If an Auditor Comes to Your Business - Are You Ready?

Before, During, and After an Audit or Inspection

OSHA Inspector
OSHA Inspector. Image Source/Getty Images

Everyone in business knows about IRS audits, but your business could be inspected or audited by local, state, and federal agencies and departments, for a multitude of issues:

  • Local authorities, for fire inspections, building codes, health and safety issues, and possible Americans with Disabilities Act (ADA) violations
  • State agencies, for sales tax, business registration, and employment issues
  • Federal agencies, including OSHA, the ADA, the Wage and Hour department, and immigration/customs (ICE). 

    Here's a list of state and federal agencies that can audit or inspectyour business. 

     

    Types of audits and inspections

    • Some agencies need to inspect your business when it opens. These are typically local businesses like the health department or building department. 
    • Some agencies inspect on a regular basis. Local fire and health inspectors usually come on a rotating schedule. 
    • Some agencies can come to your business unannounced for no reason. OSHA is one of those agencies.
    • Some agencies come in response to a complaint from an employee or customer or other person. Immigration inspectors, ADA inspectors, and OSHA inspectors respond to complaints from an employee or customer. IRS auditors or state payroll tax auditors may come in response to a complaint from an independent contractor. 

    Be Prepared Before an Audit or Inspection

    Make time to prepare for possible audits or inspections: 

    • Make a list of possible agencies that can inspect your specific business. Include agencies that might show up because of the specific nature of your business. For example food based businesses might have a health inspector. 
    • Know your rights for each type of inspection. Can you ask the inspector to return later, when it's more convenient for you? Do you have the right to accompany the inspector or auditor? 
    • Sit down with your attorney and discuss your rights and responsibilities during these audits and inspections. 
    • Set procedures for you and your staff to follow when an inspector or auditor shows up, and train your staff in what to do. It might be a good idea to put these processes in a notebook somewhere. 
    • Decide who should be notified when an inspector arrives. What should your staff do if you are not available? Who is next in charge? Should your attorney be notified and when? 
    • Check your business records that pertain to this inspection to make sure they are accurate, complete, and in compliance with the law. For example, a federal or state wage and hour inspector will want to see time sheets or other time-keeping records. 

    The number one thing to do during an inspection or audit:

    Be courteous and helpful. Your attitude should be, "We want to obey the lay and do the right thing. Help us know what that is. If there are issues, we want to correct them." 

    • Verify the inspector's identity and make sure the inspector has the proper paperwork, including a warrant, if necessary. Fake inspectors sometimes show up trying to intimidate employers into submitting to inspections, then paying fines or penalties or purchasing compliance kits. 
    • Then, put your plan in place.  
    • Take photos, or keep a log of the inspection or audit. Follow the inspector or ask if you can sit in on the audit. 
    • Don't volunteer anything. If you are asked a question, answer it. Don't add anything to your answer. 
    • At the end of the audit or inspection, ask for a review. Most inspectors or auditors won't commit to anything specific, but they should give you a general idea of whether there were violations, and what to expect next. 

      After an audit or inspection

      If violations have been alleged by the inspector, you may have the right to an appeals process. How this step is handled depends upon the specific agency. As a follow-up, any agency should provide you with a written record of violations, whether these are correctable and how, and what fines and penalties are being imposed. 

      At this point, you will probably want to contact your attorney to discuss a response. 

      If no violations come from the inspection, discuss with your employees what went well, what you heard or saw, and what you can learn to do better the next time. 

      For almost every business, there will be a next time.