The Art of the Audit

Publication
Workplace Weekly
HR Compliance
Recordkeeping

The new year presents an optimal time to assess the current level of HR compliance by conducting an HR audit. Audits allow HR departments to assess the past year’s efforts to comply with laws that were passed, plan mitigation efforts to address any deficiencies, and prepare for the upcoming year’s legislative changes.

An audit can also aid in avoiding costly government fines and penalties associated with noncompliance. For example, the Department of Labor can look back two years when calculating unpaid overtime if it is determined that employees were improperly classified as exempt, or that an employer failed to pay overtime. Homeland Security increased the fines associated with I-9 noncompliance in October 2021 to account for inflation. The range of fines for paperwork violations is now between $237 and $2,360. Penalties for knowingly hiring, recruiting, or retaining unauthorized aliens also increased and apply retrospectively to November 2015.

In order to ensure compliance and avoid fines, HR professionals can conduct a topline HR audit of their organization by understanding the basic components.

Recruitment and selection practices and processes

  • Review job applications. State laws related to ban-the-box and prohibitions on salary inquiries vary. Modify your employment application form to assure that you comply with any changes to those laws.
  • Check to see that your job postings and job descriptions are EEO and ADA compliant. Is the appropriate EEO or affirmative action tagline used in your job postings? Do job descriptions accurately identify essential functions and physical and mental requirements?
  • Assess your preemployment testing processes and tools to be certain they meet requirements. For example, ensure the reasons for rescinding a job offer do not violate the Fair Credit Reporting Act.

Employment activities

  • Review your handbook(s) to ensure all information is current and compliant.
  • Update documents to include the appropriate “at-will” employment language.
  • Determine if annual training sessions are compliant (e.g., Illinois annual sexual harassment training, or Iowa’s drug and alcohol training). Training data should be kept for reference and record.

Recordkeeping

  • Scan the contents of employee records to ensure separation of medical information, I-9 forms, investigation notes, and other confidential information. Only retain relevant records or documents.
  • Inspect Form I-9s to ensure they are filled out completely and correctly. Discard I-9s for terminated employees if hired more than three years prior or if it has been more than a year since termination (whichever is greater).
  • Update state and federal compliance posters.
  • Review the organization’s record retention policies.

Benefits

  • Ensure COBRA administration practices are compliant.
  • Review Affordable Care Act reporting if you are an Applicable Large Employer.
  • Ensure compliance with ERISA requirements for providing plan information (Summary Plan Description, Form 5500 data, Summary Annual Report, Summary of Material Modifications).
  • Check current HIPAA requirements (if applicable).

Leaves of absence

  • Review FMLA policy, forms, processes, and administration.
  • Assess other leave policies for consistency and compliance.

Wage and hour compliance

  • Review employment classifications.
  • Review Fair Labor Standards Act (FLSA) exemption status.
  • Determine if meal and break periods meet state compliance.
  • Review and audit overtime pay policies.
  • Check payroll deductions for tax compliance and consistency.
  • Ensure minimum wage is paid.
  • Assess final pay determinations.

Practical tips

Audits can be overwhelming. Keep in mind that you don’t need to tackle the entire process at once. Pick one area to focus on and complete that process before moving on to the next. Consider starting with the topic that you believe poses the greatest potential risk to your company, or a topic that you know has not been previously audited.

When reviewing employee files, consider selecting a representative sample (particularly if you have a large employee population). Include both active and terminated employees whose file falls into your retention period. A review of 20 to 30 percent of the files will help determine if you need to expand your review to include all files. This same methodology can be applied when conducting a Form I-9 audit.

Track your issues and any modifications or resolutions that are made, especially when conducting a Form I-9 audit. If conducting a more robust audit, below are links to several tools and resources that can help with the process.

MRA Tools & Resources

MRA’s HR Business Partners can be a great resource if conducting an internal audit is too daunting. They can ensure compliance and also identify gaps and offer solutions intended to mitigate potential risks related to government agency audits.

Quick answers can also be provided by contacting the HR Hotline at 866.HR-Hotline (866.474.6854) or InfoNow@mranet.org.

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