Payroll Audits
Overview
Receiving notice of an audit doesn’t necessarily mean an employer is being accused of wrongdoing. Payroll audits are performed by Northwest Carpenters Trusts to comply with mandatory testing requirements for employee benefit plans. These requirements are set by the Federal Government and are enforced by the Department of Labor. Employers are required to cooperate. Read on to learn more about the audit process and what an employer can do to make it go swiftly and smoothly.
Mandatory Cooperation
A signatory employer is bound to comply with the terms of the Trust Agreement. Failure to comply is a breach of contract that can be remedied by a court order requiring compliance.
"The Board may require the Employers . . . [or] any Individual Employer . . . to promptly furnish to the Trustees, on demand, any payroll records, information, data, reports or documents reasonably required for the purposes of administration of the Fund. . . . The Trustees, or their authorized representatives may examine the pertinent financial records of each Individual Employer with respect to the individual Employees benefiting from this Agreement whenever such examination is deemed necessary or advisable by the Trustees in connection with the proper administration of the Fund."
Types of Audits
- Random Audit: Northwest Carpenters Trusts audits every signatory employer every three years if administratively feasible, and at least once every five years.
- For-Cause Audit: In addition to random audits, employers may be subject to special audits if there are facts or circumstances suggesting incorrect reporting, delinquent contributions, or complaints by employees or former employees.
- Opening Audit: All new employers are examined immediately following the first full quarter of reporting after they commence participation. The goal is to identify and address possible misunderstandings related to the reporting of contributions.
- Closing Audit: Employers that permanently cease participation in a trust or request to be placed on the inactive list because they are not currently employing carpenters are usually audited within 12 months after giving notice. Employers that permanently cease participation in a trust may be examined as part of this program and shall be conducted within twelve months of the employer's notification of its termination of participation. Auditing an exiting employer is when Northwest Carpenters Trusts commonly finds evidence of incorrect reporting.
Notification
The employer will receive a letter of notification from the salaried administrator of Northwest Carpenters Trusts or the accounting firm selected to perform the audit. A letter of notification:
- Informs the employer that they have been selected
- Introduces the accounting firm/payroll auditors who will be conducting the review
- Identifies forms/documents that could be requested during the review
- Provides contact information for someone who can answer your questions
Following receipt of a letter of notification, the employer will be contacted by the accounting firm to make arrangements for the review.
Documentation
Any or all of the following documents may be requested by the examiner. If the examiner is unable to obtain cooperation from the employer to schedule the appointment or the employer refuses to provide any records required to complete the examination, then the employer will be referred to our legal counsel for access assistance.
- Quarterly withholding reports, Form 941
- Quarterly State Unemployment reports
- Quarterly Industrial Insurance reports
- W-2 Forms
- Individual earnings/payroll reports
- Time cards or other records of hours worked
- Certified payroll records
- Employer contribution reports
- Job costing reports
- Cash disbursements journal
Location of Audit
Audits can and do take place in an employer’s place of business. However, the most cost-effective and convenient method is sending the required information to the accounting firm. Providing information via email, fax or mail reduces audit costs that potentially could be passed down to the individual employer. Accounting firms have strict confidentiality requirements and record-storage practices to safeguard the integrity of the information.
Audit Report
Problems discovered during the review will be identified in a discrepancy report prepared by the payroll auditor and presented to the employer and Northwest Carpenters Trusts. The employer will be asked to examine the report and let the accounting firm know whether there is disagreement with any of the findings. If there is a disagreement, the employer must furnish documentation to support his or her position.
Commonly Identified Problems:
- Incorrect calculation of hours and/or rates
- Incorrect member status
- Incorrect reporting of vacations and holidays, sick pay and bonuses
- Failure to include "non-union" employees on covered work
- Incorrect reporting of Associate hours
Penalties
Clerical errors and contract violations by employers are subject to penalties in the form of liquidated damages and interest on unpaid contributions. Accounting/audit fees also may be assessed to the employer if contributions owed are equal to or greater than 5% of the total contributions for the period reviewed. If the review period is expanded due to discrepancies found, the employer will be assessed those additional expenses.
Tips for a Quick and Painless Audit
The accounting firm will do everything possible to make the payroll audit process quick and painless. Here’s what employers can do to expedite the process.
- Keep adequate and necessary records.
- Use consistent reporting methods and documents (e.g., 941, SUTA, L&I, etc.).
- Pull requested reports in a consistent manner. If the request is for payroll by month, pull the payroll reports the same way (date) that they are pulled when the actual monthly reporting is done (e.g., 1st to last day of the month, or by actual payroll date). This reduces issues related to "timing" differences.
- Provide requested documentation as soon as possible.
- Deliver ALL requested documentation at the same time. A piecemeal approach, over an extended time period, will not save the employer time, and the auditor will not begin audit procedures until everything requested is received.
Related:
Payroll Audits FAQs
Employer Checklist
Do you understand our expectations for employers? The links on the left can direct you to the details, but our requirements boil down to 4 simple things:
1. Fill out the form.
2. Write the check.
3. Deposit funds by due date.
4. Keep good records.
We know it can be frustrating when you don’t have the right information. Be sure to contact us with your questions and suggestions.