What are the odds you'll be audited Email
Wednesday, September 10, 2014 02:14 PM

It's not a random roll of the dice. According to the numbers from ALCC’s recent poll, chances are about 50/50 that your payroll or tax records will be audited by the federal government, state government or a local jurisdiction.

Fifty-four percent (54%) of all respondents said they had not been audited by any agency during the last 4 years – and a number of companies have never been audited. Still, 30% of respondents said that they have been audited by the U.S. Department of Labor (DOL) – and the overwhelming majority of them were audited during 2014. Many are still waiting to learn the outcome.

Who is being audited by DOL?

Approximately 25% of the companies under DOL scrutiny are in Colorado Springs and the rest are in the Denver metro area. Company size does not appear to be a factor. Several companies with +/- 200 employees were audited as were firms with 1 or 2 employees. In addition, 29% of those DOL audits also involved separate H-2B audits of firms who hire H-2B workers.

Stats on other audits
Companies were audited by other agencies during the last 4 years as follows:

  • 7% of companies have been audited by the Colorado Department of Labor. Most of them are along the Front Range and one is in Montrose.
  • 5% of companies were audited for SUTA – state unemployment tax.
  • 3% were audited by the state regarding sales tax.
  • 3% were audited by cities regarding sales and use tax.
  • 1 company reported being audited by Department of Transportation
  • No companies reported being audited recently by the Internal Revenue Service (IRS), though one firm noted they were audited about 7 years ago.

Beyond the numbers
Those who were not audited shared a common reply: “knock on wood, not yet!” And while relieved now, their general expectation is that someday there will be an auditor knocking on their door.

Overall, people who were audited indicated that they were anxious going into the process even though they had confidence in their systems and that they were following the rules. The majority did not expect any major violations or fines because they worked hard to be “squeaky clean.” One company owner’s comments speak for the group: “I was always VERY transparent, paid liability, worker’s comp, unemployment. I knew sooner or later I would be audited, so I prepared for it.”

In spite of their internal recording and payroll systems, most respondents said that it took hours or days to prepare for audits. Some companies had to work long hours and even weekends to get paperwork in order, especially if H-2B was involved. Others had to pay their outside bookkeepers and accountants to do the prep work or to produce additional information once the audit began.

An owner in Colorado Springs who was audited by DOL said, “They had me sweating the week before they showed. Auditors spent a day in our office and then went to our jobsites to interview all our employees. They were looking for any kids under 18, overtime hours and at all my sub-contractor records.” He was convinced auditors would keep digging until they found something, but relieved when there were no fines or penalties.

Read more about DOL and other audits in the 2014 November/December issue of Colorado Green.