson (WY) - Audit• Zoya Kingston (AB) - Audit• Dan Young (MT) - Audit• Lanny Gower - Con-way Freight• Connie Owen - J.J. Keller and Associates Inc. • Robert Pitcher - American Trucking Associations

CAWG Purpose

• Analyze the issue of Plan compliance and examine the audit-related recommendations from the Jefferson-Wells study. This will include the analysis of the 3% audit requirement, a review and update of the Audit Procedures Manual, and compliance training for jurisdictions and industry.

CAWG Activities

• Meet by conference call (monthly).

• Survey jurisdictions – APM matrix.

• Form subgroups to address issues.– Group 1: APM Articles 1 through 5– Group 2: APM Articles 6 through 9– Group 3: Plan Article X

• Meet face to face at the 2009 IRP annual meeting.

• Prepare CAWG proposal using Plan rewrite template.

CAWG Activities

• Report activities to the Board at January 2010 board meeting.

• Present CAWG proposal at 2010 Audit Workshop – Managing for Compliance.

• Revise proposal based on feedback.

• Provide updated proposal to membership for comment.

• Hold breakout session at 2010 Annual Meeting.

CAWG Activities

• Revise proposal based on feedback.

• Provide updated proposal to membership.

• Hold webinars, if necessary.

• Present proposal at 2011 audit workshop.

• Present ballot proposal at 2011 Annual Meeting.

Comments/Questions

Jay Starling

Alabama Department of Revenue

Motor Vehicle Division

jay.starling@revenue.alabama.gov

(334) 242-9078