I am a small business owner. I employ someone who does most (ok, all) of the paperwork associated with the business. I also have an accountant that does stuff. So I basically am employed by a business I own but do not really understand. (Hey, it works for me)
So, if I understand this correctly, I pay an insurance company for a Workers’ Compensation policy. They pay out if my employee is hurt on the job. I am in Pennsylvania, btw.
Each year, we get a notice from an independent company that is auditing my business for the insurance company I have the policy with. This happens every year. Why? I have never had a claim, the business is not “high risk”, my payments are always on time.
The audit is a regular ongoing process. The auditor is checking your payroll tax records [Form 941, IIRC] to make sure you pay the proper amount of workers’ comp premiums. The number of employees a firm might employ during the year will either increase or decrease during the year. And to be sure you aren’t hiding any employees.
The auditor is also trying to ensure your employees are correctly classified: that they are truly office workers and not, say, construction workers. Construction workers or even outside sales reps are a greater risk, therefore charge a higher premium.
Washington state recently did audits on many janitorial/cleaning companies for worker’s comp issues. The letter that they sent to everyone in the industry boiled down to saying “Either there are a lot of employees lying about their glamorous careers as janitors, or there are a lot of employers failing to report and pay taxes on their employees. We’ll be doing some random audits to find out which.”
As for having other people do the paperwork: that’s probably why you’re still in business. You might benefit from learning a little more about what needs to be done (what if someone gets run over by a bus?) but smart business owners find people who can do things like, and then let them do it.
An accounting audit is different from an IRS audit. Most corporations do audits on a regular basis. They have outside accountants and analysts come in and track their procedures and policies. The departments may have to supply paperwork defending this or explaining why that happened. It’s just to make sure there’s nothing hinky going on and that all federal and state laws are being followed. If the analysts find something out of whack, they will make recommendations to the higher-ups on how to correct the procedure. It may be something as simple as having a VP sign off on some paperwork.
