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A Case Study on Unreported Hours: Performing an Payroll Audit on a Union and Non-Union Company

As another means of persuasion, I also informed him of the Supreme Court Case Central States Pension Fund v. Central Transport, Inc., and other cases which show that the employer must provide records for all employees. This explanation, along with the signature page from the fund office, was enough to convince him to show me any records that I needed.

Clarifying the Issue and Uncovering Unreported Hours

I began the payroll audit procedures. To get to the bottom of how this company was set-up and to determine the scope of my payroll audit, I asked a series of questions, including:

  • Does the one trade employee that you report also work for your sister company occasionally?Without hesitation he said “Yes, whenever we do a non-union job.”He explained that he setup the sister company so it could bid non-union jobs more competitively.
  • How does the payroll work for the two companies? He explained how both companies are paid through Company A and that Company A and B both use the same bank account.

I informed him that, because of the combined assets, I would have to include all employees doing covered work under both Company A and Company B for my audit. He was reluctantly cooperative in providing me the payroll records for both companies.

The audit revealed several full time employees performing covered work without being reported. The one employee that the company was reporting had several hundred unreported hours under the sister company. These hours were unreported for each of the three years in the audit period.

Conclusion

Even after our initial discussions, the owner did not understand why employees under his sister company would be included on this audit. He reported that other companies were proceeding in a similar manner and had advised him to set up a new company to perform non-union jobs. I believe the owner thought that he had done everything correctly based on the (faulty) advice he received from the other companies. Fortunately, with the proper research and documentation, I was able to clarify the situation and conduct a thorough payroll audit.

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