DOL ICAP/CAP ConferenceMay 2, 2018

Glenn M. Eyrich, CPA, Calibre CPA, Partner, Arthur Budich CPA, CFE, Calibre CPA, Partner

• Focused on the needs of the tax-exempt community, particularly labor unions and their related employee benefit plan

• Offices in metropolitan Washington, DC New York, NY, and Chicago, IL

• Providing audit, accounting, tax, and advisory services for 80+ years

• Provides services to over 25 international labor unions and over 100 local labor unions and their related employee benefit plans

• Over 160 team members across the country

About Calibre CPA Group, PLLC

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Glenn M. Eyrich Art Budich

Today’s Presenters

Agenda for today

1. Background on DOL (OLMS) oversight and history2. Review of DOL ICAP/CAP audit process3. Review and overview of LM24. Review problem areas and focus of audits5. Final thoughts on how to prepare and get ready

for an audit

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DOL (OLMS) oversight and history

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Department of Laborhttp://www.dol.gov/compliance/laws/comp-lmrda.htm

Who is the Office of Labor Management Standards (OLMS)

● The Secretary of Labor has authority over all agencies within the Department of Labor.

● The Office of Labor-Management Standards (OLMS) is an agency of the U. S. Department of Labor.

● OLMS is under the leadership of Acting Director- Andrew Auerbach

● Per Bloomberg/BNA-12/13/17 -Arthur Rosenfeld was awaiting final clearance to become Director of the OLMS. Updated report 3/12/18 – Rosenfeld no longer under consideration. Over 15 months with no Director.

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Department of Labor (OLMS) – 2018 budgethttp://www.dol.gov/compliance/laws/comp-lmrda.htm

• FY 2018 budget provides $46.6 million • The FY 2018 budget increased $6.1 million from 2017• Includes $1.7 million to re-establish the International

Compliance Audit Program• 2018 priority performance goals:

1) reducing the number of elapsed days in investigating union election complaints; 2) increasing the percentage of compliance audits that lead to criminal investigations; and 3) increasing the percentage of required reports filed electronically.

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Department of Laborhttp://www.dol.gov/compliance/laws/comp-lmrda.htm

OLMS Performs Four Types of Activities:

– Public Disclosure of Reports

– Compliance Audits

– Investigations (Civil and Criminal)

– Education and Compliance Assistance

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DOL OLMS Activities - Compliance Audits

OLMS conducts audits to determine if unions are complying with the law.

The Compliance Audit Program (CAP) is a streamlined audit designed to account for union funds and to verify LMRDA compliance.

I-CAP is a companion program to audit national and international unions.

CAP and I-CAP allow OLMS to provide compliance assistance to union officials to help them correct problems detected during the audit and to prevent future violations.

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DOL CAP Audits by Fiscal Year

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DOL ICAP/CAP audit process

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DOL ICAP/CAP Process and ProceduresHow is a union selected for a compliance audit?• Failure to file required annual financial reports with

OLMS on a timely basis, • Discrepancies in financial reports filed, • Complaints received by OLMS from members or

others about the union's finances. • Random basis

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DOL ICAP/CAP Process and ProceduresHow long does a compliance audit take?• No absolute time frame but 3 weeks to 6 months common

Where is the audit conducted?• OLMS will make every effort to work on union premises if

possible.

Does OLMS share the results of the compliance audit with the union?• Exit interview with findings and then issuance of report

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DOL ICAP/CAP Process and ProceduresWhat type of records must unions provide for a compliance audit?• Bank account records, including bank statements and bank

reconciliations• Records for investments and other assets, including inventories of fixed

assets• Receipts records• Disbursement records, including canceled checks, payroll ledgers,,

expense receipts and credit card statements• Audit reports, if any, for the audit period prepared by union auditors or

accountants retained by your union• Minutes of executive board and membership meetings• A copy of the current constitution and bylaws and any financial policy

documents

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DOL ICAP/CAP Process and ProceduresDoes OLMS share the results of the audit with the union?• The investigator will conduct an exit interview with key

officials of the union. • During this interview, the investigator will convey the audit

findings and recommendations.• Following the exit interview, the investigator will provide

union officials with a closing letter that details the audit findings and recommendations.

• This closing letter will be posted on the OLMS website for easy access by union members.

