Preparing for the Audit
As an HR professional, how should you best prepare for an audit? The following steps should be taken long before the audit letter shows up:
1. Determine if you are a government contractor or subcontractor and are covered under the affirmative action regulations. Typically it is those organizations with 50 or more employees in a 25 mile radius, who have a contract of $50,000 or more in federal funds. Subcontractors are typically providing goods or services to a prime contractor. How do you know for sure? Talk to your contracts department to see if they are signing government contracts, receiving federal funding, or working on a government project. Investigate if anyone is signing certification letters that say the company is “in compliance with all federal regulations including Executive Order 11246.” Talk to your corporate in-house or outside counsel; converse with your sales department about the market segments they are targeting. Contact your R&D department to see if they are receiving any federal grants.
2. If you are a government contractor or subcontractor with 50 or more employees and $50,000 or more in government contracts, produce your plan each year. Contrary to popular belief, this plan is not typically submitted to any government agency. You are on “scouts honor” to produce them and you are on short notice if you have failed to do one and get tagged by the OFCCP for compliance review. Extensions are frowned upon.
3. Maintain employee data properly. This means that race and gender is collected accurately (the law does allow for visual survey if an employee or applicant fails to self disclose). Assure that EEO-1 codes are regularly reviewed and are accurate.
4. Collect and maintain applicant flow. Understand how an applicant is defined and assure you are collecting appropriate demographic data in a system where you can easily generate a report. Applicant flow is the one area where most companies fall down and can create audit headaches. In the past, companies typically defined applicants as those who came in for an employment interview. It was at this step that a self-id form was given to a prospective employee and he/she was logged on the applicant flow form accordingly. The definition of an “applicant” was recently clarified by the OFCCP as follows:
- The company has an OPEN position;
- The EXPRESSION OF INTEREST (i.e application; on line form) is reviewed;
- The prospect meets the BASIC QUALIFICATIONS of the position; and
- The prospect REMAINS INTERESTED in the position.
Accordingly, collect race and gender information on this subset and place those meeting the definition on your applicant flow log. There are various methodologies and strategies for tracking this based on the computer systems and recruiting processes in your organization. Caution in developing a strategy that will be compliant, and in sync with systems in place yet at the same time minimize the risk of adverse impact is warranted.
5. Regularly review compensation equity between men and women and between minorities and non-minorities in similarly situated positions to be sure there is a business argument for differences in salary. Compensation equity analysis is an OFCCP hot button; by the time you get your audit letter, it is too late to analyze the data! Make compensation equity part of your annual salary planning process.
6. File EEO-1 and Vets 100 reports timely each year.
7. Communicate AAP goals to recruiters and hiring managers each year. Develop an outreach strategy.
The Desk Audit
Once you receive an audit letter, the following are recommended steps for preparing for the “desk audit” phase. Most audits typically stop here. This is the step where all information requested is sent. An auditor or audit team will review your submission and ask additional questions if they see any problem areas.
1. Try not to request an extension. Extensions show that you don’t have your act together and may cause a more in-depth review.
2. Review your AAP to assure accuracy; if you are 6 months or more into your plan, you will have to do mid-year monitoring of goal attainment and also provide employment activity reports for the first six months.
3. Run adverse impact reports for hires, promotions, terminations and applicant flow prior to sending the submission so you will know any potential problem areas (if you don’t regularly do this as part of AAP planning).
4. Review salary equity analysis to be able to defend any salary disparities. Hopefully, you have been doing this all along and have any potential areas of concern handled.
5. Conduct an I-9 audit to assure these forms are clean, up to date, and are maintained separately. Should you have an on-site audit, these documents will be reviewed as a first step.
The On-Site Audit
Infrequently, the OFCCP will conduct an on-site audit. Typically one auditor (but can be a team) will come on-site for 2-3 days. Although they have been known to camp out for a couple of weeks with you, this is not at all typical. To prepare for an on-site:
1. Let your management team know that the auditors are coming. Have meetings with the management team so they know what to expect and to review the highlights of your plan. The auditor can request management interviews. If they do, a company representative may be present for these interviews.
2. Make sure all compliance posters are posted and are up to date.
3. Have I-9 files ready to be reviewed.
4. Be prepared to give the auditor a facility tour.
5. Make sure all personnel files, requisition files and recruiting files are available and ready for review.
6. Make the auditor feel welcome; have a senior manager welcome them and let them know that the company will work closely with them for a smooth audit.
7. The auditor may conduct employee interviews. There is nothing you can really do to prepare for this and the auditor may talk to employees without a member of management present.
8. If an auditor asks any question that is unclear, it is always appropriate to say “what are you trying to look at? Maybe I can provide a document/file/policy/etc that will better explain that to you.” A common mistake made during an audit is giving an auditor anything he/she asks for without understanding the reason for the request. Without a strong understanding of the organization, the auditor may mistakenly make “apples to oranges” comparisons.
HR professionals should always view an audit as an opportunity for a review of their processes and a chance to improve. Like you, the auditor has a job to do. Being cooperative and professional, while balancing the organization’s risks is paramount. Most audits do not result in monetary settlements, unless there are salary inconsistencies or adverse impact in your hiring processes.
Professionals such as competent affirmative action consultants are available to assist companies through the AAP planning and audit processes. For instance, at EPS, we include remote audit support at no additional charge when we prepare our client’s AAPs. Preparation and the appropriate attention are the keys to a smooth working relationship with the OFCCP.