Department of Labor (DOL) audits are becoming increasingly common for U.S. businesses—and, with an increase in hiring of DOL auditors, it’s become increasingly likely that you could be faced with a government audit sooner rather than later.
In this article, we look at:
1. What is a DOL audit?
2. How have audits changed under the Affordable Care Act?
3. Who exactly is subject to these audits?
4. What is the DOL checking for?
5. How can you successfully pass an audit?
This article will give you a much better idea of how DOL audits can affect companies like yours—and how to be prepared.
What Is a DOL Audit?
According to the DOL, “All audits begin with objectives which determine the type of audit to be conducted and the audit standards to be followed.” These details should be provided to you when you’re notified that you are to be audited.
DOL auditors are responsible for making sure that your company is meeting all of its legal requirements in relation to its duty of care to your workforce. This includes ensuring compliance with legal requirements such as the Employment Retirement Income Security Act (ERISA) and ensuring that you have communicated all the necessary notifications to your employees.
In their own documentation, the DOL describes their audit as covering three main areas:
1. Review compliance with applicable laws and regulations
2. Evaluate economy and efficiency of operations
3. Evaluate effectiveness in achieving program results
They are checking that you have ensured that all your employees receive documentation about their rights and benefits—and that they understand what this information means for them.
As part of their process, the DOL auditors will require documentation to prove you have done exactly what you claim to have done in these areas. And they will want to be assured that you (and your employees) are in possession of the most recent set of information or guidelines.
How Have Audits Changed Under the Affordable Care Act?
Healthcare reform that is now in place as a result of the Affordable Care Act (ACA) has added to the workload of HR and is integral to audits carried out by the DOL.
DOL auditors will check that all additional notices that employees should receive have been sent—including updates based on changes in the law. It’s not sufficient to show that you have implemented HR processes to deal with these new health coverage issues; you must also demonstrate that you have included this information in the appropriate open enrollment notices for employees.
Who Exactly Is Subject to These Audits?
Despite what many business owners believe, all companies are at risk for an audit. Even if you are fully compliant with every applicable law and regulation, you need to be ready to prove it to the DOL.
You might think that it would be just businesses with more than 100 employees, or those who have to complete Form 5500s (and, yes, if you don’t complete the form or you submit them late, it is a red flag). But you can be a group with fewer than 100 employees, technically a small group, and you can just as easily be selected for an audit.
According to the Society for Human Resource Management the most common reason for a DOL audit is a complaint from an employee” —so ensuring that all employees are onboard and well-informed can help you avoid an audit or resolve one successfully.
What Is the DOL Checking For?
When the DOL carries out an audit, they are looking for two things:
1. That employers are following the rules and regulations for how they deal with their workforce, and
2. That they have documentary evidence of compliance at every step of your processes.
So, for a company being audited, they have to demonstrate knowledge of the various acts and legal requirements they have to meet in relation to HR and employee benefits—and then they have to be able to provide proof that they are meeting these requirements. The DOL will provide extensive checklists that a company can use to prove they are compliant with relevant laws and requirements.
How Can You Successfully Pass an Audit?
Typically a company will receive a letter notifying them that they have been chosen for an audit—”however, there are circumstances where no advance notification will be provided.” If you receive a written notification, then it’s important that you acknowledge the notice as soon as possible. The next step is to start gathering all your information.
The DOL’s checklists may seem overwhelming at first, but this is why it is essential to ensure you have all your documentation up-to-date and well-ordered as a matter of course. If you are already organized, putting everything in order for the auditor will be far less stressful.
The Society for Human Resource Management recommends that, “To be proactive, employers should consider a self-audit” —that is, complete a dry run of the auditing process and ensure, if the real thing ever happens, that you have the paperwork and organization to pass with flying colors.
Staying Ahead of the Competition
Many organizations feel they don’t have enough time to fully absorb all the information to provide fully compliant HR. As healthcare laws adapt and change, the regulations get progressively more complicated. This makes it hard to predict how these changes will affect specific industries or companies. And when an organization goes looking for answers, they may not have the time or resources to thoroughly work through all the implications.
When preparing for an audit, or if you want to improve your HR organization and compliance processes, it is beneficial to find an experienced partner to support you. By identifying an organization with significant expertise in HR and benefits administration, you will stand a better chance of ensuring not only compliance with current requirements and regulations, but also that you will be ahead of your competition in terms of staying updated on future changes in requirements and legislation.