Mason Contractors: Are You Ready for an Audit?
By John G. Allen
One of the biggest challenges government contractors face is compliance. If you do prevailing wage work and you haven’t been audited, consider yourself lucky. If you have been audited, then you know how time consuming it can be to assemble all the appropriate documentation and paperwork the government requires. Healthcare reform (the Affordable Care Act) will add another layer of legislation with which government contractors will have to comply – in addition to the Davis-Bacon Act and state prevailing wage laws.
When the American Recovery and Reinvestment Act (ARRA) was passed in 2009, the Obama administration authorized hundreds of additional federal investigators to ensure that contractors complied with regulations applying to projects funded with taxpayer dollars. There is no indication that any of these positions will be eliminated any time soon. Increased scrutiny for compliance is a fact of life for government contractors and, if a company works on publicly funded projects, it should expect that, at some point, it will be audited.
How can contractors prepare?
Partnering with a firm that specializes in prevailing wage benefits for government contractors is one way to help keep your company’s name out of the headlines. Some prevailing wage benefits providers help ensure that customers are submitting certified payroll that reflects the correct base wage and fringe benefit amount for each job classification on their projects. They communicate to all prime contractors that they are responsible for making sure their subs are in compliance with prevailing wage laws, and that they can be held liable, denied payment, and even be debarred from working on government projects, should subs fail to comply.
Contractors should research benefits providers to determine if they have experience working with prevailing wage contractors. Companies with a history of focusing on this market often have established relationships with officials at the DOL, the IRS, and even state prevailing wage departments, so they can request clarification in the event of an inquiry or audit. Contractors also should determine what type of support their benefits provider offers during an audit, and at what cost, since this varies widely from company to company.
Documentation is critical for any contractor working on government projects. All too often, being successful in an audit situation comes down to having the required records and policies. Contractors who go into an audit with a solid “paper trail” are in a much better position than those who do not. Contractors should find out if their providers will compile and provide requested documentation if an audit occurs. Not all contractors are staffed sufficiently to prepare for an audit. Even the most well-organized contractors need to focus on work, rather than spending countless hours searching for the necessary records.
In our experience, when a company is being investigated, the DOL will review whether the benefit portion of the prevailing wage actually is being contributed toward a bona fide benefit plan. On its face this may seem simple to prove, but here’s a list of some of the documentation the DOL may require:
- Plan documents/Adoption agreement(s)
- Summary Plan Descriptions/Summary annual reports
- Schedule As
- Form 5500s
- Fidelity Bond Information
- Distribution Forms/Form 1099s
- Schedule of contributions received
- Nondiscrimination testing results
- Time cards or time sheets
- Check stubs, registers or receipts for payment of wages
- List of deductions and employee authorizations for the deduction
- Employee handbook
- Certified payroll reports
- List of subcontractors and a description of the work performed
- List of independent contractors and a description of the work performed
- Statement describing work performed or to be performed on the project
Contractors who work on Davis-Bacon Act or Service Contract Act jobs understand that, in order to win more bids, they need to maximize efficiencies, reduce overall costs and maintain compliance. Working with the right prevailing wage benefits plan provider can ensure that your company is compliant with ACA, IRS and DOL guidelines, while helping you save money on payroll burden, maximize owner contributions to retirement accounts, and provide quality health, dental, vision and life insurance benefits to your employees.
John G. Allen, CRPS, is a regional VP for Fringe Benefit Group, which has been helping government contractors design and administer fringe benefit programs since 1983. He can be reached at 800-635-6912 or firstname.lastname@example.org.