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LM-2 Overview

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• Form LM-2 is the most detailed report. Unions with total annual receipts of $250,000 or more and subordinate labor organizations held in trusteeship file this report.

• Form LM-3, a less-detailed report, may be filed by unions with total annual receipts of less than $250,000 (if not in trusteeship).

• Form LM-4, an abbreviated two-page report, may be filed by unions with annual financial receipts of less than $10,000 (if not in trusteeship).

Reporting Requirements

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• A labor organization is required to report financial information for each of its subsidiary organizations using one of the following methods:

• Method (1) — Consolidate the financial information for the subsidiary organization and the labor organization on a single Form LM-2.

• Method (2) —File, with the labor organization’s Form LM-2, the regular annual report of the financial condition and operations of the subsidiary organization, accompanied by a statement signed by an independent public accountant.

Reporting Requirements

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• Form LM-2/3 and 4 must be filed electronically, unless a hardship exemption is obtained

• Form LM-2/3 and 4 are due 90 days after year end.• Temporary hardship due to “unanticipated

technical difficulties”Common issue is untimely filing which raises chances of getting audited

Electronic Filing Requirement

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• Each of the 5 functional disbursement categories and “other receipts” require:• Itemized reporting for all individual items of

$5,000 or more• Reporting of individual items to/from the same

person or entity, which are less than $5,000, that aggregate to $5,000 or more

• Aggregate reporting of all other disbursements in functional category

Disbursements and “Other” Receipts

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• Applies to:• Union’s credit arrangement(s)• Credit card charges reported in 5 new functional

categories• Cannot itemize (aggregate) payments to credit card co. as

the vendor• Must itemize (aggregate) by vendor actually paid by credit

card company• Does not include indirect disbursements to officers and

employees that must go on Schedules 11 and 12

Special Rules – Credit Cards

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• Report all payments direct and indirect to officers and employees with the exception of:

1. Reimbursements to an officer for the purchase of investments or fixed assets,

2. Indirect disbursements for temporary lodging (room rent charges only) or Transportation by public carrier necessary

3. Disbursements made by the labor organization such as rental of offices and meeting rooms,

4. Purchase of office supplies, refreshments and other expenses of membership banquets or meetings, and food and refreshments for the entertainment of groups other than the officers

5. Office equipment furnished to officers by the labor organizationfor use in conducting official business;

Schedules 11 and 12

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DOL problem areas and audit focus

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Recordkeeping - LMRDA 206

• Pursuant to Section 206 of the LMRDA, every person required to file any report under LMRDA Title II shall maintain records on the matters reported that will provide, in sufficient detail, the necessary information from which the reports filed may be verified, explained, clarified and checked for accuracy and completeness.

• All required records must be maintained for at least five years following the date the report is filed.

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Recordkeeping – What about Electronic?

July 2008 letter from the DOL on record retention guidance Electronic storage and copies are acceptable

1. An electronic filing system must be created (“indexing”)2. Reasonable controls are required to ensure integrity3. An inspection and quality control is required to be performed4. An ability to reproduce any and all documents is required5. All documents must be legible and readable

Destruction of Original Books and Records (directly from letter)A filer may destroy the original hardcopy books and records after the filer has completed testing of the electronic storage system which establishes that hardcopy or computerized books and records are being reproduced in compliance with all the standards described in this guidance and has instituted procedures that ensure continued compliance with all the standards described in this guidance.

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Recordkeeping - LMRDA 206Common Recordkeeping Violations

• Insufficient documentation for disbursements: Five “W’s” – Who, What, When, Where, Why

• Original receipts/written description • Lost receipts should be an uncommon exception (if

lost obtain signed statement describing expense)• Meal expenses – itemized receipts are required

• Food and beverage charges• What? food & beverage• Where/when? restaurant name/ date• Who? names and positions• Why? business purpose

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Recordkeeping -LMRDA 206 – Credit Cards

• The Union’s or individual’s monthly credit card statement alone is not adequate

• All original, itemized receipts for each credit card charge, including itemized hotel invoices, transportation costs, and itemized receipts for meals.

• For group meal expenses, union records must also include: (a) a written explanation of the specific union business; (b) the full names and (c) titles of all persons incurring the food and beverage charges.

