Hiring a Payroll Audit Firm, Question 4: What is the Relationship Between Your Audit Findings and Your Audit Costs?

Posting by Larry Beebe, CPA

As part of this series, I am providing Plan Trustees with a list of questions they should ask when requesting proposals from payroll auditing firms.  Click here to view the full list of questions.

Question 4: What is the relationship between your audit findings and your audit costs?

One of the most important tasks annually performed by Plan Trustees with regards to the payroll audit program is to measure the amounts recovered as a result of the payroll audit program in relationship to the cost of the program.  Payroll audits should make money for your benefit plan.  If they are not increasing the assets of your Plan, then perhaps you are conducting too many payroll audits or they are inefficiently performed.

Bond Beebe has been performing payroll audits for one of our clients for over 50 years.  During that period, the amount realized by the client for its payroll audit program has remained relatively constant:  the plan has collected approximately $3.50 for every dollar spent on the payroll audit program.  This is just one example; there is no typical ratio of collections compared to audit costs for payroll audits.

Each year the trustees should compare audit findings to audit costs and use that as a basis for deciding how many payroll audits to perform in the following year.  When hiring a payroll audit firm, it is important to inquire of realization rates for the payroll audits the firm currently performs to help ensure that your plan’s payroll audit program will provide revenue for your benefit plan.

For more in this series, see:

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