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Facilitating a Transition in Payroll Compliance Auditors

Suppose your plan recently hired a new payroll compliance auditor.  What must be done to get the program up and running?  Although changing payroll compliance auditors can be a challenge, there are measures that plan representatives can take to facilitate the process.  Plans can efficiently and cost-effectively transition payroll compliance auditors by implementing the following steps:

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Provide Key Trust Documents

The plan administrator should provide the new auditor with the agreement and declaration of trust, plan document, collection policy, master and/or individual collective bargaining agreements, subscription and/or alumni agreements and applicable rate schedules, which collectively form the body of plan policies and procedures.  Furthermore, these documents should be provided for all plans incorporated in the payroll audit program pursuant to a shared collection agreement or joint services agreement.  The auditor’s ability to make informed recommendations regarding the design of the audit program may be limited without prior review of these documents.

Review the Delinquency Policy

Transitioning the payroll audit program to a new auditor presents trustees with an opportunity to review, clarify and update delinquency policies and procedures.  Recordkeeping requirements, refunds of improper payments, audit travel policy and fee calculations, including interest, liquidated damages and testing fees, should all be reviewed with the auditor and clarified, if necessary.  These policy considerations will impact the type of records requested from participating employers, as well as the format of the audit report.  It is essential that these considerations are incorporated into the plan’s written policy if currently undocumented.

Review the Audit Program

Not all payroll audit programs are the same.  Many aspects of the audit program, such as the audit cycle (the frequency and number of employers audited annually) and audit location (field audits versus desk audits), may significantly impact a plan’s financial audit or overall program costs; therefore, it is recommended that the trustees discuss potential costs and benefits with the auditor. 

A valuable program is designed with the specific needs of the plan in mind.  Components of the audit program, including the audit cycle, employer selection process, testing procedures and audit location, should be set forth in an engagement letter prepared by the auditor and approved by the trustees. The trustees should understand the audit procedures and consider the sufficiency of the procedures.  Even if pre-existing audit procedures are in place, it is wise to ask the auditor to suggest any best practices or alternatives to current procedures.

Program Status Reports

Trustees should continually monitor the status of the audit program and periodically review its overall effectiveness.  The auditor should be required to provide a complete status report, including recent audit findings, significant reporting issues, jobs in progress, scheduling delays and legal referrals for each meeting.  The auditor should be available to attend regular full board or committee meetings to communicate updates.  It is highly recommended that the trustees review the effectiveness of the program with the auditor on an annual basis to determine whether any program modifications are necessary.

Individual Audit Reports

The trustees, administrator and attorney should review an example payroll audit report to confirm that the results are organized in a clear and concise manner, that it reflects the collection policy and that it aids in updating eligibility records and collections. The trustees should decide who should receive copies of the audit report in addition to the administrator.  It is recommended that members of the collections committee or designated labor and management trustees be made aware of significant issues as they arise.

Dispute Resolution

A plan must have an appeal process in place to resolve employer disputes in connection with audit findings.  The auditor may turn to the trustees for guidance in situations concerning ambiguous collective bargaining agreement language, non-existent contracts, or unreported employees and subcontractors potentially performing work covered by the collective bargaining agreement.  These issues can be controversial and require additional information or research beyond the scope of the payroll audit.  The trustees may authorize a joint committee to handle appeals and recommend resolutions to the auditor.

Provide Prior Testing History

The plan administrator should provide the new auditor with a report of prior testing history to avoid any unintended duplication.  At a minimum, the report should include the employer names, account numbers, testing periods and audit results.  If prior testing history is not available, have the auditor recommend a course of action to reduce costly duplication.  In addition to the testing history, the auditor will also periodically request participant contribution reports from the administrator prior to each scheduled audit.  The auditor will require an electronic report indicating the monthly contributions and/or hours received on behalf of each participant during the testing period. These reports prove indispensable for providing the most efficient testing.

Consider Undocumented Policies

A plan should advise the auditor of any undocumented policies or procedures that may impact the compliance program.  These may include reporting rules concerning out-of-area contractors or participants traveling within affiliated contract jurisdictions.

Conclusion

Transitioning payroll auditors does require some work; however, covering the above areas will ensure a smooth transition and promote the efficiency of the audit program.  Failing to address these areas will result in delays that can negatively impact timely reporting and, ultimately, collections. 

Tim Hallenbeck is a payroll compliance senior manager in Lindquist LLP's San Ramon office. He has been with the firm since 2003. Tim supervises and reviews the work of the senior and staff compliance auditors assigned to the trusts he manages.  He has helped to develop department training programs and re-design Lindquist LLP's customized payroll compliance tracking systems. Contact Tim at (925) 277-9100 or thallenbeck@lindquistcpa.com with questions or comments. 

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