Under-reported Contributions: Checking for an Outdated CBA

Posting by James Capers & Ron Chandler, CPA

Over our many years of conducting payroll audits, we have found that some discrepancies are the direct result of outdated collective bargaining agreements (CBAs). In these cases, employers are reporting contributions based on the language of a CBA from five, ten and sometimes fifteen to twenty years ago.

Payroll reporting discrepancies may have nothing to do with the frequency of contract negotiations, but rather the tenure of certain employees involved in the reporting process for the employers.

Case Study
We conducted a payroll audit of an employer with an employee who had been in the payroll department for over twenty years. The individual meticulously followed the instruction from his predecessor on how to report contributions to the Trusts. However, minor nuances and subtle changes made to the language of the CBA for reporting contributions went undetected. The Owner/President of the company failed to pass on the new information to the payroll person regarding the basis of reporting contributions.

The CBA previously required that contributions were made on straight–time hours compensated. The new CBA required contributions on all hours compensated. As a result, contributions were now required on overtime hours. This minor change in the language resulted in over $24,000 of under-reported contributions to the Trusts for a one year audit period.

Once the findings were presented to the Trustees, our office was instructed to expand our audit period to test an additional four years.

Ensuring Up-to-Date Payroll Reporting
In light of this discovery, our office has begun to ask employers the following questions during our initial field visit:

  1. How long has the person preparing the remittance reports been in his/her current position
  2. How often is your CBA negotiated?
  3. How does your office implement the changes in the CBA once contract negotiations are completed?

We could raise a variety of questions regarding the protocol of how changes in the CBA are handled, but these few questions allow the auditor to detect if any potential problem exists for this issue and structure the audit accordingly.

For your next payroll audit, ensure that the employer’s payroll department is aware of the most up-to-date contribution requirements of the CBA. As the case study above illustrates, discrepancies can lead to significant findings in your audit.

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