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

Written by Andrew Staab
Rosene, Haugrud & Staab, Chartered
P: 651.227.6621 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

As Fund Counsel, I am often asked “How many cases do you win at trial?”  I say without committing to a number or won-loss ratio, “A few.”  I must admit that going to trial is not something I particularly savor, because Taft-Hartley collections law is slanted so strongly in favor of the Fund that cases should never go to trial.  I have preached that if a Fund’s delinquency case goes to trial, there might be something wrong with the Fund’s case.  That “preaching” does not take alter egos, successor liability and piercing the corporate veil cases into account, because those cases are predominantly fact-driven.  My preached message is that fact issues usually revolve around either Collective Bargaining Agreement formation or audit disputes.  This blog entry takes a closer look at handling some parts of an “audit dispute” trial.

1) The Role of Payroll Auditor as Expert Witness

At the 2010 Collection Procedures Institute of the International Foundation of Employee Benefit Plans, a prominent litigator suggested that Fund Counsel should seriously consider qualifying the Fund’s payroll auditor as an “expert” witness.  The Federal Rules of Evidence come into play because an expert witness is expected to give an opinion about an aspect of the case.  As an expert witness, the payroll auditor would be permitted to give an “expert” opinion about various aspects of the audit (e.g., the amount of a delinquent employer’s liability, etc.).              There are no hard-set requirements for who can be an expert witness and I guess we can all be experts at something.  The attorney proposing the idea of making the payroll auditor an expert stated this is also a tactical maneuver, because it forces the delinquent employer to consider getting its own expert witness to rebut the testimony of the Fund’s expert, the payroll auditor.  It is hopeful the delinquent employer will see that the additional expense and effort of finding its expert might be too much.

When I heard the suggestion to make a payroll auditor an expert, I had a sudden chill run down my spine.  What happens if my auditor doesn’t live up to the expectation of an “expert?”  There is no real minimum education requirement for a payroll auditor, and many of my Funds use payroll auditors who do not have a college degree.  Can they still be experts?  Sure.  But if the hope is to also force the delinquent employer to hire an expert, then there is a risk that the delinquent employer will find a heavy hitter CPA from one of the Big 4 firms.  If a court is weighing expert witness testimonies and the Fund’s payroll auditor has a 2-year associate’s degree, it does not look very good when the delinquent employer’s expert is a CPA and a published author. The tactical ploy of qualifying the Fund’s payroll auditor as an expert witness could actually backfire.

For me, the question is whether I want the payroll auditor to provide an opinion.  I usually do not be seek an opinion from the auditor, but rather a factual recitation of what was reviewed, what was determined to be the delinquency, and is the payroll audit summary an accurate reflection of the payroll audit.  Even in that short scope, there is a risk that opinion testimony might be heard, but I have not yet had opposing counsel object. It is not so much the verbal testimony, but rather the written exhibit(s), from which the payroll auditor is testifying.

Written By Phil Vivirito
Bond Beebe
P: 301.272.6090 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

We audited a particular employer for the period of 2007-2008. We had a good size finding to which the employer agreed.  However, the employer also made some clerical errors which resulted in an overpayment.  Since this Plan’s overpayment policy requires the employer to detail the overpayments and submit a request to the Plan, our job was complete.  The employer did so and even went beyond the audit period into 2009 and the first six months of 2010.  Their overpayment request was almost twice the size of the audit finding, and the Plan sent a copy of it for me to review.

This particular Plan only requires contributions for 40 hours per week, or 2080 hours for the year.  The overpayment report from the employer showed employees with 2600 to 3000 hours reported for a year!  On a common sense basis I could not comprehend a mistake of this magnitude, and without payroll records I could not verify it.  My recommendation to the Plan was to conduct a site visit for a payroll audit for 2009-2010, and based on the results from that audit would be the possibility of auditing this employer every year.

Written By Phil Vivirito
Bond Beebe
P: 301.272.6090 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Many times our audit findings reveal employees working in a covered class who are not being reported by the employer.  I was recently involved in a dispute with an employer regarding this issue.  In this particular audit, the Plan’s attorney was also involved.  The employer disputed the validity of the employees on our audit report; their position was that these employees were never assigned a covered job class code.  This is an extremely large employer with over 50 different job class listings.

During the course of the audit, the auditor called and informed me of this issue.  I instructed her to obtain a complete job class list and record each person’s job class.  Now we had an audit report that documented each employee’s job class.  We used the exact coding from the employer’s records so there is no confusion with wording.  As a matter of course, I always instruct our payroll auditors to use the exact coding or identification from the employer’s records.  This step strengthens our audit and makes it difficult for an employer to dispute job classes.