| Payroll Audits vs. 100% Assurance |
| Thursday, 19 March 2009 12:28 |
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Written By Kurt Needles Needles & Associates P: 303.430.4225 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it After teaching my session on payroll auditing at the IFEBP conference, I had the opportunity to continue my discussion with the staff of a mid-central administrative office. Not only did they disagree with some of my comments, they thought I was completely wrong. The issue boiled down to “what is the function of the audit”. Is it to give the plan reasonable assurance that the contributions are being remitted correctly, or is it to give them 100% assurance that everyone reported is 100% correct? They believe you audit 100% of all companies and copy 100% of the payroll. No sampling, no auditor judgment, just human copy machines. This issue has popped up again this week with one of our newer clients. They want to be sure that everyone is 100% correct. They want us to supply them with additional documentation that our reports are correct. They also want us to type out persons that were reported correctly, even though they are in the system correctly. All large entities, businesses and Benefit Plans must learn to live with some level of error. Perfection is a goal, but at what cost? The question is, do the internal controls work? What is the cost for 100% coverage, 100% of the time? Is it benefit worth the cost? After 30 years I am positive that all Plans are best served allowing experienced auditors do their job and live with the fact that some level of error will always exist.
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written by Katy Westenskow, May 19, 2009
As an auditor, you must look at payroll auditing thinking about what your objective is in the best cost efficient context. For us, if we can determine which employees should be covered as well as the hours associated with those covered workers are reported and eliminate the ones that shouldn't without testing 100%, we rely on those tests, document the work performed, and try to efficiently finalize payroll audits that won't give a hernia to the trust fund when they see the bill. Like Beebe has said, it is compliance auditing not financial auditing and there should be a different mindset with the two.
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written by Andrew, July 02, 2009
One strategy we've employed is an initial visit to the delinquent employer to test a relatively small sample and extrapolate the results over the population, then review the results with the trustees so they can decide the scope of the audit; occasionally it will result in auditing 100% of activity for a defined period of time; some trust documents put the burden of the cost of the audit on the delinquent employer thus alleviating the cost/benefit considerations when dealing with delinquent employers.
... written by Larry Beebe, July 02, 2009
Andrew's comment makes a great deal of sense particularly in those situations where the potential finding based on the preliminary finding can be very large. The trustees could be faced with a large audit fee and should make the decision to proceed based on the cost/benefit relationship in deciding whether to proceed. Often the plan's attorney can provide guidance in making this decision.
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