How to Think Like an OFCCP Auditor

Your organization has received notice through the Office of Federal Contractor Compliance Programs (OFCCP)’s Corporate Scheduling Announcement List (CSAL) that one of your establishments is set to be audited at some point - where do you begin? There can be a lot of questions that come to mind when trying to prepare for an OFCCP audit - what is the agency going to look for? How will your organization know that you are providing the correct information? Are they just looking for problems? A way to ease this panic is to put on your OFCCP Compliance Officer (CO)’s hat and think like them. Let’s explore the ways in which the CO will review your audit submission.

The FCCM:

The Federal Contract Compliance Manual (FCCM) provides guidance to the COs as they conduct an audit. This manual gives a clear outline of what they are looking for in each audit and section of a contractor’s affirmative action plan. Each section of the audit submission is covered in this manual, including how to determine acceptability. Sections of this manual include Desk Audit, On-Site Review, Corporate Management Compliance Evaluations, Resolution of Noncompliance and more. The FCCM also offers guidance on the acceptability of the different sections of the AAP (for example, what documentation is acceptable for the Job Group requirement of the Executive Order 11246 regulations (Minorities and Women AAP).

The FCCM is readily available online and contractors are encouraged to reference this manual as needed. The OFCCP does recommend that contractors view the online version of this document, as this version will be updated most often. There can be slight differences in questions or decisions made between OFCCP offices, due to different regions, however these differences should all be within the guidelines of the FCCM.

The SCER:

The Standard Compliance Evaluation Report (SCER) is a process document that all COs must complete during the desk audit. You can think of this report as their audit review checklist.

The SCER starts off with Part A, the Preparation Section. This section documents whether there are any prior OFCCP reviews or investigations for the establishment under review, as well as if there are any known complaints or enforcement proceeds with other agencies including the Equal Employment Opportunity Commission (EEOC), Wage and Hour Division (WHD), or Occupational Safety and Health Agency (OSHA).

Part B of the SCER is the Desk Audit Section. In this section of the SCER, the CO is required to document if the required documents for a section of the AAP were included, and if they met the acceptability criteria outlined in the FCCM. The SCER will include a Summary of AAP Acceptability section, which is where the CO will describe any problem areas found during the audit. The CO will list what the problems were, the relevant evidence, and any actions taken to resolve the problems. A case summary and recommendations for appropriate corrective actions will be included if necessary.

How do I use the FCCM and SCER?

Now that you have an understanding of the resources the CO will use during their desk audit of an establishment, how as a Contractor preparing for an audit can these tools be beneficial? By referring to the FCCM and SCER, you have a roadmap of how the CO will proceed with the audit. By using these tools, you can ensure that your audit submission includes all the required elements of the AAP. You will also be able to identify any potential violations and consequences for these violations through the Resolution of Noncompliance section of the FCCM.

You can also feel as though you are a partner with your CO throughout the audit process by confirming the OFCCP is staying within the guidelines of the FCCM during your review. For example, if the agency comes back with follow-up questions, you can ask for the basis of their request. Another example would be if you feel your CO is asking questions outside of what they are allowed to per the guidelines of the FCCM, you can cite the FCCM in your response back to agency.

Personnel Activity Review

Now that we know the guidelines the OFCCP Compliance Officer has to follow during an audit, let’s take a look at ways the agency will review and analyze the Personnel Activity of your AAP.  

The Personnel activity includes the New Hire, Promotion, and Termination Data of your AAP. The CO will analyze the employment activity data to determine whether there are any statistical indicators that show the selection practices within the establishment are not neutral. This is done by using Impact Ratio Analysis (IRA), standard deviation analysis, or other analyses permitted under the Uniform Guidelines on Employee Selection Procedures. These analyses compare the selection rates of each individual race and gender category to see if any of the employment practices results in a negative consequence more often for one group than the other. For example, the impact ratio analysis examines whether the selection rate of non-favored groups is at least 80% of the selection rate of the favored group. A standard deviation analysis uses more sophisticated statistical techniques to determine if any selection rate differences are statistically significant or not. If there are statistically significant differences are found in a contractor’s hiring, promotion or termination data, this is something that the CO could ask about during the audit.

