September 18, 2012
By Salvatore J. Armao, CPA/PFS, CFP, CFE, Managing Partner Armao, Costa & Ricciardi, CPAs, P.C.
A section of the Employee Retirement Income Security Act (ERISA), 1132(g)(2)(E), grants the right of Taft-Hartley Multi-employer Benefit Plans to conduct audits of contributing employers to ensure that the correct amount of fringe benefit contributions have been collected.
Trustees of ERISA benefit funds have a fiduciary responsibility to ensure that all employers who contribute to the funds in conjunction with a collective bargaining agreement pay the proper amount of contributions to the funds as prescribed by that agreement.
All ERISA benefit funds should establish a payroll audit policy as part of, or independent of, their collections policy.
The payroll audit policy should include provisions stating that the trustees have the right to audit an employer and the reasons for conducting payroll audits. The policy should also state the frequency of the audits and explain that the trustees have the right to conduct targeted audits performed on particular employers. Finally, it should explain the consequences of not cooperating with the auditor.
When employers contribute to multiple benefit funds, such as pension funds, health benefit funds and other welfare funds, the cost of the payroll audits should be allocated based on each funds’ contributions received.
ERISA benefit funds that do not conduct payroll audits of contributing employers have no way of knowing whether the funds are receiving the correct amount of contributions. This can be a serious issue in the event of an audit of the fund by the U.S. Department of Labor and could also result in a qualified opinion from the independent auditor on the funds’ audited financial statements which could result in a rejection of the fund’s 5500 filing.
If you are a trustee of a Taft-Hartley Multiemployer Benefit Fund you should be sure that there is a proper collection policy in place as well as a payroll audit policy. If you find that the fund on which you are a trustee and fiduciary does not have such policies in place, it is recommended that you speak to your fund’s counsel for guidance on creating your policies.
For over 25 years, Armao, Costa & Ricciardi, CPAs, P.C., has been committed to providing accounting, auditing, tax, financial and wealth management and advisory services to labor unions and employee benefit funds. Visit us at www.acrcpa.com. Mr. Armao can be reached at 516.256.3200 or sarmao@acrcpa.com.
