This month, IFTA and IRP will release their annual reports on 2014 audit activity in their respective member jurisdictions.
These reports contain straight-up data on how many IFTA and IRP carriers are in each jurisdiction, how many were audited, how many were assessed some sort of penalty or fee for non-compliance, how many had their credentials revoked, and so on.
While your odds of being audited are small (IFTA and IRP jurisdictions agree to audit 3% of their licensee base every year), you’d better be ready.
What if you are audited?
If you’re audited, they’ll probably find something you’re doing wrong.
In 2013, Alberta had 2,817 licensees and conducted 70 IFTA audits. Of those 70 audits, 51 were assessed a penalty for something. That’s 75%! In Saskatchewan, the figure was 83%. In Manitoba, it was 59%; British Columbia, 49%; Ontario, 95%; Quebec, 94%.
The numbers don’t lie. I doubt they’ll tell a different story for 2014.
Why the high assessment rates?
Auditors tell me that only a handful of carriers are deliberately doing something wrong. Indeed, most think they’re doing everything right but aren’t.
Late filings, missing or inaccurate data, or a shoddy system for collecting and keeping records are big red flags for auditors, who not only represent their own jurisdiction’s interests but also the interests of the other member jurisdictions.
So ask yourself:
-Have you filed all of your returns? On time?
-Can you prove that you’re reporting all distance for each vehicle licensed under IFTA and IRP? Do you have acceptable source documents like driver trip reports? Do they contain the prescribed information as per the rules of the agreement?
-Can you produce valid fuel receipts for every credit taken?
-Do you use GPS distance data? If the auditor asks for your original GPS data, are you prepared to respond? Where is it kept? And for how long? And what’s it going to take to get access to it? A lot of carriers don’t realize that a computerized distance summary is not acceptable as the sole source document.
What To Do Next
Like any audit situation, it’s always more time consuming and stressful if you have to gather substantiating information after-the-fact.
Here are seven things you should do now so you’re ready for that audit notice:
1. Learn the requirements. Your home jurisdiction publishes an IFTA and IRP guide for motor carriers. It’s free, available online, and written in plain language. Download a copy and read it.
2. Make it simple for your drivers to report distance and fuel information for each trip. Make your Driver Trip Reports easy to read and the fields large enough for the driver to be able write in odometer readings and other data.
3. Develop a system for collecting a fuel receipt for every single fuel purchase your driver makes. If you don’t have a fuel receipt, you can’t take credit for the purchase and you end up paying tax twice.
4. Summarize your data monthly. How many times have you waited until the end of the quarter when your return is almost due and then scrambled for information from three months ago?
5. File on time. A late return tells an auditor that you probably don’t have a good reporting system in place. Plus, you’ll save money in penalties and interest. Failure to file and remit amounts due by the stated deadline will result in an estimated assessment based on the best information available. Until all tax returns have been filed and liabilities paid, you won’t be allowed to renew your IFTA and IRP credentials.
6. Onboard recording devices and tracking systems that use GPS make it easier to capture distance data and produce summary reports. However, simply “having GPS” isn’t enough. You need to produce individual trip reports and original GPS data—every “ping” or reading—to support your distance calculations.
7. Continually audit your records and make notes as you go. Was an odometer reading incorrectly written down? Did you have to add in fuel because of a missing receipt? Did you have to amend a return? Self-audits and good notes show that you’re taking care and control over your data—even data that’s missing or needs further examination.
The intent of an audit isn’t to find mistakes on your return. First and foremost, auditors want to see that you have a system in place for collecting, reporting, and storing data in way that conforms to the requirements.
Non-compliance, unfortunately, is often a product of a bad system. Judging by those high audit assessment numbers, there are a lot of systems out there that need a checkup.
We would love to help you set up a fleet tax compliance program for your fleet or business. It starts with a phone call. Give us a call today and let’s talk.
Call us Toll Free: 1-877-860-8025
About the Author:
Sandy Johnson is the founder and managing partner at North Star Fleet Solutions in Calgary. The company provides vehicle tax and license compliance services for trucking operations ranging from single vehicles to large fleets. She can be reached at 877-860-8025 or northstarfleet.com.