Why Payroll Compliance Audits?

Trustees of employee benefit funds have a fiduciary responsibility to collect all contributions due to the fund. Trustees failing to carry out this fiduciary responsibility can be held personally liable under the Employee Retirement Income Security Act of 1974 (ERISA) and ordered to make good on all losses to a plan.

Payroll audits are essential tools for trustees of multiemployer plans, who must monitor contributions from numerous employers. A payroll audit, in simplest terms, is a review of applicable employer records to determine whether the employer is in compliance with the terms of the collective bargaining agreement and the trust agreement when making contributions to the particular fund.

A payroll audit program:

  • Enables the trustees to detect whether the fund is receiving the proper amount of employer contributions due.
  • Helps trustees determine whether the fund has accurate and complete participant records.
  • Serves notice to contributing employers, participants, and the Department of Labor that the fund trustees are monitoring contribution collections.

A program of annual payroll audits can provide the plan trustees with complete and timely information.  An annual payroll audit program is one in which all or a portion of the active contributing employers’ payroll/contribution records are audited each year.  In most cases, each participating employer is audited once every three years.

In addition, adhering to a schedule of regular, annual payroll audits can provide the following benefits:

  • The cost of payroll auditing each individual employer can be reduced.  After a payroll audit has been performed, an employer is usually better prepared for, and more receptive to, the scheduling of subsequent payroll audits.  There is generally less resistance to providing auditors with the necessary records, and the potentially significant additional expense of multiple phone calls and possible legal intervention is avoided.
  • Educating the employer about proper reporting and payment of contributions.  Often, employers are surprised to learn that they’ve been reporting contributions incorrectly.  Experienced payroll compliance auditors serve as educators to contributing employers and provide another method of communication between them and the fund office.
  • Timeliness in recognizing reporting errors.  If an employer is payroll audited on a continuous cycle, any errors found can be corrected before they snowball into a much greater problem.  Conversely, in the absence of regular payroll audits, contribution errors could remain undetected for ten or more years, resulting in significant problems for the employer as well as the fund.

A program of regular, annual payroll audits is an essential element in ensuring the accuracy of fund records, assuring participants and their families that benefit levels are accurate and up to date, and keeping employers educated regarding changes. The benefits clearly apply to all parties involved.

By Jim Kemperas, Principal, jkemperas@legacycpas.com

 

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