Trustees should consider implementing a payroll audit policy as a step toward ensuring they are meeting their fiduciary duties to collect employer contributions. We offer the following components for consideration in developing or enhancing your current payroll audit policy:
Employer Sample Selection
A random payroll audit program, in which the payroll auditor randomly selects a sample of employers for testing in a given time period, is an essential part of the process to ensure the employer is accurately remitting fringe benefit contributions to the trust, as required in the collective bargaining agreement. Trustees should be able to refer to their payroll audit policy to find out how often employers are tested and the basis for selecting these employers. Certain factors may play a role in the selection process, such as:
· How often are employers tested; what is the standard cycle?
· Were discrepancies noted when the employer was last tested that would warrant testing the employer on a shorter cycle?
· Can the employer be tested in conjunction with other trusts that the auditor is testing in order to share audit costs?
Furthermore, a payroll audit policy should outline other types of payroll audits that the auditor may perform, such as:
· Courtesy audits, for new employers who are just learning the reporting requirements.
· Exit audits, for employers who have stopped participating in the trust.
· “For-Cause” audits, when a trustee or related party is concerned about reporting practices of a participating employer.
The payroll audit policy should establish how often, when and by whom the auditor will be directed to perform the various types of audits.
Employer Notification Process
A payroll audit policy should list the steps for scheduling a payroll audit, including how the employer is notified and what action should be taken if an employer refuses to schedule an appointment or provide access to records needed for testing.
Report of Findings
The payroll audit policy should define how the payroll audit findings are disclosed. It should establish how and when the results of testing will be communicated to the employer, the plan administrator and the Board of Trustees.
Processing Audit Results
The payroll audit policy should provide a guide for professional staff for processing and collecting delinquent contributions discovered during a payroll audit, including timelines for collecting and referring to the collection attorney, if necessary.
If improper / erroneous contributions are discovered during the payroll audit, the policy should define what the trust policy is with regard to such findings and how to address them.
The policy should also establish how interest, liquidated damages and testing fees are to be treated, if applicable.
Roles of the Professional Staff
The payroll audit policy should clearly define each plan professional’s role in the testing process. The payroll auditor, the plan administrator and collection counsel all have an important role in the overall payroll audit process. Communication is essential between the professionals to ensure that the process, from scheduling the payroll audit, to processing and collecting delinquent contributions, to relaying information to the trustees, is managed effectively and efficiently. A payroll audit policy can clearly define the roles of each of the professionals in order to ensure the parties are working together to run an effective payroll audit program.
Trustees have a responsibility to enforce accurate and timely reporting of employer contributions in order to preserve the financial health of the trust. Payroll audits help trustees identify potential assets of the trust and additional benefits for its plan participants and provide guidance to contributing employers on proper reporting procedures when errors are detected. A solid payroll audit policy provides trustees with a reliable tool that reflects the trust agreement policy on payroll audits and clearly defines the components of the trust’s payroll audit program.
Rachelle Hislop is a payroll compliance senior manager in Lindquist LLP’s San Ramon office. She has approximately 20 years of experience in the employee benefit plan sector, including payroll compliance testing and plan administration. She currently manages payroll compliance programs for 18 trust funds. Rachelle is a graduate of the University of California, Berkeley.