We all fear the dreaded audit notification letter, phone call or even a surprise visit from an auditor. If current practices, policies, and procedures are not being followed then it can result in possible fines and litigation. So how do you prepare for an audit?
First of all, you need to know the laws. Review the applicable state and federal laws. If there are discrepancies between them, follow the stricter of the two. Keep abreast of any new requirements. It’s also imperative to know what documents you are legally required to keep. It’s also important to have a retention schedule for your documents. For many documents, there are mandated retention periods, but it is important to apply a retention schedule to all or your documents.
It’s important to keep completion and retention in mind when organizing your employee files. What sort of things should you have in your employee file? Well, you should have documents in it such as the employee’s Job Description, application, offer letter, and completed W4 form. Best practices dictate that you keep your I-9 forms separate from this file. As a company, you should decide which other forms to keep separate. Typical examples are medical files and investigation or lawsuit investigation documentation. The idea behind sectioning is that during an audit, you should be able to easily provide an auditor with the documents they need to audit, and nothing more.
Now you’ve got a plan for organizing your employee files. Your next step in the audit preparation process will be internal audits. Regular internal audits and maintenance of your employee files improve the overall efficiency of the HR department, and also reduce chances of lawsuits and penalties for violations resulting from external audits. Ideally, you have the manpower and resources to audit every employee file. But if you’re dealing with THOUSANDS of employee files, chances are that isn’t realistic. So you’re going to have to start small. Take a random sample of files and audit them. Look for patterns in missing documents, etc. Then take another random sample, trying to sample a different time period than the previous batch. Audit those and compare the results with the first sample batch. This will give you a better idea of your overall file situation.
The audit itself is the first step in an Audit Cycle. The next step is to come up with a complete plan of action. You want to identify as many problem areas as possible, and create action items around these problem areas. Have a timeline surrounding each action item. Remember that your plan is only as good as the data you collect, so it is imperative to audit as many files as is reasonably possible.
After you decide what needs to be fixed and when, it’s time to actually enact the changes. We call this the “walk the walk” step. Coming up with changes and talking the talk is fine and well, but nothing will change if you don’t actually do anything.
That leads us to the next step, which is to “Check your work.” Take a look at the changes you decided on, and the timelines, and see how well you’ve been hitting them. In many instances, a task turned out to be much more labor-intensive than initially thought, and timelines will need to be adjusted. This is a normal part of the process when putting an internal audit plan in place.
An internal audit isn’t something that you do only once. The best practice is to do them on a regular basis. That interval will depend on many factors…how many employees you have, the size of your employee files, the manpower you have to devote to auditing, and the overall state of your filing system.
For more on being prepared for an audit, check out our webinar, When the auditors come calling…dealing with THOUSANDS of employee records.