IFTA DISPUTE RESOLUTION PROCESS 2013 Annual IFTA Business Meeting August 21-22, 2013 Reno, NV

1. IFTA DISPUTE RESOLUTION PROCESS 2013 Annual IFTA Business Meeting August 21-22, 2013 Reno, NV Presented by Rick LaRose (CT), DRC Chair

2. BACKGROUND • Discussions held as a result of the Referral for Enforcement. • Observations and Recommendations Document presented to the IFTA Board. • Observations identified three (3) critical areas to examine: • Penalties • Expulsion • Early Intervention

3. PENALTIES • KEY POINTS • Penalties should serve as a deterrent to non-compliance • Loss of voting rights/loss of committee seats are largely symbolic • Simple doubling or tripling of dues may not be sufficient • Makeup of prior non-compliance while being currently compliant • Authority of the DRC

4. PENALTIES • OPTIONS • Leave the penalty structure as is • Consider eliminating the loss of voting rights and rescinded committee seat penalties • Consider dropping the timelines for compliance in the penalty phase to a “stated dates certain” format for all cases • Consider permitting enhanced dues increases (e.g. exponential growth)

5. PENALTIES • OPTIONS • Permit determination of financial penalties based on the cost of compliance • Withholding of taxes held in the Clearinghouse • Permit any kind of financial penalty determined by the DRC • Language to require compliance for prior periods (audits)

6. EXPULSION • KEY POINTS • Expulsion requires a 75% affirmation vote • Expulsion could be politically charged and divisive • Current language does not specify the date expulsion occurs (it infers immediately upon an affirmative vote) • Question: Should this be a membership/Board responsibility?

7. EXPULSION • FOR DISCUSSION • Change from expulsion to a “self revocation” process • Failure to be in compliance after going through the entire program compliance review and dispute processes and failing to comply with an Order of the DRC would constitute self revocation

8. SELF REVOCATION • ADVANTAGES • Relieves members from voting • Avoids the possibility of a failed vote • Places the burden upon the non-compliant member, not the membership • CONSIDERATIONS • Need for a reinstatement process • Need a defined path for licensees in the revoked jurisdiction to find a “home” • Need to embrace language to permit a “stay” (DRP III.B.24)

9. EARLY INTERVENTION • ISSUE • The process to identify, address, follow-up, reassess, refer, evaluate, and issue an order for areas of non-compliance (R1555) can be very lengthy • Example • In the recent Referral for Enforcement, the initial discovery of non-compliance occurred during the compliance review that took place in late 2009 for the period of 2005 through 2008. • By the time the issue went through follow-up, reassessment, a final determination finding, a vote by the membership, and a referral, the DRC received the case in July 2012.

10. EARLY INTERVENTION • DRC Evaluation • For the 2005-2008 period, the jurisdiction completed audits at an average of 1.91%. The non-compliant shortfall with A310 totaled 532 audits for the years 2005-2008. • Non-compliance continued from 2009 through 2011(the period during which follow-up and reassessment occurred). Percentages completed were 1.7%, 1.27%, and 0.95% respectively. • Statistics show that the accumulated shortfall for years 2009-2011 totaled 558 audits • The sum total shortfall for periods completed (2005-2011) at the time of the referral was 1090 audits • At the time of the referral, preliminary numbers for 2012 did not appear to be compliant (the final numbers for 2012 were at 2.32 percent)

11. EARLY INTERVENTION • DRC Concerns • A speedy return to compliance • Full compliance was suggested to take place by the end of calendar year 2018; the DRC could not agree to that condition • Quality of work • DRC was concerned that quality would suffer if making up all shortfalls was a compliance requirement • Lost revenue • DRC was concerned that the shortfall represented lost revenue to various member jurisdictions

12. EARLY INTERVENTION • DRC CONCLUSIONS • While the non-compliant party was ultimately responsible and accountable, the various processes (compliance review, referral, dispute resolution) severely impacted the DRC’s options to address the issue • Of the articles subject to R1555, Sections A310 and A320 require the greatest commitment of resources • This type of non-compliance (articles subject to R1555) should be recognized earlier and the timeline to the DRC should be much shorter

13. EARLY INTERVENTION • POSSIBLE SOLUTIONS • For articles subject to R1555, an earlier recognition of non-compliance (before a compliance review is conducted) is desired • For issues related to A310, consider a process that provides for an annual review of the audit numbers posted to the Annual Reports (the DRC understands that compliance is based on a review period, not a yearly basis)

14. EARLY INTERVENTION • POSSIBLE SOLUTIONS • For issues related to A310 (and by extension A320), consider a process whereby a “tickler” reminder is sent to any jurisdiction that fails to meet the 3% for two consecutive years in a review period • Provide for increased dues immediately for any jurisdiction that fails to meet the 3% for three consecutive years in a review period (return the increased dues if the jurisdiction meets the compliance requirement for the review period) • Provide for much shorter follow-up and/or reassessment periods for issues of non-compliance impacted by R1555

15. CONCLUSIONS • Penalties should be structured to be punitive and serve as a clear deterrent • Expulsion is the ultimate “penalty”; moving toward a self revocation process will take the onus off of the membership and the Board • Early intervention is proactive and will permit the PCRC, the DRC, and the Board to discharge duties more timely and thoroughly

16. DISCUSSION

17. THANK YOU!