Performing Payroll Audits for Multiple Funds: How to Share Audit CostsBondBeebe
Posting by Phil Vivirito
Occasionally, an employer needs to be audited by two funds. This most commonly occurs when an employer makes contributions to both a national fund and a local fund. Let’s assume the same firm is for the auditor for both funds; how should the audit costs be applied? The approach will differ depending on the contribution parameters.
Same Employees, Same Contribution Parameters
If both the national and local funds cover the same employees with the same contribution parameters, audit costs can be applied using the following steps:
- The costs to each fund should be based on each fund’s contributions amount;
- The contributions made to each fund for the audit period are added together, then;
- The percentage made by each fund is calculated. The audit costs would be based on that percentage.
For example, if the national fund contributions represent 70% of the total contributions, then the national fund would be charged 70% of the total audit cost and the local fund would be charged 30% of the total audit cost. This ensures fairness to the funds, especially when there are no audit findings. The auditing firm should issue a separate report for each fund and the funds should be aware of this plan in advance.
Same Employees, Different Contribution Parameters
There may be instances in which both the national and local funds cover the same employees, but each fund has different contribution parameters. There could be different waiting periods for contributions to begin. Or, differing hours basis – one fund may have a basis of hours worked while the other fund may have a basis of hours paid. These variations will necessitate different testing for each fund and could also result in findings for one fund, but not the other. There are also cases in which the fund with the lower amount of contributions has a finding, while the fund with the higher amount of contributions does not have a finding.
These situations may result in a disparity between actual audit costs incurred and audit costs charged to the funds. So, how do you apply costs to each fund? With these types of scenarios, the auditor will need to discuss the disparities with both funds before coming up with a cost sharing plan.
Being proactive is the best approach when handling the payroll audits of multiple funds; having a plan in advance and informing the funds of potential cost-sharing will help ensure fairness and prevent misunderstandings.