Where the wise employer views the impending audit as an opportunity to test their internal reporting processes and communicate their eagerness to “play fair” to the plan trustees, the foolish employer attempts to evade and circumvent the process. Let’s face it: legal fees aren’t cheap and time is money. Being prepared for the audit and abiding by the rules of the game actually reduces cost by expediting the testing process with minimal disruption to your daily business activities. An audit is not a bad thing, it’s a chance to build public credibility by promoting a healthy labor-management relationship, which in turn drives employee satisfaction and productivity. It’s a win-win proposition for the well prepared employer.
It all starts in the mailroom. You have just received a letter from your benefit plan’s accountant or administrator that you have had the fortune of being selected for payroll compliance testing. The first logical step is to review the letter and determine, based on the documents requested, who in your organization will need to be involved in the audit. This could include payroll, human resource, accounts payable and labor relations departments. It is always a good idea to have one individual in the organization take the lead, especially if the audit requires coordinating documents and information from different departments. Also, be sure to determine the availability of documents: are they on-site, or off-site in storage? Can they be accessed electronically, or are they going to be provided in hard-copy format? While you ask yourself these questions, prepare a list of questions for clarification with the audit firm. Now you are well-positioned to contact the audit firm’s scheduler. Expect the scheduler to ask about the number of employees in the benefit plan, number of employees in your organization, and other benefit plans your organization reports to.
If you wait the audit firm’s scheduler will contact you; or, you can contact the firm to coordinate the appointment. It will be easier to work with the scheduler to determine a mutually agreeable date, time and location of the audit if you are proactive. Update the scheduler with current mailing addresses and contact information. Communicate the availability of the requested documents, especially if the documents are in multiple locations or if the audit is going to take place at a separate location such as your CPA or attorney’s office. General questions can be directed to the scheduler. However, if there are specific questions about the format or scope of the documents requested then ask to speak with an auditor.
Now that the appointment is on the calendar start gathering documents using the notification letter as a checklist. Wherever possible try to provide payroll records electronically. Electronic documents can be examined and organized more efficiently with greater accuracy. Payroll needs to be available for the entire testing period and providing this information electronically will save space. Otherwise, secure storage may become an issue. Either way, just remember to keep the information secure. Appropriately handled, electronic documents are more secure as the information can be encrypted and destroyed after use.
Once you have gathered all of the documents, be sure to inventory them for completeness. The precept that an ounce of prevention is worth a pound of cure is true here. Missing pages of payroll or missing agreements could set the audit back by hours, or even days. If you are missing documents, consider alternative sources. Contact your local union representative for missing collective bargaining agreements or dispatch slips. The administrator can be reached to locate missing contribution reports. Beware of assumptions: do not assume the auditor already has copies of contribution reports and collective bargaining agreements. Also, be mindful more than one agreement may be required to cover the entire testing period and you likely will need to provide copies of older agreements.
Appointment Confirmation with the Auditor
The auditor should contact you within a week of the audit, or you can reach out to confirm the appointment as well. Either way, ensure there is sufficient time between the confirmation and the scheduled appointment to locate any additional documents the auditor may need. Using the notification letter as a checklist, confirm the format and availability of each document on the letter. Be sure to advise the auditor of any items he/she should be aware of such as procedures for parking or building access, limitations of available working space and any other working condition that may impact the testing. If feasible, you are welcome to provide documentation to the auditor in advance of the appointment. The auditor may be able to complete much of the testing before the audit takes place, which will limit cost and disruption to your daily business activities. Note that any documentation sent by email unsecured cannot contain full social security numbers or any personally identifying information as specified under HIPAA. The audit firm should be able to assist with a secure method of transmission.
Appointment Day & Conclusion
Its game time: have you played by the rules and prepared? Have the documents laid out and organized chronologically by type for the auditor to inventory upon arrival. Your preparation will reduce disruption to your day and you will find that an audit is not such a bad thing after all. In fact, you will likely find that much was learned from the experience.