Government audits: What do they want?

 Editors Note to Government Auditors: Government Audits, if disseminated to the public, must meet the standards set forth in the Data Quality Act , also known as the Information Quality Act.


 During the past two years, the federal government and many state governments have changed their focus from compliance assistance to enforcement. Gone are the days of federal government outreach, education and compliance assistance to employers.

As a result, the risk of government investigations and inspections, large penalties and the possibility of criminal sanctions have increased substantially for employers. Even more disturbing for hospitality employers is the focus by these federal and state agencies on the hotel industry. This three-part series will highlight the agencies targeting the industry and their enforcement tactics, provide employers with useful tips to avoid high-exposure claims and set forth a proactive approach to handling government investigations for employers faced with an investigation or inspection by a government agency.

Who are they?
Several federal agencies have specifically targeted the hospitality industry, and other agencies have implemented aggressive enforcement efforts against employers across the board. Both the United States Department of Labor and the Immigration and Customs Enforcement have stepped up enforcement efforts in the hospitality industry specifically. Secretary of Labor Hilda Solis clearly stated the agency’s position in her 2009 Workers’ Memorial Day speech when she said “Let me be clear, the Labor Department is back in the enforcement business.” She has made good on her word.

DOL Wage and Hour Division officials unofficially launched the Department’s “Hotel and Motel Resort Pilot initiative” in fiscal year 2011. Under this initiative, the Division has targeted and continues to audit hospitality employers in two areas: compliance with the H-2B program requirements (for temporary seasonal workers) and the Fair Labor Standards Act generally. 

DOL considers hospitality to be a “high-risk” industry for wage and hour violations for two reasons. According to the agency, the hospitality industry employs large numbers of “vulnerable” employees (younger workers, temporary workers and H-2B workers) who are not likely to complain. Secondly, the industry is what the DOL calls a “fissured industry” by which it means the industry is dominated by arrangements (such as franchises and management agreements) which results, in the DOL’s opinion, in the dilution of both the relationship between employer and employee and the responsibility for compliance with state and federal employment laws.

The agency will have more manpower and money to carry out this initiative against the hospitality industry. In fiscal year 2011, the Wage and Hour Division added more than 350 new investigators and more than $50 million to its budget.

The Department of Homeland Security also has made it clear that its priority has shifted from compliance assistance to enforcement. DHS Secretary Janet Napolitano announced early in her appointment that until a comprehensive immigration overhaul is passed, the agency’s enforcement efforts will target employers, including those in the hospitality industry. DHS has issued two large waves of Notices of Inspections; more than 500 were issued in September 2010 and hundreds more were issued in a second wave in November 2011. The inspection notices are accompanied by subpoenas and require in-person inspection of I-9 forms and payroll documentation. Targeted employers are given three business days to prepare for a meeting with federal agents from ICE. Fines for uncorrected technical and substantive errors on I-9 forms range from $110 to $1,100 per form, with higher fines for knowing employment of unauthorized workers.

Another agency beefing up enforcement efforts is the DOL’s Office of Federal Contract Compliance Programs. The OFCCP requires certain federal contractors and sub-contractors, including many hospitality employers, to take affirmative action to ensure equal employment opportunity in employment. Many unsuspecting hospitality employers with federal contracts are required to maintain a written affirmative action plan. Covered hospitality employers might face compliance audits aimed at their hiring, promotion and termination practices, with an emphasis on service workers such as bartenders, banquet servers, cooks, housekeepers and laundry employees. Like the other agencies, the OFCCP announced that it, too, is strengthening its enforcement priorities for fiscal year 2012, added 200 new compliance officers since 2010, and doubled the number of cases it has referred to litigation against employers.

These enforcement priorities, especially those aimed at the hospitality industry, make it imperative that employers focus on prevention and prepare for the government’s likely audit.  Arbitrary and unexpected government audits are a significant drain on the time and resources of businesses of all sizes. Small businesses will have to dedicate their limited resources to the audit process. Large businesses will utilize their resources as well and on a larger scale might face expanded audits covering all employees and departments as well as related or ancillary businesses.

Look for help in the next article, published Tuesday, which will focus on specific prevention and compliance strategies for hospitality employers of all sizes.

Disclaimer: The foregoing provides an overview of certain legal issues. It is not intended, and cannot be construed, as legal advice for any purpose.

Andria Ryan is a partner in the Atlantaoffice of Fisher & Philllips, LLP and serves as the chair of the firm’s Hospitality Industry Practice Group.  She represents employers in virtually every area of employment and labor law and can be reached at 404-240-421 or

The opinions expressed in this column do not necessarily reflect the opinions of or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.


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