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Friday, 28 January 2011 11:02 |
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Written by Phil Vivirito
Bond Beebe
P: 301.272.6090 E:
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I recently provided expert witness testimony for a multi-employer benefit fund. It was a non-jury trial in Federal Court. I was admitted as an expert in payroll auditing.
In this case the employer , who was the defendant, was taking the position that the payroll audit completed by the funds’ accountant is an agreed upon procedures report and as such failed to meet the requirements set forth by the AICPA as an agreed upon procedures report. The employer’s attorney produced an expert witness in accounting to explain to the court all about an agreed upon procedures report. Their witness talked about the PCB checklist for agreed upon procedures, AT210 , and attestations. I was brought in to explain what a payroll audit is and to identify this audit as a payroll audit.
It seems that this issue about what this particular audit is arose because the accountant’s letter to the Funds stated "we have applied certain agreed upon procedures." The employer’s attorney used this statement as a basis that this payroll audit report is an agreed upon procedures report which failed to meet the standards of an agreed upon procedures report. Their expert witness went into detail how what they considered an agreed upon procedures report was done incorrectly. As he spoke it became clear to me he was stating that the agreed upon procedures were between the employer and the auditor. At one point their expert witness was talking about making assumptions. In this audit, like many payroll audits, the auditor had to make some assumptions. For some individuals the auditor had wage information, but not hours - he had a flat dollar amount per day. The employer could not produce hours so the auditor assumed that the flat dollar amount constituted an eight hour day. Their expert stated that if you don’t have evidence you can’t do the engagement, so the auditor would need to withdraw. At this point the judge interrupted and said ‘so if the employer simply withholds all documents that means that there can’t be any attestations whatsoever.’ The witness said that the fund and auditor can come up with their own report but it’s not an agreed upon procedures report. The judge then answered back, a little irritated ‘so the employer has it solely within its discretion to completely frustrate the terms of the agreements’ The witness continued to answer questions about the audit. He stated that one could not read the report and determine how the auditor came up with the findings. Without the documentation to back up the findings no one could understand the report.
When it was my turn to take the stand I gave the definition of a payroll audit. I explained how a payroll audit is conducted, what records are used, and that making an assumption is common. When presented with the payroll audit report in this case I testified that it looks like a standard payroll audit report. At one point I was asked how the employer would be able to read the audit report. I explained that the hours on the report were omitted hours. When I was asked how the employer would check those hours, I said by referring to his own payroll records. I did get pulled into the agreed upon procedures terminology fight. I explained that it’s not written anywhere that a payroll audit is an agreed upon procedures report. A payroll audit stands alone as its own type of report. I also explained that saying agreed upon procedures were used usually refers to procedures agreed to by the fund’s trustees and the auditor in the engagement letter between the two establishing the fund’s payroll audit program. It’s not between the employer and the auditor. Then the defendant’s attorney practically shouted at me: "Don’t you know half the trustees are employers so the agreement is between the employer and the auditor?" Then I explained that an employer trustee has to completely separate himself as an employer when performing duties as a fund trustee.
There has yet to be a ruling by the judge. When he rules I will share it in another blog. |
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Monday, 10 January 2011 12:36 |
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Written by Andrew Staab
Rosene, Haugrud & Staab, Chartered
P: 651.227.6621 E:
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In many collections lawsuits, the level of peculiarity in delinquent employers’ defenses and counterclaims is relative to the severity of the delinquent employers’ breaches of the Collective Bargaining Agreement and ERISA. Moore v. R.T.L. Construction, Inc., 2010 WL 2521733 (D.Minn. 2010) confirms this notion with oddball defenses and counterclaims. Before going into Moore, I want to illustrate the distinction between a defense and a counterclaim. A defense is “I’m innocent” or “I didn’t do it!” A counterclaim is “I’m innocent, and you owe me” or “I didn’t do it, and while we’re at it, you did something to me that justifies an award of money from you to me.”
In Moore, the Funds’ payroll auditor’s initial findings showed that the employer refused to give up all the payroll records, that the employer kept a separate set of payroll records, and that the employer had struck a deal with its employees to under-report their work hours. If Taft-Hartley collections violations were criminal in nature, then this employer is heading to the electric chair. But they are not, and the Funds sued to compel a more comprehensive audit. The employer counterclaimed (not just defended against) the Funds’ claims by asserting that it had actually overpaid by using the wrong wage rates and demanded reimbursement of the “excess” payments. Additionally, the employer asserted that its payments to the Funds actually “over-funded” the plans, and the employer asserts a constructive trust on the “over-funded” amounts. Finally, the employer claimed the Funds’ trustees breached their fiduciary duties by not reimbursing the alleged overpayments. Fortunately, U.S. District Judge Donovan W. Frank dismissed the delinquent employer’s counterclaims and allowed the Funds to complete their audit. |
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Monday, 15 November 2010 07:58 |
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Written By Kurt Needles
Needles & Associates
P: 303.430.4225 E:
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1) The Internet as an Auditing Tool
In performing an audit by mail, the employer in question provided all the records required except a roster that classified everyone on the payroll. All but a handful of the employees were reported to the two trades for which we were performing the audit. Repeated queries to the employer went unanswered and I was at a loss as to how to proceed.
Trying to find possible leads to these questions, I searched the company on the Internet and located their Web site. To my delight, on their site was a company directory listing names, titles and contact numbers. I was then able to determine by the titles that the individuals in question were not performing covered employment, but instead were in management positions.
2) Forcing an Employer Reaction When the Answers Don’t Come Voluntarily
In another case, I performed an audit by mail but was only given the payroll for employees who were reported to the several trades I was auditing. I requested the complete payroll but the company kept stalling, and it became obvious that they were never going to provide me with the complete payroll. I did, however, have the unemployment reports.
To proceed with my plan, I made a list of all the questionable people I had and requested that the Fund office check to see if any of them had a history of being reported. The Fund office reported back to me that almost all of the employees in question had histories with other employers at some point in time. I then divided the gross wages on the unemployment reports by scale to get hours on a quarterly basis. I sent my “estimates” to the employer for review, and THAT got a response!
One of the lessons in these examples is that just because a payroll audit is performed primarily by mail, employers are not exempt from answering truthfully or completely, and trained auditors do have tools and techniques from experience to ensure those answers are delivered. |
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Wednesday, 10 November 2010 17:21 |
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Written By Larry Beebe
Bond Beebe
P: 301.272.6025 E:
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A Court ruled that a formula approach could be used to calculate an employer’s liability for employer contributions when the employer refused to allow a payroll audit.
The employer signed a Collective Bargaining Agreement (CBA) which incorporated a trust agreement. The trust agreement provided the plan with the authority to conduct a payroll audit. The employer stopped making contributions and the plan sought a payroll audit which the employer refused to allow. The plan’s auditor calculated a deficiency based on a formula approach. This formula approach was specified in the trust agreement when an employer refused to allow an audit. The Court found that the plan’s actions were justified by the trust agreement and upheld the employer’s liability for unpaid contributions as assessed (LaBarbara et al v. Ovan Construction, No. 06-CV-2867 E.D.N.Y. March 31, 2010). |
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Page 7 of 11 |
Payroll Auditing: A Guide for Multi-Employer Plans