Preparing the Production an Auditor Expects

An auditor reviewing an inspection production is performing a reconciliation. Names from payroll are matched to forms, dates on forms are compared with dates of hire, and entries are checked against what the form requires. Everything about how the material is assembled either helps that reconciliation or obstructs it, and an obstructed reconciliation takes longer and produces more questions.

What is produced, and in what medium

The core of the production is the retained forms for the population the retention rules cover: current employees hired since the statute took effect, and former employees still inside the measure. The regulation permits production in the original paper form, in electronic form, as a paper copy of the electronic form, or on microfilm or microfiche. Only the pages on which the employer and the employee wrote are retained; the instructions and the blank supplement pages are not part of the record.

An employer that stores electronically carries two extra obligations at production. It must be able to retrieve and reproduce the specific forms and supporting documents requested, together with their associated audit trails. And it must supply the requesting agency with the hardware, software, personnel and documentation needed to locate, read and reproduce them. A system that cannot export a readable file and its trail is a compliance problem that only becomes visible at this moment.

Producing the wrong population is a recurring error in both directions. Forms for people whose retention period has expired add volume and can add findings, because a defect on a form the employer was entitled to destroy is still a defect on a form that has been produced. Forms omitted for people who are still inside the measure read as missing records. Working out the population from payroll before opening any file resolves both problems at once.

The order that makes a production legible

The sequence that works is population first, forms second, exceptions third. The payroll and roster schedules establish who was employed and when. The forms are then presented in the same order as the roster, so that each name can be matched without searching. The exceptions, meaning names on the roster with no form and forms with no matching name, are listed separately with an explanation for each.

An index is what holds this together. It need not be elaborate: a table listing each name, the location where the form was held, whether a form was produced, and any note. Producing an index costs a few hours and materially shortens the review, because it answers in advance the questions an auditor would otherwise raise one at a time.

What must not happen during assembly

Assembly is not a correction exercise. The temptation to complete a blank field or add a missing signature while the file is open is strong and should be resisted absolutely. Corrections are dated, and a correction dated after service of the notice tells the auditor precisely when it was made. The guidance is explicit that changes must not be concealed by erasure or correction fluid, and that concealment increases liability.

Backdating is worse still. A form bearing a date earlier than the day it was completed is evidence of fraud in the completion of the form, and the enforcement guidance treats evidence of backdating as a circumstance in which a warning notice should not be issued at all. An employer that would otherwise have received a warning can convert its own position into a penalty case during the week it spends preparing.

The same discipline applies to the supporting schedules. A payroll extract prepared for the production should be reproducible from the underlying system, and the person who prepared it should be identifiable. Where an auditor questions a figure, an employer that can regenerate the extract answers in an hour. An employer that cannot has to explain a number nobody can now account for, which is a poor position on a point that was never in dispute.

Records held elsewhere, and multi-site employers

Forms are produced at the location where the request was made if they are kept there. Where they are held elsewhere, the employer must inform the agency of the location and make arrangements for inspection, and inspection may take place at an agency office. Multi-site employers frequently discover at this point that site managers have kept local files nobody at the center knew about, and that some of those files contain the only copy.

The remedy is an inventory maintained before any notice arrives, showing where forms for each location and each period are held and in what medium. An employer that runs the internal review described in running an internal audit before the government does will already have that inventory, which is a large part of why the internal exercise repays itself.

After the production leaves

Once the material is delivered, the employer's control over the sequence ends and the agency's review begins. What the employer was asked for in the first place, and the instrument each item arrived under, is examined in what arrives with an inspection notice. The findings are communicated through a defined set of notices, and the shape of the matter is set by which of them arrives. Employers that expect a fine often receive a correction opportunity instead, and employers that expect nothing sometimes receive an assertion about particular workers' documents.

Because the production frames everything that follows, it is the point at which representation makes the most difference for the least cost. An audit production counsel can review the index and the exceptions before delivery, when a problem is still a decision rather than a finding. The subsequent penalty calculation, which draws directly on the error rate visible in the production, is set out in how a paperwork penalty is calculated, and the defense available for good faith errors is discussed in the good faith defense and how far it reaches.