Do you as an employer live in fear of the dreaded agency audit? If so, there are ways to alleviate your anxiety, according to employment benefits attorneys Timothy Verrall and Catherine Reese at the Ogletree Deakins 2019 Employee Benefits and Executive Compensation Symposium. Their presentation was geared toward IRS and DOL audits of employee benefit plans, but their tips could have broader applications to other agency audits.
Although Reese and Verrall stressed that there is no way to guarantee a painless audit, they did provide insights that could help an employer navigate one. Here are five ways employers can prepare for agency audits:
- Identify Key Questions
Verrall and Reese outlined three key questions to consider when you first get wind of an audit:
- Who is asking?
- How are they asking?
- What are they asking for?
Employers often find out about an audit when they receive a letter from the agency. This letter usually provides answers to the above questions and can help start the planning process.
Reese and Verrall noted that one key question might not have a straightforward answer: Why are you being audited? They caution employers to be prepared for the possibility that they may never find out exactly why they were selected for an audit.
However, the presenters urged that if you pay close attention to what the agency is saying and asking, you may get a good idea of what triggered the audit. And even if the answer you come up with to the “why” question is speculative, it can still be useful when preparing to respond to an audit.
- Gear Up for the Audit
Once an audit is in motion, it’s time to begin initial preparation steps. According to Reese and Verrall, if an employer prepares well for an audit, unwanted surprises can often be eliminated.
It’s important to review the information you received from the agency. For example, look at the letter or other materials sent from the agency and read it carefully. Make sure you know what the timeframe for the audit is and prepare for it accordingly.
Additionally, the speakers stressed that an employer should:
- Always be polite in all interactions with the agency;
- Bring in appropriate help, such as lawyers and other advisors;
- Clarify any requests, timing issues, etc. that may be unclear; and
- Confirm the availability of relevant personnel and records.
- Do Your Homework
Once you have completed initial prep work, it’s time to dig in and start preparing and organizing your responses to the audit, according to Verrall and Reese. They noted that it’s helpful to keep in mind that your auditor will most likely have a checklist, and you want to do everything you can to help them complete it. The easier you make it on an auditor to get through that checklist, the smoother the audit will go.
Next, think about how to frame your response to the auditor. Make sure your prep work is organized and complete. It’s best to try to anticipate any issues that may arise during an audit, and have a plan to correct any problems you discover.
An auditor will ask you to produce certain documents, and it’s important to provide them in the requested format(s). If you are not sure what the auditor is looking for, Verrall and Reese said don’t be afraid to ask for clarification. Also, find out if the auditor wants the requested documents before the audit or during it.
Don’t forget that you may have to get some documents from third parties (e.g., third-party administrators). If this is the case, make sure you give them enough time to get these documents to you before it’s too late.
- Prepare for Audit Day
Verrall and Reese stressed that organization is crucial in prepping for the day the auditor actually comes to your workplace. More specifically, it’s important to plan:
- Where to put the auditor;
- Who will talk to them; and
- How you will respond to any requests the auditor may have.
The speakers noted that you will want to prepare anyone who will be interviewed by the auditor, and they suggested considering having someone like an HR director present for all the interviews.
- Don’t Forget the Aftermath
When the auditor has left the building, don’t forget that the audit process isn’t completely over. You still have to deal with the aftermath. Reese and Verrall suggest “reading tea leaves” by sitting down with everyone who dealt with the auditor and trying to see the big picture.
They also suggested it’s a good idea to:
- Make a punch list after the debrief;
- Expect targeted follow-up questions and document requests;
- Remember that follow-up interview(s) can happen; and
- Realize that the process will take some time.
Finally, Reese and Verrall provided the following key takeaways for dealing with an agency audit:
- Know the agency you are dealing with and your own organization;
- Cultivate credibility and competence;
- Anticipate problems and address them;
- Prepare yourself; and
- Consider what you’ve learned.
How does your organization prepare for potential agency audits? Let us know by leaving a comment below.