How to Effectively Transition Payroll Auditors

Transitioning payroll auditors present both challenges and opportunities.

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The purpose of this article is to help Trustees efficiently and cost-effectively navigate the transition by following these recommended procedures:

Assemble the Key Players

A successful transition, like a successful payroll audit program, requires collaboration between members of the collections team. If the Plan does not already have a collections committee, identify the point person or persons from the following groups and get acquainted:

  • Accounting firm (auditor)
  • Administrator
  • Collection attorney
  • Trustees assigned to collections oversight

Provide Key Trust Documents

The auditor should be provided the following documents necessary to understand current policies, pose relevant questions, and make informed recommendations regarding compliance program design. Furthermore, the administrator should provide such documents for all Plans covered by the payroll audit program pursuant to a shared collection agreement or joint services agreement.

  • Agreement and Declaration of Trust and Amendments
  • Plan Document and Summary of Material Modifications (SMM)
  • Relevant Notifications to Participating Employers Regarding Significant Plan Changes
  • Reciprocity Agreements
  • Delinquency (or Collections) Policy
  • Master Collective Bargaining Agreements
  • Standard Non-Contract Participation Agreements
  • Related Group Participation Agreements
  • Alumni Participation Agreements
  • Rate Schedules

Review the Delinquency Policy

Transitioning to a new auditor presents the opportunity to review and clarify delinquency procedures and contemplate documenting previously undocumented processes. The written delinquency policy should contain the following essential items that impact the compliance program.

  • Contribution Due Date and Delinquent Date
  • Fees applied to delinquent contributions, including Liquidated Damages, Interest, Audit Costs and Attorney Fees
  • Employer Recordkeeping Requirements
  • Credits or Refunds of Overpayments or Mistaken Contributions
  • Audit Travel Policy

Review the Audit Program

An effective audit program addresses the specific needs of the Plan, and procedures should be set forth in a written engagement letter between the auditor and the Plan. Even if pre-existing audit procedures are in place, it is wise to consider best practices and alternatives to current procedures. The types of procedures selected may significantly impact the Plan’s financial audit and overall program cost. The Trustees should understand the audit procedures and consider the sufficiency of the procedures in the following areas:

  • Audit cycle (the frequency and number of employers audited annually)
  • Audit period
  • Audit types (Random, For-Cause, New and/or Terminated Employers)
  • Audit location (Field versus Desk audits)
  • Piggybacking (testing in conjunction with other plans)
  • Testing Procedures (Sampling versus 100% Testing)
  • Out-of-Area Contractor procedures (Building & Construction Industry Trades)

Program Status Reports

The Trustees or designated collection committee should continually monitor the status of the audit program and periodically review its overall effectiveness. The auditor should be required to present a complete status report, including items listed below, on a periodic basis. It is highly recommended that the Trustees review the effectiveness of the program with the auditor on an annual basis.

  • Audits in progress
  • Audit issues requiring trustee direction
  • Completed audit results
  • Significant reporting issues
  • Employer audit appeals
  • Legal referrals to compel audit compliance
  • Employer audit selections (annual basis)
  • Delinquency policy review (annual basis)

Audit Support Data

The Plan administrator should provide the new auditor with a historical audit report to avoid any unintended duplication and should also provide the following types of participant and contribution data on an ongoing basis to streamline the audit process and facilitate accurate results.

  • Historical audit results (audit period and results)
  • Electronic account listing (employer name, account number, active/inactive date, contact information)
  • Participant Work History (participant information, posted monthly hours and/or contribution amount)
  • Cash Receipts Reports (receipts from employer remittance reports)
  • Individual collective bargaining agreements and participation agreements

Individual Audit Reports

The collection committee (or key players) should review an example audit report to ensure the auditor’s format complies with the collection policy and will be suitable for updating eligibility records and pursuing collections. We recommend the following considerations:

  • Report organization (a summary and detail report of discrepancies)
  • Disclosures (clear narrative explanations of discrepancy types, calculations and fees)
  • Personnel (Are appropriate personnel copied on the audit report?)

Dispute Resolution

The Plan must have a process in place to resolve complicated audit issues and employer disputes. These issues may be controversial and require additional information or research beyond the scope of the payroll audit.  The auditor may turn to the trustees or audit committee for guidance in the following situations:

  • Incomplete records
  • Ambiguous bargaining language (or reference to verbal agreements or past practice)
  • Employees potentially performing covered work, but not reported to the benefit Plan
  • Potential subcontracting violations
  • Employee classification issues

Transitioning payroll auditors is a process that requires effort from the entire collections team. However, focusing on the areas above will facilitate a smooth transition and promote the efficiency of the program. Failing to address these areas will result in delays that can negatively impact timely reporting and ultimately collections.  

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