Preparing for a review of your personnel activity is your best defense in an OFCCP audit. The very first thing you can do is run the required adverse impact analyses and review your results before the audit. Where you have indicators of adverse impact, begin your internal research to determine the ‘why’ behind the indicators. For example, where there is adverse impact in your hiring data, can you explain why the individuals that were hired were selected over the other candidates that applied? Sometimes being prepared to tell the ‘story’ behind the results may include preparing additional analyses, for example running your hiring adverse impact by job title, instead of job group. You may also want to run a step analysis to see if there is a certain point in the selection process where the adverse impact is occurring.

Once you understand where the indicators are, be ready to provide descriptions of how employment selections are made in your organization. For each step of the process, you will want to make sure you identify the decision makers (for example hiring managers), the criteria that was used to make the decision, and ensure that the records regarding any employment decisions are being maintained.

Compensation Reviews

Another one of the biggest areas of review during an audit is compensation. This aspect of the audit and the way the agency is reviewing compensation for contractors is constantly evolving. Luckily, how the CO will examine compensation is covered in the FCCM.

According to the FCCM, the CO will look to address three key questions regarding a contractor’s compensation: is there a measurable difference in compensation on the basis of sex, race and ethnicity; are the differently compensated groups of employees comparable under the contractor’s wage or salary system; and is there a legitimate, nondiscriminatory explanation for the difference? From here, the CO must examine all employee practices to appear to lead to compensation disparities. These disparities could be an employee’s access to opportunities, for example work assignments that may include an incentive or higher pay, or even certain shifts that may have a shift-differential. The policies and practices will also be reviewed by the CO in relation to compensation to see if any of these unfairly limit a group’s opportunity to earn higher pay. Lastly, the CO will look to see if employee access to overtime hours, incentive compensation, etc. is accessible to all employees, where applicable.

The CO will then start to analyze the compensation data using statistical analyses. One of the analyses that is most often used is a Regression analysis. The OFCCP will compare similarly situated employees by forming pay analysis groups and controlling for relevant factors that influence pay. The CO will generally create the pay groupings to be analyzed – most often, the CO will start their analysis by job group, or even by EEO category. Keep in mind that the FCCM does require that the CO attempt to use any pay groupings provided by the contractor for analysis; if your organization has different pay groupings that employees are categorized in based on any company policies, be sure to indicate those groups to the CO.

Once the CO runs their pay analysis on the data provided by the contractor, they must notify the contractor in writing if there are any preliminary compensation disparities that warrant a further investigation. When results are received from the CO, be sure that the agency is looking at your pay correctly (for example, did OFCCP group employees appropriately). The best way to prepare for any questions that may come from the compensation review of the audit is to run your own pay analysis on your Item 19 snapshots (remember, with the new scheduling letter two compensation snapshots are required – your current workforce, and your workforce in the previous plan year), and research any disparities that flag. Contractors will also want to think about all aspects of their compensation practices - how do you pay; how is pay determined; and what compensation policies and practices are in place.

Ready, Set, Go!

OFCCP audits do not have to be a scary thing for contractors. A greater understanding of what is being reviewed, and how data is being interpreted by the CO can ease the feelings of dread when that piece of paper (or email) arrives that your audit is ready to begin. Be sure to watch out for trends in your employment practices and data - are there a lot of minorities and/or women concentrated in lower-level jobs; are the classifications of jobs correct; have there been any drastic changes in the workforce. These are all instances the CO will be looking at when reviewing your audit submission.

Understanding the ramifications of not providing the required data or reports to the CO during an audit may also help in understanding why it is important to submit the necessary documentation to the OFCCP during the audit process. When the CO does not receive the items listed on the audit letter, they cannot complete all their checkboxes on the SECR. This may cause the OFCCP to potentially come on-site to the contractor’s establishment, to obtain the missing information, or understand any additional indicators that may have occurred. Keep in mind that when the OFCCP does come onsite, it is highly likely they will want to interview certain employees, based on where the indicators lie (for example if there are hiring indicators, the OFCCP may want to set up interviews with the hiring managers for those jobs).

It is important to remember that the goal of an audit is never to point the finger at the contractor to state that they are doing something wrong. It is a check that the contractor is adhering to the regulations and is creating and maintaining a fair and equitable working environment. By thinking like an OFCCP auditor, you as a contractor can better understand and prepare for audits in the future.

If you’re still feeling nervous about an upcoming audit, Berkshire’s Audit Support Services Team stands ready to offer more hands-on guidance. You can reach out to one of our expert team members today!