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Wednesday, 18 January 2012 15:14 |
Written by Phil Vivirito
Bond Beebe
P: 301.272.6090 E:
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In this series, I will explain several fundamental payroll auditing principles. This post discusses guidelines for for effective vacation testing, including preliminary questions, testing methods, and handling unique vacation contribution scenarios.
When performing payroll audits, employee vacations of course must be considered. When contributions are based on hours paid, or when the Collective Bargaining Agreement (CBA) states specifically that contributions are required for vacation, the payroll auditor must test vacations.
Prior to going out into the field and even prior to contacting the employer, the auditor can conduct a quick test on the contribution reports provided by the Fund for the audit. If the auditor notices a reduction in hours reported for employees in the summer months or months with major holidays, it should be a red flag. The auditor should also check the months prior and subsequent to these months to see if any had a spike in hours; the employer may be reporting vacation time prior to, or after, the time the employee took vacation.
The auditor should now ask the employer specific questions regarding vacation – either when he contacts the employer to schedule the audit or upon arrival at the audit. There are two questions the auditor must ask the employer; the answers to these questions will dictate the course of action for the auditor:
- When is vacation paid to employees? The employer may state that vacation is paid the pay period prior or after the employee’s vacation or it may be paid in the period the employee is on vacation. It may be paid on the employee’s anniversary date with the company, or on a date stated in the CBA.
- When is vacation being reported – when taken or when paid? The employer may answer that it is reported when taken, that it is reported when paid to the employee, or that it does not report vacation time.
Next, the auditor should make sure he knows the Fund’s rules regarding the reporting of vacation. Does the Fund require vacation to be reported when paid to an employee or used by the employee, or is the Fund ambivalent on how vacation is to be reported?
The combination of answers from the above questions will help the auditor determine potential problems with vacation contributions and what, if any, additional information will be required from the employer. For example, if the employer pays vacation to an employee on her anniversary date and the Fund requires vacation to be reported when taken by the employee, the auditor should ask the employer for a vacation schedule. If one is not available, then the auditor will have to look for time not worked for that employee. The auditor will have to assume that in a month in which the employee did not receive pay for a week that the employee was on vacation; if that week is not being reported then it would be a finding.
It is important for an auditor to be aware of how to handle the various situations that may arise with vacations. If there is a 40 hour per week cap and the employer pays the employee regular pay of 40 hours plus vacation pay of 40 hours in that week, the employer should be reporting 80 hours. The entire amount can be reported in that week, or the 40 regular hours may be reported for the work week and the 40 vacation hours may be reported in the week the vacation is used. The employer cannot just cap the entire amount at 40; in doing so the vacation hours would be omitted. The employer may issue vacation checks to employees based on a 40 hour week, but only show dollar amounts on payroll and not hours, and therefore not report the vacation. Vacation paid to an employee at termination should be reported. There may also be vacation paid to an employee who is on leave; that vacation should be reported.
The key in effectively testing vacations is knowledge of the Fund rules and good communication with the employer. With the key information in hand, the auditor should be specific and deliberate in testing a sample of employees.
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Tuesday, 20 December 2011 10:01 |
Written By Travis Ketterman
Whitfield McGann & Ketterman
P: 312.251.9700 E:
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In my previous post, I reviewed important aspects of a federal appellate court decision about the admissibility of an auditor’s report in a trial seeking multi-employer trust fund contributions. See Trustees of Chicago Plastering Institute Pension Fund v. Cork Plastering Co., 570 F.3d 890 (7th Cir. 2009). In a previous entry, Phil Vivirito, Bond Beebe’s Director of Payroll and Compliance Auditing, discussed his recent testimony at a similar federal ERISA trial. In keeping with that theme, this entry returns to the Cork Plastering case and discusses a federal appellate court’s review of a supervising auditor’s testimony at trial.
The appellate court noted that the supervising auditor testified at length about preparing the report, the agreed upon procedures used by the auditor, and the report’s conclusions as to contributions owed to the Trust Funds. While the auditor in the Cork Plastering case was not one of the field auditors, the federal district court (the trial court) accepted the auditor’s testimony because he (1) was sufficiently involved in the audit of the employer, (2) served as the auditing firm’s liaison to the Trust Funds, (3) spoke regularly with the field auditors and met with them to review their progress, and (4) signed the auditor’s report after reviewing the work papers.
The appellate court agreed with the trial court that the testimony of the auditor was proper. The appellate court further noted that the supervising auditor recalculated the total amount of contributions owed to the Trust Funds before his trial testimony. Moreover, the supervising auditor reviewed the overall report and confirmed that the report complied with the standards of the auditing firm and the American Institute of Certified Public Accountants.
In the end, because the supervising auditor had taken these steps, the auditor was qualified to lay the foundation for the entry of the audit report into evidence at trial and to discuss the findings at trial.
In my next blog entry, I will discuss the same appellate court’s review of the Trust Funds’ request for auditing fees from the employer. |
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Thursday, 15 December 2011 13:06 |
Written By Larry Beebe
Bond Beebe
P: 301.272.6025 E:
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As part of this series, we’re providing Plan trustees with a list questions they should ask when requesting proposals from payroll auditing firms. The first question explores the standard level of experience trustees should seek in a firm.
Question 1: How many years have you (the primary auditor who would be performing the audit) been doing payroll audits? How many years has your firm been doing payroll audits?
You want a person who has experience in doing payroll audits. Payroll auditing is a very specialized area and a person can be a good auditor in general without being a good payroll auditor. An experience payroll auditor knows how to get the job done without wasting time and money.
The firm’s experience in doing payroll audits is also important. A firm with little or no experience in payroll auditing may not give payroll auditing the time and attention it deserves. Experienced payroll audit firms dedicate the proper resources to the job. Look for a firm with a separate payroll auditing department within the firm and with people who spend most or all of their time doing payroll auditing.
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Tuesday, 15 November 2011 14:27 |
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Written By Larry Beebe
Bond Beebe
P: 301.272.6025 E:
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In an article entitled “Fiduciary Duties Created by Project Labor Agreements” in the International Foundation of Benefit Plans’ August 2011 Benefits Magazine, Paul Moorhead of Laquer, Urban, Clifford & Hodge, LLP provides useful guidance for Trustees whose participants work under a project labor agreement. On the specific nuances of payroll auditing issues involved when nonunion contractors are bound to a Collective Bargaining Agreement, Moorhead states:
The courts have held that trustees may rely on certified payroll records (CPRs) to determine the amount of fringe benefit contributions owed by a contractor. In Trs. Of the S. Cal. IBEW-NECA Pension Plan v. Tri Signal Integration, trustees audited three years’ worth of the contractors CPRs on construction projects covered by the Los Angeles United School District’s Protection Stabilization Agreement. The audit resulted in a claim for over $230,000 in unpaid contributions. The contractor disputed the audit by claiming that the CPRs inaccurately classified the work performed by the employees. The court rejected this claim, ruling that a contractor cannot escape the admissions made in contemporaneously prepared records by simply denying, after the fact, the accuracy of the CPRs.
To read the full article, click here. |
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Payroll Auditing: A Guide for Multi-Employer Plans