IMGCAP(1)]Accountants who have union clients sometimes receive nervous phone calls from their presidents about a letter they received from the U.S. Department of Labor.
The letter notifies the union officers about the DOL’s intent to conduct an audit of the union’s Form LM-2. Having been responsible for the review of this report before it was filed with the DOL, I can understand how many accountants feel uncertain as to the possible outcome of the audit and an understanding of the process may prepare them better in advising their union clients.
The Office of Labor-Management Standards (OLMS) of the DOL developed two compliance programs designed to assess compliance by unions with the Labor-Management Reporting and Disclosure Act (LMRDA) of 1959 or the Civil Service Reform Act (CSRA) of 1978, as applicable. Labor organizations comprised wholly or in part of private sector or U.S. Postal Service employees must comply with LMRDA, while CSRA applies to unions representing federal government employees.
OLMS’s International Compliance Audit Program (I-CAP) is designed to audit compliance by national and international unions with these laws, as applicable, while OLMS’s Compliance Audit Program (CAP) is a streamlined compliance audit for local unions and intermediate bodies. OLMS has not conducted an I-CAP audit since 2011.
OLMS’s Approach to Compliance Audits
OLMS considers many factors when selecting a union for a compliance audit, including failure to file required financial reports with it, incomplete and late filings, members’ complaints, and the length of time since the last audit. Some unions are also randomly selected.
If a union is selected for an audit, it will receive a letter from OLMS communicating the nature and scope of the audit, the years covered, and a request for documents and records. After sending this opening letter, an OLMS investigator will call the union to schedule the time and place to start the audit and answer any questions union officers may have. Following this phone conversation, OLMS will send the union a letter confirming the arrangements.
The audit begins with an opening meeting typically between OLMS senior investigators and the union’s president, secretary-treasurer, controller and counsel, during which an OLMS team leader provides a time estimate to complete the audit and factors that may affect this assessment, such as the condition and availability of union’s records, the union’s cooperation, and the type and magnitude of findings. Many CAPs, however, are completed in less than 15 working days. Also at this meeting, OLMS investigators obtain detailed information about the union’s financial records, documents, recordkeeping practices, policies and internal controls.
OLMS primarily performs the audit on-site; however, if the union cannot provide a reasonable private space for the team to work, OLMS investigators will request to take the union’s records offsite and conduct the audit at the investigators’ workplace.
The LMRDA and CSRA require unions to maintain the records necessary to verify the information included in their financial disclosure reports for up to five years. OLMS examines several types of union documents and records, including the general ledger, cash receipts and disbursements journals, cancelled checks, bank statements, bank reconciliations, membership records, minutes of membership and board meetings, credit card receipts, vendor invoices, credit card statements, travel expense reports, W2s, constitution and bylaws, policies and other support. The union will need to provide original records, not copies. Additionally, OLMS may corroborate transactions with outside parties, such as banks and vendors.
When the audit is complete, OLMS senior investigators will have an exit meeting with key union officers and their counsel to discuss any OLMS findings and recommendations, which may include ways to improve the union’s internal controls, recordkeeping practices and policies. Also, OLMS may require the union to file an amended financial report to correct any reporting deficiencies. During this meeting, officers will have the opportunity to defend their position and present additional information that was unavailable during the audit.
The Closing Letter
Following the exit meeting, OLMS will send the union a closing letter describing the findings and recommendations. OLMS will also post the closing letter on its website for access by the general public.
The closing letter will describe any recordkeeping and reporting violations, and other issues encountered during the audit. One of the most common recordkeeping violations that we noted from our inspection of posted closing letters relates to meal receipts lacking detailed description of the food and beverage consumed, the union business purpose conducted, or the identities of the persons present during the meal.
Other common recordkeeping violations included: 1) failure to retain vendor invoices, 2) lack of documentation supporting the reimbursement of business use of union officers’ and employees’ personal vehicles, 3) failure to record employer dues check-off checks, 4) absence of minutes of board meetings and minutes lacking discussion of approval of expenses, 5) lack of documentation (e.g., hotel folios) supporting credit card expenses, 6) nonexistent inventory of fixed assets and supplies, 7) failure to maintain support for lost wage reimbursements to officers and members, 8) lack of salary authorization, and 9) lack of mileage logs documenting the personal and business use of union owned or leased vehicles.
Frequent reporting violations that we noted regarding Form LM-2 involved: 1) incomplete reporting of direct and indirect disbursements to officers and employees, 2) failure to file amended bylaws, 3) failure to disclose that the union acquired or disposed assets in a manner other than by purchase or sale, 4) failure to include lost time paid to officers in gross salary, 5) misclassification of disbursements, 6), failure to report dues and per capita tax receipts, 7) failure to report fixed assets and supplies, 8) delinquent filings, and 9) failure to file.
Other issues usually discussed in closing letters consist of deficiencies in internal controls, lack of written policies for travel and expense reimbursement, inadequate bonding and illegal loans to officers and employees.
OLMS may perform a follow-up review after six months to ensure that any compliance violations have been corrected. The closing letter will disclose if a follow-up is necessary and will identify the specific matters the union needs to address. OLMS will request that the union provide a written response describing the actions it plans to take to correct the violations noted during the audit.
Eduardo Singerman is a director at
