Over the years, some of the more common things we hear from business owners who have been through audits sound something like this:
- “We went through an audit a few years ago, and it came back fine, so I think we’re good.”
- “We have a friend whose business is just like ours, and they told us they were able to get through an audit without a fine. So we should be good, right?”
- “We went through an ESD independent contractor audit and got a good result. This L&I audit should be the same, right?”
I understand why businesses are reassured by what has happened in the past. Audits can be tough experiences, and a favorable result feels like validation of your practices, and a green light to continue with business as usual, or business nearly as usual. And indeed, nobody is keen on making changes to their business without being forced to change by an audit result.
But here’s the hard truth: passing an audit is not the same thing as being compliant. In many cases, audits should be viewed less as an endpoint and more as a call to “get right.” Below are a few reasons why even favorable audit results shouldn’t be viewed as your “all’s well with me and the world card.”
Audits Are Narrow by Design
L&I and ESD audits are not comprehensive compliance reviews. They are scoped to specific time periods, specific workers, specific questions, or a particular issue that triggered the audit in the first place. Perhaps more significantly, auditors are often working under time constraints, document limitations, and agency priorities, all of which can result different audits having very different focuses.
A favorable result doesn’t necessarily mean that all areas were compliant. It may simply mean that you made it through the focus of the audit, while other areas were never closely examined.
Not All Auditors See (or Ask About) the Same Things
Another reality of audits is that auditors are human and will see things very differently. Some are experienced. Some are new. Some are thorough. Some are pragmatic. Some are simply trying to move a large caseload forward. Two different auditors can look at the same facts and focus on very different issues.
We routinely see audits where, frankly:
- The auditor didn’t ask about the full scope of services performed
- Key operational details never came up
- Certain red flags were missed or not pursued
- Classification decisions were made based on incomplete information
None of that shows up in the audit, or is otherwise known to the business. But it matters—especially if a different auditor, a different agency, or a different year is involved next time.
A “Pass” Doesn’t Lock In Future Treatment
Another common misconception is the idea that a favorable audit result creates some kind of safe harbor going forward. It does not.
L&I and ESD are not bound by prior audit outcomes. Later audits can, and often do:
- Reach different conclusions
- Expand the scope
- Apply new enforcement priorities
- Re-characterize the same relationships under closer scrutiny
We’ve seen businesses pass one audit and then get hit hard in the next—often because the second auditor took a deeper look, asked better questions, or reviewed a different slice of the business.
Sometimes the Business Got Lucky
This is the part that’s hardest for business owners to hear, but it can be true: sometimes a business passes an audit not because everything was done correctly, but because:
- The auditor was lenient
- The review was surface-level
- The business didn’t disclose (or wasn’t asked about) certain practices
- The agency simply didn’t have the bandwidth to dig deeper
Obviously, luck is not a compliance strategy. And relying on a favorable audit outcome as validation of your business model is risky—especially when the financial consequences of getting it wrong can be significant.
Final Thought
If your takeaway from an L&I or ESD audit is “nothing needs to change,” that’s usually a sign that something is being missed. A favorable audit result should not be the end of the conversation. It should be the starting point.
The smartest businesses use an audit as an opportunity to:
- Step back and assess how they actually operate
- Identify areas that were not reviewed at all
- Review their independent contractor relationships
- Clean up contracts, onboarding, and payment practices
- Align operations with how the law is actually enforced—not just how it happened to be applied once
To be clear, passing an audit is good news, and even cause to celebrate—but it’s hardly ever the finish line. For most businesses, it’s the moment when the real compliance work should begin.