Ding Dong: The D.O.L is at Your Door. Now What?

Government agencies such as the Department of Labor (D.O.L.), Internal Revenue Service (I.R.S.), and Occupational Safety and Health Administration (OSHA) are gearing up to conduct more compliance audits.

Why now? Visits by auditors and/or request for records are often triggered by a disgruntled employee or other anonymous tip. Additionally, when federal and state budgets are slashed, collecting penalties, fines, and back taxes helps supplement the bottom line.

What does this mean for business owners? Increased scrutiny and risk.

How can business owners prepare themselves for "when" an audit occurs as opposed to "if" an audit occurs? Conduct a mock audit to gauge the compliance level of your organization. A variety of things should be reviewed in a mock audit, including payroll practices, employment classifications, overtime payments, and meal and rest period documentation.

But what should you do if you've just received a letter from a government agency that is requesting to schedule a site visit to your office?


Contact legal counsel. You definitely want to be advised on what your potential exposure could be and create a strategy for responding to the audit. You'd be surprised at how many owners will get a request for documents and completely ignore it until the deadline approaches or the auditor shows up. Another big mistake: not paying for proper legal counsel in the form of a labor attorney. Your tax accountant or business attorney most likely will not be the best person to advise you in this case. Yes, legal fees can be stiff, but if there ever is a time when you need to pay for proper advice, this is it. You wouldn't consult with a dermatologist if you had heart palpitations, would you? All attorneys are not alike. Labor attorneys often have direct hands-on experience with government audits and that's exactly what you need.

Don't delay. If you're given a deadline to respond, ask the deputy if that deadline can be extended. After all, pulling together the requested paperwork (which often is voluminous) while simultaneously running your business is extremely time consuming. Also, auditors often allocate an amount of time they can spend on each case; the more you can diminish that time, the better. Make sure you approach the auditor with respect when asking for an extension and consistently communicate that you want to fully comply with their requests. Often an auditor will match the demeanor you present, so if you're professional and reasonable, there's a good chance they will model the same. If you're aggressive and unreasonable, there's a good chance they will be as well.

Negotiate! If the auditor asks for three years of payroll records for all 100 of your employees, that's a lot of paperwork. Ask the auditor if they will consider reviewing a representative sampling of employees over a 1.5-year period. In this case, you'd provide a sample that includes employees with various job titles, both exempt and non-exempt, some with long tenure and some with short tenure. In most cases, the auditor will agree to this with the clear understanding that they can request additional records at any time.

Understand your industries practices. Communicate this to the auditor, because not all auditors understand the intricacies of the industries that they audit and can jump to wrong conclusions. Restaurants are different than trucking companies, which are different than home healthcare organizations. If your industry has an exemption for overtime hours, make sure your auditor is aware of this.

Take a vacation. I don't mean take a vacation when the auditor arrives. Rather, as the business owner, you should designate an experienced manager in your firm to meet with the auditor. As the owner, you often tend to say far too much to protect the enterprise you've built, and as a result you can do more harm than good. Moreover, I've seen business owners so emotional and angry at the trigger point for the audit (e.g., a disgruntled employee) that they lash out at the auditor, who ends up thinking the owner doesn't want to comply. Consider using an outside HR consultant to represent your company with an auditor. An HR consultant will know just enough about your business to respond, but not too much to over-communicate. A consultant also will be better equipped to spot potential red flags and decipher what the auditor wants. You may even want to schlep the records to the consultant's office and have the auditor review them there as opposed to your office.

If you follow the steps above, you will increase your chances of successfully maneuvering a government audit.

In our next blog, we'll discuss some of the common things that should be reviewed in a mock audit, including wage and hour discrepancies that almost always get companies into hot water with auditors.

This blogger graduated from Goldman Sachs' 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.