The short answer is: these reports contain essential information about the employer tested along with summarized findings in a concise and actionable manner. They are the nuts and bolts of all effective payroll audit programs and provide the employer-level detail of fringe reporting compliance. Collectively, the payroll audit reports paint a picture for trustees as to the overall level of employer compliance for contributing employers. This information is critical for trustees in the decision-making process.
What is a Payroll Compliance Report?
There are two main report types, depending on whether the payroll audits are performed under Agreed-Upon Engagement Standards or under Consulting Standards. The agreed-upon procedures, or AUPs, have specific procedures that have been agreed to by the client that CPAs must follow, while consulting standards contain more general procedures that allow CPAs to modify as the situation dictates.
Whether the report is an AUP report or created under consulting standards, the overall formatting should be consistent from report to report. All reports should also contain some basic information regarding the payroll audit and the employer tested, such as:
- Cover letter for administrator and/or employer explaining procedures for dispute and report processing
- Employer name
- Testing period
- Administrative account numbers under audit
- Contact information
- Employer mailing address
- Audit location
- Size of employer (usually a range of employees reported to the trusts)
- Specific information requested by trustees (i.e. ownership, licensing, dates of most recent agreements, etc.)
- Informational disclosures for the trustees that explain:
- Any limitations in the testing
- Any adjustments to agreed-upon procedures
- Special situations needing trustee direction
- Special situations needing administrative action (missing agreements, incorrect socials and improperly allocated hours)
- Disclosures that explain systemic discrepancies
- Discrepancy legend of types of issues quantified (usually a numerical typology)
- Detailed exhibit with all individual discrepancies that ties back to the discrepancy legend
- Summary page (with liquidated damages, interest, and testing fees as per plan documents, if desired by the trustees)
Who Gets the Report?
The report typically should be sent to the employer first for a review period to iron out any disagreements. A 2-week employer review period is usually sufficient. This gives the employer an opportunity to review and respond to the report, while moving it along in a timely manner. This process also expedites efficient collection processes when the administrator receives a copy. After the review period, the report is then forwarded to the Trust Administration office for processing. However, some trusts prefer to review the draft report prior to sharing it with the employer. This depends largely on the desires and needs of the Fund. Other interested parties are often copied on the draft and final reports, which may include:
- Labor trustees
- Management trustees
- Trust collection counsel
- Any other plan professional as directed by the Board of Trustees
The goal of the payroll compliance report is to give the decision-makers of the Trust Fund (trustees, fund administrator and trust counsel) a better idea of how their employers are contributing to the Fund. The report will summarize the findings during the payroll audit, disclose any special situations that arose during the audit, and explain any systemic discrepancies found. The report should also provide detailed exhibits identifying all of the individual discrepancies. All this information helps the trustees and plan professionals better implement plan design and collections procedures to ensure their payroll compliance program is effective.