Finally, a “go-to” resource for Payroll Auditing.

Written by Ayisha Henderson
Bond Beebe
P: 301.262.6047 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Two commonly performed shortcuts employers apply to remittances are truncating hours or reporting contributions capped weekly using a Gregorian calendar – and they may have a material effect on contributions.  Materiality, however, often depends on the size of the bargaining unit.  Consider the following examples:

1. An employer who truncates hours for a bargaining unit of 10 employees would be less material to an auditor than a bargaining unit of 1,000 employees.
   
2. Similarly, if an agreement stipulates a weekly cap on contributions, and the employer reports weeks using a Gregorian calendar, the days that start and end each month that are not within full weeks will likely be capped using a daily calculation.  This can easily cause units to be underreported in each month.  Again, this difference may not be material, unless the bargaining unit is significant in size.

A thorough test sample of the audit population will usually indicate how often variances occur and whether or not it’s worth the time to pursue the findings.  However, I am often indecisive on what action should be taken in these cases, especially if it appears that the reporting shortcut is purposely applied by the employer to save on their contribution liability. My dilemma is whether or not the employer’s reporting error is worth the time it would take to pick it up on the audit report.  These types of errors are easy to spot, but extremely time-consuming to pick up.  Depending on the size of the bargaining unit, audit costs may be significantly increased.  Ultimately, I think it should be the Fund’s decision on how this issue should be handled.

As for me, if the employer has a small bargaining unit (less than 100 employees), I usually pick up any variances and advise the employer that they should change their reporting practice.  In the audit report, I note the employer’s erroneous reporting practice and the recommendation for change.

If the employer has a larger bargaining unit (more than 100 employees), I usually contact the Fund to find out if they want me to spend the time picking up the related findings.  The Fund can decide if they want me to spend the time to calculate the contribution variances, or if they want to pursue a different course of action.  Again, I would note the employer’s reporting practice in the audit report along with the recommendation for change.  I would also note the Fund’s response to the issue.

Written by Ron Chandler
Miller, Kaplan, Arase & Co., LLP
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Since the work slow down over the last few years in the construction industry,  the building trades crafts have tried various programs to keep their workers busy and maintain or improve market share.  One program, of which there are many different variations on a theme, is the “Market Recovery Program,” for which there are special agreements.

Recently we have found several of these Market Recovery Agreements.  These agreements usually have reduced contribution rates for different types of work in specific areas or special probationary periods for contributions.  These contracts can be vague and very confusing, which can make our work much more difficult.  Be aware that these agreements are frequently being used and don’t hesitate to contact the Local Union or in some cases the Trust Funds for the actual application of these agreements.

Scheduling a payroll audit is more than just setting the time, date, and place. This is an excellent opportunity for the auditor to learn something about the employer and gain an advantage before beginning the audit. In order for the scheduling process to work to the advantage of the auditor, the auditor should be well prepared before picking up the phone.

If the employer to be scheduled has been audited once before, the auditor must review the last audit. This last audit should have historical information about the employer, such as the findings, the cause of the findings, the type of payroll, and the procedures used by the auditor. With this information in hand the auditor can question the employer to determine if any changes were put in place since the last audit. The auditor can have a discussion with the employer and determine if any changes or lack of changes will affect the audit.

Another step the auditor must do before calling, regardless if the employer was ever audited, is review the collective bargaining agreement and remittance reports provided by the find for the audit. This will give the auditor information to use when questioning the employer. For example: by looking at the remittance reports, the auditor will know how many employees are being reported. The auditor should ask the employer how many employees are on the payroll. Depending on the answer (are the two amounts the same or very different?), the auditor can direct the questioning to determine if a potential problem has been discovered.

With this information the auditor can now ask the employer questions to help him or her be more efficient during fieldwork. It will also help the auditor plan how much time may be required for the fieldwork. Potental issues may also be raised that will help the auditor determine how to approach the audit. For example the well-prepared auditor will know the probation period before contributions are to begin. If the employer tells the auditor that they are waiting sixty days, the auditor already knows a problem exists and can plan accordingly. Also, if the auditor plans to send the employer a pre-audit questionnaire, he or she can now tailor it to try to obtain answers to the potential issues raised during the conversation with the employer.

The auditor should have any pertinent documents readily available and know how to answer questions from the employer. If the fund sends the employer an audit notification letter, the auditor should reference it when calling. If the employer states that they do not have this letter, the auditor should be able to email a copy immediately. The auditor should have a list of records required and be able to explain to the employer, if asked, why these records are required. The auditor should also be able to explain to the employer what happens if they refuse to schedule the audit or supply records.

Tips for Efficient Scheduling:

• If doing several audits in one geographical area, review all of them before calling any employers. This will help determine how much time will be required.
• Always ask the employer their work schedule then select an audit time based upon it. You do not want to tell the employer that you will arrive at 9 AM, when the employer starts her work day at 7 AM.
• Avoid letting the employer choose the time. Many times an employer with problems will choose a Friday afternoon.
• Be prepared to schedule in non-business hours. If the employer says "I can only do this on a Saturday or in the evening," surprise the employer and schedule it then.
• You can let the employer know that their audit is one of several audits. This tends to increase the level of cooperation.
• Email a confirmation letter to the employer right after scheduling the audit.
• Re-confirm with the employer a few days to a week prior to the audit via phone or email.
• Send a pre-audit questionnaire.
• Even though you have GPS and internet directions, ask the employer to assist you with directions.