DOL & IRS Audits
Both the United States Department of Labor and the Internal Revenue Service conduct audits of labor unions. In general, the purpose of an audit is to confirm that the union is meeting its financial responsibilities under the law. Most audits are random. But some are undertaken because a complaint was made by a union member. Bad publicity about the local can also trigger an audit especially if there are allegations of financial misconduct. Some audits are done for deciding whether there is evidence to indict for criminal conduct.
A basic DOL audit begins with confirming the information provided in the LM2, the annual financial report filed by the Union with the government. Usually, the investigator will request copies of the constitution and bylaws as well as minutes from the executive board or another deciding body. Minutes of membership meetings will also be reviewed to determine if under the constitution and bylaws the proper reports and motions were made and recorded in the minutes for approving expenditures. Problematic areas of concern often include reimbursement of union expenses particularly when made by use of a union credit card. Proper documentation of union credit card expenses should include the receipt for the expense, the credit card slip signed by the official and a written explanation of the union business purpose of the expenditure.
These happen far less frequently than DOL audits. The IRS is primarily interested in verifying the financial condition of the local, confirming the paperwork showing its investments, bank accounts and expenditures. As a tax-exempt organization, the IRS is very concerned about the union not spending its money on things not designed to fulfill the purposes of the union.
How to Handle the Audit
Why does a Union need an attorney when it is being audited? The lawyer’s job is to first understand the nature of the audit. Is it random? Is it due to a complaint? Are there criminal overtones? Should officers be advised to retain personal counsel? The lawyer should be the person speaking to the auditor to set up the audit. He or she should then advise the union about how best to go about producing the materials requested for audit. Sometimes the government wants materials in advance of the audit. A careful record of all materials provided the government must be kept to both prove it was provided but also to understand what they have been given. It is important to give the auditor a quiet place on the premises of the union to review records which prevents them from overhearing matters being discussed by staff that have nothing to do with the audit. It is best to have one designated person interfacing with the auditor to keep control over what they are being provided and to make sure that they are being given maximum cooperation.
Cary Kane’s attorneys are experienced in handling DOL and IRS union audits. Call us today at 212.868.6300 if you have a question or are seeking representation.