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

bookPayroll Auditing: A Guide for Multi-Employer Plans
By Lawrence R. Beebe and Philip Vivirito

Payroll auditing guidance is lacking for professionals working with employee benefit plans who are responsible for and who perform payroll audits. Best practices in payroll auditing, procedures and methodologies of performing an audit have not been given enough focus. This book helps trustees fulfill their fiduciary duties by understanding payroll audits.

This book is published by the International Foundation of Employee Benefit Plans and is available at its [online bookstore].

The Benefits of Conducting a Payroll Audit On-Site
Wednesday, 24 August 2011 11:19
Written By Ira Mitzner
Dickstein Shapiro, LLP
P: 202.420.2234 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

There are many technical steps when conducting an effective payroll audit.  When you do have access to the company’s books and records, your presence in the company’s offices can open up opportunities to assist your client fund.  However, if you are denied access to those books and records, you must take firm and swift measures to convince the employer, through informal cajoling or by legal process, to comply with the employer’s obligation under ERISA.

It is always preferable to conduct the audit at the headquarters of the company.  Sometimes, in order to get on with the audit, it will be necessary to inspect the books and records somewhere else (often at opposing counsel’s offices).  Your presence at the company’s headquarters can lead to a wealth of useful information.

Let me give you an example.  An audit was conducted on an employer suspected of having an “alter ego” (a corporation, organization or other entity set up to provide a legal shield for the person actually controlling the operation).  When the phone rang in the front offices, the receptionist always answered, “Company A.”  However, during the course of the day, in the back room, the auditor heard the phone answered, “Company B.”  This information was very useful to counsel in proving that Companies A and B were alter egos.

By your physical presence at the company’s offices, you can serve as the eyes and ears of the fund.  Another approach is to become good friends with the company representative who is interfacing with you.  Ask questions, and through informal conversation you’ll be surprised what you can learn.

What can you do if the company refuses to let you have access to its books and records?  The usual scenario is that the employer makes dates for the audit and cancels them shortly before they are to occur.  This may happen several times.  First, a strongly worded letter should be sent by counsel, warning of the imposition of attorney’s fees under ERISA (the employer may be more impressed by a letter from counsel rather than the auditor).

It is critical that collection procedures contain language entitling the fund to impose attorney’s fees.  While ERISA has a mandatory attorney’s fee provision, there is a legal debate over whether those fees can be collected in the absence of a lawsuit.  If your collection procedures are clear, you have a potent weapon.  A specific date should be set in the letter as to when the auditor must be given access.

If the employer does not allow access, counsel should institute an action to compel the production of documents.  Rather than seeking an injunction (which may be time-consuming and expensive), counsel should merely demand the production of documents when discovery commences.  Often this process will lead to the capitulation of the employer.  If not, attorney’s fees should be sought in any lawsuit.

It may be that the employer will produce some documents, but not others.  This often happens in the case of the general ledger.  The auditor should take the position that the general ledger is necessary to detect alter ego companies.  This is also a convincing argument for the court.

If you have been given access to the company, use your eyes and ears.  If not, you can work to compell the production of documents.