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Recordkeeping -LMRDA 206Other Common Recordkeeping Violations

• Reimbursements for meals while also receiving per diem• Hotel bills - detailed folio to ensure no personal items• Checks made out to “cash” and ATM withdrawals• Chartered air – authorization (LM2 allocation)• Gift cards- lack of documentation• Unauthorized and undocumented travel – Spousal travel• Salary and benefits authorization* documentation

1. Vacation tracking and payouts 2. Payments to officers properly authorized

*These authorizations must be clear and unequivocal and normally will be in the form of constitution and bylaw provisions or executive board and membership resolutions recorded in meeting minutes.

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Recordkeeping – LMRDA 206 - Automobiles• Union business - use of personal automobiles

• Dates of travel• Names and locations traveled to and from• Number of miles driven• Business purpose of each use

The approved basis for reimbursement must be noted in the union’s bylaws, membership meeting minutes, or another union record.

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DOL Compliance - Loans

Section 503(a) of the LMRDA (29 U.S.C. 503) prohibits labor organizations from making direct or indirect loans to any officer or employee of the labor organization which results in a total indebtedness on the part of such officer or employee to the labor organization in excess of $2,000 at any time.

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DOL Compliance -Travel Advances1. Potentially considered loans by DOL unless:

A. The advance is reasonable for the expected travel expenses

B. The advance is fully repaid or accounted for within 30 days of completion of travel.

c. The amount of the standing advance does not exceed the average monthly travel; does not exceed 60 days without traveling.

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Fidelity BondingWho Must Be Bonded• Every union covered by the LMRDA is subject to the

bonding requirements except for unions with property and annual receipts that do not exceed $5,000 in value.

• Every officer, agent, shop steward, and other representative and employee who handles funds or other property of a covered union or trust must be bonded.

DOL Assistancehttps://www.dol.gov/olms/regs/compliance/bonding.htm

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Fidelity BondingHow much is required?Minimum• The minimum bonding amount for each covered officer or employee is

10 percent of the funds handled by the official and his or her predecessor, if any, during the preceding fiscal year.

Maximum• The maximum bond required for any one person in any one union or

trust is $500,000. However, a person who handles funds for more than one union or trust may be required to be bonded for up to $500,000 for each union or trust.

How to Compute Bonding Amount• Liquid Assets + Total Receipts x 10% = Amount of Coverage Required

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Lost time and wages• Lost time/lost wages

• Dates incurred• Specific times and number of hours claimed• Rate per hour• Purpose of lost time• “Union business” or “miscellaneous” are insufficient

descriptions and not acceptable.If a union authorizes and pays lost time, the constitution and bylaws should clearly spell out the when lost time will be paid.

https://www.dol.gov/olms/regs/compliance/CompTipLostTime.htm

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Final thoughts on how to prepare for DOL audit?

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DOL Coming ? Be Ready!!!1. Ensure minutes are maintained and are sufficient2. Review and ensure LM2/LM3 or LM4 is prepared

correctly and timely3. Review policies and procedures for all significant

areas such as travel and expense reimbursements.4. Ensure all compensation and benefits are properly

authorized 5. Ensure any expense allocations with employee benefit

plans has adequate support.6. Review internal controls of C/D, C/R and other critical

areas

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Be careful!!!https://www.dol.gov/olms/regs/compliance/enforcement_1.htm• Criminal prosecution or civil suits

• Any person willfully failing to maintain required records, making false entries in records, and concealing or withholding or destroying these records can be criminally prosecuted.

• These penalties can include fines up to $100,000 and/or one (1) year in prison. These penalties not only apply to the union’s officers who are responsible for the union’s finances and records, but also to anyone (member, employee, accountant, lawyer) who causes a false record to be created.

• The Secretary of Labor can also bring a civil action if it appears that a person has violated or is about to violate the recordkeeping requirements.

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New York, NY:462 7th Ave.16th FloorNew York, NY 10018

212.695.1591

Contact Information

Art Budich, CPA, CFE Partner

abudich@calibrecpa.com

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Glenn Eyrich, CPAPartner

geyrich@calibrecpa.com

202.331.988Washington DC:7501 Wisconsin Ave.Suite 1200 WestBethesda, MD 20814

202.331.9880

Chicago, IL:230 W. Monroe St.Suite 310Chicago, IL 60606

312.655.9145