Site sweep initiates an audit of both business and personal finances.
Ryan ran a construction design/ build firm and worked all over southern CA from LA through Orange County and down into San Diego. His workers came from the areas in which his job sites were located and at any given time he had 3 – 5 job sites that were active. The company had grown from a mom-and-pop shop with Ryan DNA his cousin Andrew to a multi-million dollar complex organization but Ryan still very much felt it was the same kind of organization. The workers that he hired were like family. If they needed the day off, Ryan would bring in a Sub for the day. The best part was the culture of camaraderie that pervaded his worksites. It was something Ryan was very proud of.
When EDD audited Ryan, it started with a site sweep on a site he was not on so he didn’t realize that an audit was imminent. The workers caught up in the sweep were asked for documentation and a few of them didn’t have what EDD was looking for. The next stage was where the process got really intimidating. EDD showed up at Ryan’s house with agents flashing badges and, with no warning at all, started telling him he was going to lose the company, that they were going to talk to his business partners and clients, and generally intimidating him.
In addition to the audit on his business, some of the information that Ryan turned over to the auditor entangled his personal finances, so IRS was notified and an income tax audit was also initiated.
With the short timeframe in which EDD allows audited companies to provide the requested materials, Ryan needed help to even know what the status of his 1099 contractors was. His record-keeping was less than stellar even if his heart was in the right place.
What could Ryan have done better?
Giving EDD more information than they request or, the wrong information opened Ryan’s personal finances up to scrutiny. In his attempt to be helpful, he hurt his own situation. Record-keeping is essential to business success and the got1099 reports provide a business owner with the insights they need in order to justify their workers’ classification as a 1099 over a w-2. Business owners who have that kind of documentation can more easily pull records and show EDD that they are organized and efficient, taking the control of the audit situation back from the auditing agent and restoring it to equal footing.