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Employer's Guide to an Efficient Payroll Compliance Audit
by Kimberly R. Ray, CPA, Partner
December 4, 2008

If you are an employer required to have a payroll compliance audit, it is in your best interests to facilitate the process—a smooth audit means a swift return to business as usual.  Following, we provide a simple step-by-step guide to ensure an efficient payroll compliance audit.

 

Step 1:  Employer receives notification letter.

  • Make sure the proper person in your office receives a copy of the notification letter and coordinates the audit.  Depending on the size and structure of your company, the auditor may need to talk to different people with different responsibilities; for example, the person responsible for payroll may not be the same person responsible for your company’s tax returns.  The person designated to coordinate the audit may not be the primary contact the day of the audit, but should be knowledgeable about who performs which job functions and should ensure the right parties are available to answer questions the day of the audit.  The notification letter provides guidance about the functional areas that will be examined during the audit, so it is a good starting place to determine the responsible parties in your company.
  • All parties from your company that will be involved in the audit should review, in detail, all of the items listed in the notification letter.  Make note of any questions or items you are unsure of so you can ask about them when you schedule your appointment.

Step 2:  Audit firm calls to request appointment or employer calls to schedule audit.

  • When you call to schedule the audit or the audit firm calls you to request an appointment, ask for clarification or assistance on any items from the notification letter you are unsure about.
  • There is usually some flexibility in scheduling a random payroll compliance audit, so the person who will be the primary contact during the audit should work with the audit scheduler to arrange a day when you will have sufficient time to spend with the auditor. 
  • Consider also the time needed to pull all the requested records, and schedule a day that will allow enough time prior to the appointment for gathering the necessary documents. 

Step 3:  Auditor calls to confirm appointment and review list of documents from notification letter.

  • This is another opportunity for you to ask questions and get clarification on items listed in the notification letter.
  • Prior to the appointment, the person who is coordinating the audit should confirm that all responsible parties will be available.
  • Plan to have a location available for the auditor to work.
    Pull the records ahead of time so they are accessible at the beginning of the audit.

Step 4: Audit takes place.

  • Set aside time at the beginning of the day of the audit to discuss your expectations of how the day will progress.  You and the auditor should schedule times throughout the day when you can be available to touch base and answer questions.  If you need to leave by a certain time, communicate that to the auditor early in the day.  Also, make sure to save time at the end of the day for an exit interview.  During the exit interview, the auditor will explain his or her findings.  This is an opportune time for you to ask questions and get clarification on any issues.
  • The audit will go more efficiently if the person who has ultimate responsibility for the audit is available for status updates throughout the process.  Often a person from payroll or accounting is the primary contact working with the auditor because of his or her familiarity with systems and daily operations.  However, someone else may be ultimately responsible for the results of the audit, (such as a controller), who will need to know, and may have several questions about, the auditor’s findings.  Rather than waiting until the exit interview, it is best for that person to be kept apprised throughout the audit, either by meeting with the auditor or getting updates from a point person within the company. 

Step 5:  Auditor follows up with employer as necessary.

  • Respond to any follow-up questions from the auditor as promptly and thoroughly as possible.

Step 6:  Auditor sends draft report to employer before issuing final report to trust.

  • Review the auditor’s draft report carefully and respond in a timely manner so that any issues can be resolved quickly before the final report is issued to the trust and any potential fees are assessed.

In conclusion, if you and the audit firm work together with a certain amount of upfront organization and planning, you can achieve an efficient and accurate test of your records.

Kimberly R. Ray, CPA, is a partner in Lindquist LLP’s San Ramon office.  Kim has more than 30 years of experience with audit and accounting services for employee benefit funds.  Kim is an active member of the International Foundation of Employee Benefit Plans.  She can be contacted at (925) 277-9100 or via e-mail at kray@lindquistcpa.com.

 

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