Over the last six years, the Affordable Care Act (ACA) has dramatically changed the employee benefits landscape across the country for employers and employees alike. High deductible health care plans (HDHPs) and health savings accounts (HSAs) have replaced traditional co-pay plans. The so-called “Cadillac” plans are harder to come by and voluntary benefits have popped up everywhere to plug in the gaps. As the first year of ACA reporting deadlines have just passed, the first wave of IRS audits, as specified in the ACA, will begin.
“The government views the ACA as a huge revenue source and they’ve pushed a lot of their resources toward the audit arm,” says Sibyl Bogardus, Chief Compliance Officer, Western Region, HUB International. “The federal agencies are becoming quite aggressive, especially when it comes to protecting participants, as they are charged by law to have regular enforcement efforts.”
There are a number of triggers that will prompt ACA audits, including:
• Employee complaints – Regardless of the credibility or level of severity, employee complaints will be taken very seriously
• Reporting failures – This year, while leniency will be granted on inaccuracy because the laws are new, failures in reporting will still pose a red flag.
• Failures of IRS Control Group employers – The IRS is putting similar businesses into control groups. Where they see one business failing, they are assuming similar businesses will fail in the same way.
• Other agencies identifying issues – Agencies like the Department of Labor (DOL) and the Internal Revenue Service (IRS) will have a cross-referral agreement where they are required to share information about businesses not in compliance, thus triggering audits from multiple agencies.
• Media reports – Media coverage on an organization’s business and employee practices could raise suspicion with regulators as well and trigger an audit.
Mitigating the risk of an audit
While you may not be able to totally avoid every trigger, the antidote to dodging a full-fledged audit is to keep good records.
“Your documentation is key to both avoiding and surviving an audit. That means protecting yourself with proper and adequate documentation and working toward consistent administration,” says Bogardus. “You’re not alone if you’re not perfect at it, but working toward consistency is the ultimate goal.”
We suggest six best practices that, when adopted, can help any organization look their best daily in the face of a potential audit. They include:
1. Document good faith compliance on questionable issues/gray areas. This includes reviewing and adopting corresponding wording in all internal and employee-facing materials. Retain a benefits file, document that you’ve treated everyone fairly and how you interpreted and made decisions when it comes to gray areas of the law.
2. Compliance review. Focus on administrative practices and make sure they are in compliance. Review all third-party agreements – remember, questionable business practices of vendors and businesses you associate with could trigger an investigation of your organization.
3. Correct failures found. Make sure administrative processes are in order, and when you discover an issue, hold internal compliance discussions to correct your failures.
4. Designate employee status. Create realistic benefits expectations for employees by communicating their employee status and eligibility.
5. Develop a multi-year benefits plan. Thoughtful plan design and consideration of its impact on affordability, compliance and administration will facilitate compliance.
6. Train managers. Beware of practices to terminate or limit hours for employees to prevent them from eligibility levels. Understand the law and work within it for hiring, firing and scheduling practices.
If your business is subject to an audit, knowing what it will look like and how to handle it will be key to passing with flying colors. Be prepared with the right documentation and proof.
Author: Corbin F. Wade, MBA, CIC, PWCA
Corbin F. Wade, MBA, CIC, PWCA
Vice President | HUB International