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Payroll Audits

Payroll audits are a function and service used by union funds to control and verify the submissions of union benefits from a contractor. Contractors providing union labor are signed to a Collective Bargaining Agreement that specifies the wage rates and related benefits such as health care, pension, annuity, disability, training, management fees etc. The funds require monthly submissions to the funds with the stated wages as well as the calculated benefits due these individual funds. Each of these funds are their own entities and are required by the Internal Revenue Service and Department of Labor to file annual tax returns to state this information. Internal Revenue and Department of Labor audits have found a material lack and weakness in the supporting documentation used by auditors in verifying that there was no “material” misstatement of facts when it came to the revenue reported. Union funds that fell into this area found that there Form 5500 tax return was then disallowed until a restatement of the supporting data was collected to verify the revenue figures. Since the Internal Revenue Service usually starts these audits twelve months post the year end the disallowance of their previously filed form 5500 created a $1,000 per day penalty. Based on this data Labor Unions started compliance audit system, usually three years, that would ensure compliance, minimize fraud and verify the revenue numbers that were reported.

Labor Union Audits

Welcome to the seedy world of labor union audits. Come in and have a look around. You’ll see some gangsters extorting businesses to your right. If you glance left, you’ll see fraud and embezzlement.

Okay, that’s pretty dramatic and over-the-top, right? It certainly is! Still, there’s a reason labor union payroll audits exist. Nine times out of ten, though, it’s because of a simple labor board complaint and nothing more.

Despite how the public likes to view unions, they’re rarely involved in anything nefarious. In fact, many union payroll audits are actually done internally and used as a preventative measure.

A full-fledged Department of Labor audit, however, isn’t unheard of. We’ll outline exactly what these procedures look like below. For now, let’s look at what exactly a union payroll audit is.

What are Union Payroll Audits?

An OLMS compliance audit (which is used interchangeably with labor union audit or union payroll audit) is a function and service used by unions to control and verify the submissions of union benefits from a contractor under a collective bargaining agreement.

What this means is that the IRS and Department of Labor will periodically audit unions to make sure the money being used for wages, healthcare, pensions, annuities, disabilities, training, management fees, etc. is being taxed correctly.

Historically speaking, Department of Labor audits have found a lot of inaccuracies between money coming in, money going out, and money being taxed. Because of the steep penalties this can entail – sometimes reaching up to $1,000 per employee, per day – unions set up their own OLMS compliance audits.

These internal union payroll audits are completed on a three-year cycle and ensure compliance, minimize fraud, and verify the revenue numbers that were reported. They’re often referred to as the Compliance Audit Program or CAP.

Most labor union audits, be they local or international, are conducted under this compliance audit program and performed by OLMS investigators.

Why Was My Union Chosen for an OLMS Compliance Audit?

If your union was chosen for an OLMS compliance audit, you’re probably wondering why. There are a few reasons most labor union audits occur.

Factors like failing to file necessary financial reports, failing to file these reports on a timely basis, inconsistencies in these reports, and labor board complaints are all possible reasons you’ve been selected.

A small number of unions are also selected at random each year for an OLMS compliance audit.

After being picked for an audit, your union will be contacted by an OLMS investigator. They’ll describe the extent of your audit and request specific financial records. They may also include official copies of a labor board complaint.

What Happens During Union Payroll Audits?

Following the initiation of an OLMS compliance audit, the real work begins. This is when an OLMS investigator actually visits your union and conducts a thorough financial audit.

During this time, the investigator will interview various officers, including the union president, primary financial officer, accountant(s), and anyone else whose primary responsibility it is to handle money for your union.

Also during union payroll audits, the investigator will examine various financial documents for the prior fiscal year. Although it’s generally only a year’s worth of material review, the scope of the audit can be expanded.

Common documents requested during union payroll audits include:

  • Union wide financial policy documents
  • Bank records, statements, deposit slips, debit and credit card statements, and bank reconciliations
  • Reimbursement and disbursement records, including payroll, expense receipts, and check stubs
  • Fixed asset inventory
  • Member ledger cards
  • Internal labor union audit reports
  • Minutes of meetings
  • Electronic versions of any of the above documents

Labor union audits are typically concluded within fifteen business days. This isn’t set in stone though. The larger the union, the longer the audit. The less organized the union, the longer the audit.

What Happens After an OLMS Compliance Audit?

After an OLMS compliance audit, everyone, including the auditor, breathes a sigh of relief. The process is almost over and all parties involved are happy that’s the case.

Following an audit, the OLMS investigator gives a final interview with union officials. During this interview, the investigator delivers their findings and recommendations. Also during this interview, the investigator will provide compliance guidance and assistance on how to fix any errors found.

Areas where OLMS assistance and guidance are commonly offered include bookkeeping, recordkeeping, bonding, insuring, and reporting.

Finally, something called a closing letter is provided at the end of labor union audits. This is a report on what was found during the audit, as well as the investigator’s official recommendations.

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