What Triggers a DOL Audit?
Many factors can lead to your organization being selected by the DOL for a compliance audit. Reporting issues related to your local union’s annual LM report, such as failure to file, late filings and obvious discrepancies within the report, can be prominent factors. Election complaints and member complaints could also trigger a DOL audit.
Organizations can also be selected based on purely random factors. The size and location of the union can influence the DOL’s selection. In addition, the DOL could select the organization if it is going to have investigator personnel within the area.
What Can You Expect and What Can You Do?
If your organization is selected for an audit, you can expect to receive a call or letter from the DOL and a request to complete a financial questionnaire. (Click here for a list of records commonly requested prior to a DOL audit.) Once the DOL auditors are on-site, they will interview the management officials who are responsible for the activity or function they are auditing. The auditors will require access to selected records in order to complete their audit. After the audit is completed, an exit interview will be held between the auditors and union officials to go over the draft audit report and allow management to comment on any of the findings and recommendations before the report is finalized.1
So what should you do if your local union is selected for an audit? First, you should contact your attorney and CPA, as they may have records that will be needed for the audit. Also, when gathering the documents requested by the auditors, make sure to keep an inventory listing of all the items provided and have the auditors acknowledge the receipt of the documents.
Common Audit Findings
Each year, the DOL publishes the closing letters from the compliance audits it performed. The letters include the DOL’s findings, many of which stem from reporting deficiencies and inadequate recordkeeping.
Reporting deficiencies are the result of errors or omissions within the annual LM report or Form 990, which is reported to the Internal Revenue Service. Some common deficiencies are failure to provide adequate disclosures and answers to the questions in the forms, as well as failure to file the amended constitution/bylaws with the reports. If the organization makes changes to the governing documents, the changes are required to be attached to the annual LM report and Form 990.
The most common deficiencies identified during DOL audits involve inadequate recordkeeping: failure to maintain original documentation, inadequate tracking of property and dispositions of property (e.g., logo items) and missing documentation for reimbursed expenses to officers and employees.
How to Minimize the Headaches
In order to survive a DOL audit with minimal or, ideally, no findings, your organization needs to have strong internal controls. An organization that has and follows policies and procedures will most likely have a better internal control environment than those organizations that do not have these documents. (Click here for a checklist of policies that labor organizations should have in place.)
Another key consideration for your organization is the role of each employee. An organization with proper segregation of duties tends to have a stronger overall internal control environment. Certain job functions are not compatible with others. For example, the person who receives cash should not be the person who reconciles the bank accounts. There should be more than one set of eyes on each transaction.
Going through a DOL audit does not have to be a scary endeavor. Implementing strong internal controls throughout the organization can greatly improve the chances your organization has at receiving a clean audit report.
To request a collection of sample accounting policies and procedures, contact Lindquist LLP’s Marketing Manager, Stephanie Kretschmer, at (925) 277-9100 or email@example.com.
James “Nick” Browning, CPA, is a manager in Lindquist LLP's Portland office. He has six years of experience with audit, accounting and tax services, including three years of specialized experience with audits of not-for-profit organizations and their related employee benefit funds. He is a member of the American Institute of Certified Public Accountants and the International Foundation of Employee Benefit Plans. Contact him with questions at (503) 219-3726 or firstname.lastname@example.org.
1 http://www.oig.dol.gov/auditprocess.htm#THE AUDIT REPORT)