Lack of Written Policies and Procedures
Written policies and procedures paint a picture of the steps an entity follows to implement internal controls and carry out high-level goals and objectives. Therefore, it is no surprise that written policies and procedures are one of the first items requested during a DOL audit. A lack of written policies and procedures suggests that there are no formal guidelines for employees to follow. The absence of policies and procedures can be synonymous with waving a flag to alert the DOL that there are potential issues in areas that lack them. Likewise, poorly written, outdated or vague policies and procedures that do not fit the organization can also signify problems.
Lack of Controls Over Expenses
The DOL has indicated that expenses are high on its agenda, as it believes that expenses denied by pension and health and welfare plans are potentially being pushed through apprenticeship training funds. Expenses should be viewed through a fiduciary lens to ensure they are appropriate and in the best interest of the plan participants. A lack of internal controls over expenses can lead to misappropriation and misuse of plan assets, including excessive and abusive expenses incurred by the plan. The fiduciary guidelines set forth by the DOL and the Employee Retirement Income Security Act of 1974 (ERISA) require expenses to be reasonable and for the sole benefit of the participants.
Graduation Ceremonies and Promotional and Marketing Expenses
Graduation and promotional expenses continue to be a subject of great scrutiny by DOL auditors. In April 2012, the DOL issued Field Assistance Bulletin (FAB) 2012-01 to promote consistency in enforcement among regional offices and to address common questions by DOL auditors related to graduation, marketing and promotional expenses. FAB 2012-01 provides the following examples as permissible and impermissible expenses:
Modest graduation ceremony offering light refreshments with diplomas or certificates for apprentices and token awards/gifts for non-apprentices (e.g., plan instructors or persons that supported the program)
Graduation dinner for all attendees, valet parking, payments for travel and hotel accommodations for graduating apprentices and guests
Marketing and Promotional Expenses
T-shirts provided to apprentices bearing the logo of the apprenticeship or training program if the expense is modest and the t-shirts are not purchased from parties-in-interest in prohibited transactions
Expenses promoting industry advancement or sponsoring employers or employee organizations
Tickets to sporting events
Donations to favored charities
The DOL also outlined three criteria in FAB 2012-01 to evaluate permissibility of expenses:
1. Amount of expense is modest in relation to the plan’s assets and is consistent with the fiduciary obligation to be prudent and economical in the use of the plan's assets
2. Expenses are approved in accordance with internal controls designed to prevent inappropriate, excessive or abusive expenses
3. Costs are for the actual activity itself
Expenses will be evaluated by the DOL on a case-by-case basis during an audit. What may be reasonable and permissible for one plan may be denied for another. As a result, careful judgment is required when evaluating and approving expenses.
Other Hot Buttons
The following areas also pose inherently higher risk for abuse and could be subject to additional scrutiny:
· Meals, travel and accommodations
· Credit card reimbursements
· Transactions with related parties and parties-in-interest
· Shared or allocated union expenses
· Financial management
How to Prepare for a DOL Audit
1. Develop or update written policies and procedures and ensure all key areas, including disbursements, automobile usage, expense reimbursement and credit card usage, are addressed. Once policies and procedures are implemented, monitor activities to confirm compliance.
2. Conduct a thorough assessment of the fund’s control environment to identify and address deficiencies and compliance issues. Verify that controls adequately safeguard plan assets, prevent and detect abusive or fraudulent transactions, and ensure transactions are accurately recorded in financial records and adequately supported. Consider involving outside professionals, such as the plan’s accountant and legal counsel, in the process and be sure to refer to Compliance Tip on Internal Financial Controls issued by the Office of Labor Management Standards and the Lindquist Solutions article “Management Letter Fix-It Guide: Expenses.”
3. Play an active role in oversight of plan activities and maintain open lines of communication with plan professionals as questions or concerns arise.
As Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” The recommendations above may serve as tools to help you proactively prepare for a DOL audit and improve oversight and the control environment of your fund.
Need help preparing for a potential DOL audit? Lindquist LLP can help conduct an assessment of your fund’s control environment to identify and address deficiencies and compliance issues. Contact Marketing Manager Stephanie Kretschmer at email@example.com or (925) 277-9100.
Also stay tuned for part two of this series, where we dive into the latest legal and fiduciary issues affecting apprenticeship training funds.