With the recent increase in the number of audits by the Office of Federal Contract Compliance Programs (OFCCP) comes the increased responsibility for contractors to be audit-ready. What can a company do to prepare for an audit? Conduct a self-audit. This alert discusses the different areas federal contractors should review, at minimum, to improve their affirmative action compliance position before an audit takes place. For clients who have been working with us for a few years, most of this analysis has already been completed for you. All you need to do is review the reports we send you, have documentation of all programs and commitments and ensure you can explain any potential problem areas.

Documentation Check:

1. Reporting Requirements: Contractors must annually file the EEO-1 and VETS-100 reports. These reports should cover all locations and are typically completed and submitted by the headquarters office in multi-location companies on behalf of the entire company. Ensure that these obligations are being fulfilled.

2. Recordkeeping: All three Affirmative Action Programs (AAPs) (i.e. for Minorities and Women, Certain Veterans, and People with Disabilities) should explicitly state that an audit and reporting system, as well as recordkeeping processes, are (or will be) in place. Review these documents, note the areas where these commitments are currently (or intend to be) made and ensure that it is accurate (e.g. does the recordkeeping system allow identification of applicants and employees by gender and race, is a separate file of those who volunteered this information maintained, etc.).

Analytical check:

3. Disparate Impact Analysis (a.k.a. Impact Ratio Analysis) Results: Last month's compliance alert mentioned that the most important items submitted to the OFCCP in the event of a desk audit are your "support data" which includes your employment activity (i.e. hires, promotions, transfers and terminations). First, ensure that the appropriate information is being recorded, tracked and maintained (see #2 above). Second, once the analysis has been performed, review any areas where a disparate impact occurred. Should any exist, note that this is not an indication of discrimination, but rather a "red flag" that will merit further investigation.

4. Progress Against Prior Year Goals: Compare your placement activity to last year's goals (if applicable). Did you meet your goals? If not, why weren't they met? Did opportunities exist to meet them? For those goals not met, have you documented your good-faith efforts to achieve your placement goals?

5. Compensation Review Results: Contractors must also provide compensation data as part of their "support data" during an audit. Since the government requires contractors to test their compensation practices for disparities (based on gender and race), testing should be performed at the time a contractor completes its annual AAP analyses and reports. Select a method of analysis, review your results and determine if further investigation of any area is necessary. If an analysis has not been completed on your company's compensation data, it would be prudent to find any underlying problems before the OFCCP does.

Some Practical Advice
Three things to keep in mind as you conduct your self-audit:

1. Be prepared to explain any potential findings of discrimination. Whether within the area of compensation or employment transactions, always be ready to support your results. Also, be sure to gather all the data you need and check its integrity before performing any analyses.

2. Document, document, document! Be sure to note data download dates, data cleaning steps and describe methods of analysis (if you are doing your own analysis). Record any other pieces of key information related to how you got your results should it ever be questioned. And finally…

3. Protect your documentation. Because these self-audits are completely voluntary, safeguard your documentation and analysis results. Realize that even though certain legal privileges exist to protect employers and encourage them to perform these self-checks, these results may be discoverable in the event of a discrimination lawsuit. Consult your legal advisor(s) regarding, for example, the Self-Critical Analysis, Attorney-Client or Attorney-Work Product privileges to see which best suits your needs.

A more thorough (and recommended) self-audit would also include, but not be limited to, review of many other areas such as employment practices, other specific components of your AAPs, recruitment practices and the overall selection process. For this very purpose, we recently implemented a new compliance questionnaire when working with new clients. We also use the questionnaire when working with new AAP representatives with existing clients. If you would like to "take the test," let us know and we can make it available to you. For further assistance, please give us a call or consult your legal advisor on what you can do to be prepared before the government comes knocking.