Watching and Counting

Audits are like auditions: You’re nervous beforehand, you can only do the best you can, and afterward – whether it’s American Idol judge Simon Cowell or your accountant shaking his head – you find out it wasn’t so bad.
Union audits are a fact of life for buildings with unionized workers. The term itself colloquially covers two different kinds of audits. The quick, simple one is by the Service Employees International Union (SEIU) Local 32BJ itself, and the big, involved one is by the Building Service 32BJ Benefit Funds, which covers things like pension and health insurance, and which is administered by a joint labor-management trustee. Each periodically checks payroll and related records to ensure that everything’s in compliance.
The government requires it, first of all. And as James Berg, president of the Realty Advisory Board which appoints the management trustees, says – half tongue-in-cheek – “If you don’t do it once in a while, you know what happens…!”

What’s different lately is that the Benefit Funds have established a new payroll-audit program, and have contracted with three certified public accounting firms to begin audits over the next two years of every unionized building in its jurisdiction. Since Local 32BJ represents more than 85,000 doormen, porters, security guards, superintendents, and other such workers in the tri-state area of Pennsylvania, Virginia, and Washington, D.C., that’s a lot of audits.

“It’s a routine procedure,” says Berg.

Even so, it can make some boards and managing agents nervous in a Pavlovian way. “It’s like getting a call from the IRS [Internal Revenue Service],” says Steve Greenbaum, director of property management at Mark Greenberg Real Estate. “Even if you file properly and always keep your ducks in a row, you get nervous.”

“Our company had never been subject to it before, and we were surprised,” says Lynn Whiting, director of management at The Argo Corporation, which recently went through a benefits audit. “I had seen little ones here and there, but this was the first time we had one for all our 32BJ buildings. ”The process took about a year,” she adds. “A person would be here for a couple of weeks and then we might not see him again for a month.”

The procedure is straightforward and by both union and RAB accounts is professional and in no way confrontational. “There’ll be a letter saying there’s an audit that’s going to be performed, and asking you to contact [the CPA] to pick dates when it’s most convenient for everybody,” says Berg.

It’s so routine, in fact, that not all managing agents feel the need to tell a board about it, and some boards don’t even care to know.

“If a building is self-managed, obviously the board is involved,” says Greenbaum. “Or if you’re not comfortable that your management company is doing your payroll properly, you should ask about it. But a board member should never have to worry about this stuff. It’s not anything out of the ordinary. I do see where the board needs to be involved if the auditor finds a problem, because if you’re not making proper contributions, there are penalties and interest.

“Every agent should be sensitive as to whether a [particular] board wants that kind of information,” adds Berg, who sees it as a judgment call. “It’s so routine that there’s no real reason either way that a board has to know or shouldn’t know. Certainly, if there’s a finding from the audit, you should discuss that with a board.”

What happens during an audit? At the time of its scheduling, the auditor sends the managing agent a list of the documentation required, generally items related to payroll. This might include the payroll portion of tax returns, payroll sheets, time cards, and similar things. An audit generally covers a three- to four-year period.

Those referred to colloquially as “union audits” are really Benefit Funds audits. “Audits, in most but not all cases, are conducted by the BJ Funds – the joint labor-management body that oversees implementation of the collective bargaining agreement, or CBA – and not the union itself,” says Local 32BJ spokesperson Matt Nerzig.

True union audits are primarily to ensure that union-membership dues are being properly transmitted. Those audits, says Greenbaum, “just take an hour or two. We have our payroll people do it.”

Given the size of some employers and the sometimes complicated nature of withholding rules, it’s not atypical to find that buildings owe money or in some cases are even due money.

“There are times when overpayments have been made,” says Berg, “sometimes as a result of managing agents changing and payments being made twice, or employees leaving during a certain time” in a pay-period cycle. “If there are a thousand employers, I could probably come up with a thousand different things.”

For instance, says Whiting, “In one building we manage, the employee was a member of the union, and we paid him union rates. But it was a second job, and he was getting pensions and benefits from his first. It was completely innocent – the building didn’t think it had to pay [benefits separately], and then it came out you do.”

“There are places that have wound up owing substantial sums of money,” observes Greenbaum. “However, you have to take things in context. Some employers have as many as 3,000 employees. To owe [the Benefits Funds] $300,000 sounds like a lot of money, but first, you have to consider the scale and that this covers several years, and second, that may be only the initial finding,” which can change.

Employers (who, per one CPA’s letter to managing agents, cover the cost of the audit at hourly rates of $65/hour for audit and administrative staff, $90/hour for a payroll-audit manager and $165/hour for a partner) can protest a finding.

“For example,” says Berg, “you may find out that only 14 of 20 employees should actually be covered, because they’re actually managers or they might be in some different union.”

The issue of whether or not an employer and the union can negotiate as though they were people at a barter market – “Hey, how about 10 percent off if I pay cash, or in advance?” – is touchy, but some arrangements appear to be the norm. “They will work with you,” says Whiting. “Of course, it depends on the circumstances. You can negotiate and say, ‘Okay, we’ll pay the principal, but not the interest and penalties,’ and they might say, ‘We’ll waive those if you pay the rest within 30 days.’”

Maybe it’s hard-nosed New York pragmatism at work, or that good old Yankee tradition in the liberal Northeast of treating workers with common decency, but this particular labor-management machine, say both sides, appears to be working well.

“I always welcome these kinds of things, because I like the checks and balances,” says Greenbaum. And how apprised a board should be? “It’s important to let a board know as much as they want to know. And some boards will say, ‘Just tell us if there’s a problem.’”