First Came the L&I Audit, Then Came the ESD Audit…

There are a few common questions raised by companies as they approach the end of an audit by Department of Labor & Industries (L&I), Employment Security Department (ESD), Internal Revenue Service (IRS), and other federal and state agencies. Among these questions are: 1) Am I done with this agency for a while now? 2) Will this agency share my audit results and compliance deficiencies with other agencies? 3) Should I now expect other agencies to come knocking? The answers to these questions are often difficult, particularly because there is no way to know what will happen next.  As my responses below explain, we’re unable to tell clients that they’re home free after an audit. Rather, the best advice after one audit is to conduct your business as if another audit is possible.

Am I done with this agency for a while now?

Once you’ve been through an audit with one agency, the likelihood that the same agency will turn around soon after and conduct another audit of your business is low. There are businesses that go through audits, and then are not audited by the same agency for years after. This makes sense, as a practical matter. Agencies have a lot of businesses to audit, and often limited resources. They will use their limited resources to reach out to as many businesses as possible, rather than hammering the same businesses repeatedly.

That said, it is not impossible that you can be selected for an audit even as you’ve just completed an audit with the same agency. This year, I had a client who had one of his businesses audited, and immediately after completing that audit, he opened up his mail to a notice of another audit from the same agency, though for a different audit period. In this client’s case, the expectation of a “one-and-done audit” did not happen because a work-site incident ended up triggering the new audit of the business, and additional assessments.  So while it is reasonable to expect that your business won’t be repeatedly audited by the same agency, as happened to my client, certain triggers can occur that could put your business in line for successive audits by the same agency.

Will this agency share my audit results and compliance deficiencies with other agencies?

While we don’t know for certain what pushes one agency to share information with another agency, we know that sharing of information occurs.  I’ve had IRS auditors inform me that my client was selected for an audit based on reports received from the Employment Security Department. I’ve had ESD agents who indicated they selected my client for an audit based on L&I audit results or contact from L&I. So information-sharing definitely goes on, though it’s unclear as to what triggers sharing between agencies. See other triggers for audits here.

After one audit, should I expect other agencies to come knocking?

It’s impossible to predict what agencies will choose to audit your business and when. We’ve had several clients, however, who have been through an audit with one agency, only to receive a notice of an audit by another agency in a year or two after.  So while there is often no reason to expect that one agency audit will necessarily follow a prior audit, it isn’t a great surprise if it does happen.

So rather than attempting to predict whether audits will follow, the best course is to address compliance head on, so when agencies come knocking again — if they come — you’ll be ready.

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