Even if you have not experienced an audit before, you might have heard of others who have been through it, and the pain they endured.
Some motor carriers have paid thousands of dollars in interest and penalties for not filing the correct IFTA information. Others have even had to close down their motor carrier or trucking businesses because the fines were just too high.
IFTA auditors do not want to put motor carrier or trucking companies out of business. However, if you are not filing the correct mileage and fuel information, auditors could be knocking on your door sooner rather than later.
The best way to avoid audits of any type is by following regulations accurately.
For the International Fuel Tax Agreement (or IFTA), an accurate and reliable distance accounting system is an important requirement to prevent an IFTA audit.
Keep in mind that audit emphasis is placed on evaluation of the motor carrier's/licensee's distance accounting system. This is vital because distance allocation by jurisdiction is the basis for determining the licensee's fuel consumption and tax obligation for each jurisdiction.
Auditors will audit at minimum three months or one quarter to determine if the licensee's distance accounting system is properly recording all distance reported in an IFTA report.
Here is the IFTA audit process, in case if you need to get prepared:
The IFTA Audit Process
- Audit Notification – Once a motor carrier has been picked for an audit, their base jurisdiction IFTA people will give a 30-day notice before conducting the audit. Auditors will send written communication advising the motor carrier about tentative dates for the audit.
- Audit Communication between Jurisdictions – The motor carrier base jurisdiction will also communicate with other jurisdictions (states/provinces) prior to the audit to obtain pertinent fuel tax information in accordance with each jurisdiction’s disclosure policy.
- Opening Conference – Auditors and motor carrier/licensee communicate to review the licensee’s operation, audit procedure, records to be examined, and all that takes place in their audit. This is all documented.
- Evaluation of Internal Controls – Four phases take place for evaluating licensee’s internal accounting control system. These phases are:
- Review and Documentation – Understanding how the licensee’s way (procedures) of collecting IFTA information work
- Preliminary Evaluation – Auditor finds any weakness on the process or way the motor carrier/licensee collect IFTA data
- Test of Compliance – If the way they collect IFTA data is inadequate, the auditor will perform test of compliance
- Report on Weakness – Any serious weaknesses or erroneous ways of collecting the mileage and fuel data will be reported to the licensee.
- Closing Conference – Audit findings are presented by the auditor and includes applicable penalty and interest. Also, the audit report, recommendations, and rights to appeal are officially sent to the person who is responsible for the company. This is all documented.
- Audit Reports – Reports are sent to motor carrier/licensee, other jurisdictions in which the licensee operated in, and other documentation is completed to keep proper record of the audit.
- Notice of Assessment – Outstanding amounts or payment and appeal process. To learn about the appeal process, you can read our blog titled: “Avoid Filing an IFTA Audit Appeal”.
Tips to Prepare for an Audit
- Auditors will examine, test, and gain an understanding of how the motor carrier’s distance accounting system or process works. They will also look for original driver records if these are available. So, make sure to keep your supporting mileage and fuel documentation organized.
- For your mileage to be IFTA compliant, make sure your mileage recording devices (GPS, AOBRD, ELD) record pings every 15 minutes or less.
- Use precise odometer readings that match your trip logs or drops and picks whether these odometer readings are collected via electronic devices or manual processes.
- Your main mileage recording device, or other method of recording your miles per state, will be the main source for mileage that auditors will look at. If you happen to have a fuel card that records miles/kilometers this will be considered only if your main mileage system has gaps in the mileage. So, it is best to have only one main mileage recording system that records properly. Do not waste money and time in a fuel card system that keeps track of mileages, if you already have a main mileage recording system (device/process).
- Avoid having any missing mileage or fuel data for each quarter.
- The purpose of IFTA and IRP audits is to make sure that you are doing your compliance record keeping correctly. Audits are also carried out because they are the validation vehicle for the IFTA program on behalf of all member jurisdictions. It is the vehicle to ensure taxes are collected for all member jurisdictions. So, be sure to keep complete and accurate records of your mileage and fuel data.
- IFTA mileage should be equal to IRP mileage.
- Use an IFTA program that helps you keep correct records, organizes them, finds missing mileage, generates proper reports, runs unlimited reports, and stores your data for 6 years exceeding IFTA requirements.
Source: IFTA Audit Manual and Audit Conference 2018
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