After completing an audit, there can be quite a few decisions that need to be made. Decisions ranging from whether you should appeal the audit result, to whether you’re able to continue doing business in the same way, or whether a business overhaul is necessary. Outlined below are five primary considerations businesses need to address after going through an audit.
- Deciding whether to appeal. An audit will typically result in an assessment of owed taxes or premiums (along with penalties and interest) for many businesses. A business can either accept and pay the amounts owed, or appeal/request reconsideration of the assessment. For a large assessment, it is invariably a no-brainer to appeal. Auditors have heavy caseloads and, as much as they may try to do their jobs well (and many do try), they’re susceptible to making errors of fact or law during audits. These errors can be significant errors and addressing them on appeal can result in substantial reductions. If the assessment is a smaller assessment, the decision on whether to appeal may not be as clear. Here you’ll want to have a good sense of the reductions that can be obtained and whether those reductions are worth the cost and/or hassle of pursuing an appeal.
- Deciding whether to obtain legal counsel. Determinations made by auditors can often be confusing both as a factual and legal matter. There are times when an auditor will make determinations that may seem incorrect on their face, but that are correct as a matter of law. Likewise, there are times when an auditor will make incorrect legal decisions that would not seem incorrect to the lay person. Where questions of law heavily impact the decision on whether to appeal, it is therefore almost always a good idea to consult with legal counsel for advice on the audit results, the decision on whether to appeal, and the decision on what to do to ensure compliance on a going-forward basis. The caveat here is to consult with legal counsel with experience advising on these matters to best ensure that you’re being properly and cost-effectively advised.
- Ensuring compliance with other agencies. Oftentimes, audit determinations have implications not only with the agency conducting the audit, but with other agencies as well. For example, if a business goes through an audit with Washington State Department of Labor & Industries (L&I), and a determination is made that the business improperly classified workers as independent contractors, then there is the likelihood that other agencies that regulate the independent contractor designation will find that the workers are misclassified as well. These agencies include Washington Employment Security Department (ESD), Internal Revenue Service (IRS), US Department of Labor (DOL). In such cases then, an audit determination should be used to evaluate and ensure compliance with other state and federal agencies.
- Deciding how to operate going forward. As much as we speak on this page about errors auditors make, it should be noted that many auditors operate professionally and strive to be correct and to set businesses on the right compliance path. Indeed, while their decisions may not be perfect, auditors are often correct on many legal issues, and it is therefore incumbent on businesses to pay attention to (rather than disregard) audit findings, and to use those findings to guide conduct on a going-forward basis. Required changes can be relatively minor (such as addressing record-keeping or contract deficiencies), or they can implicate a business’s entire operations, thus requiring a business model change. For example, if an agency makes a determination that your business incorrectly classified workers as independent contractors, it may be that your business will need to hire workers as employees or “covered workers” or else risk a worse fate in a future audit. The worst thing you can do, then, is to go through an audit, receive an assessment, and continue with business as usual.
- Tightening compliance. Audits will often reveal deficiencies in legal compliance. Oftentimes, business owners will be penalized via an audit because of record-keeping deficiencies, or for having contract documents that do not meet legal requirements, or for not having contracts at all. It is wise, then, to take audit results to heart and to use these results at the impetus to address deficiencies, including preparing/updating contracts as needed, and otherwise tightening up compliance efforts.
