Barry Frank, executive vice president and general counsel for SOS, said the company will provide the back pay, which he said amounts to 25 cents an hour for starting security guards over an 18-month period. The state contends they were being paid $10 an hour when they should have been paid $10.25. Frank called it "a technical issue," saying the security company thought it had a verbal agreement with the state to pay the lower rate to beginner workers and then add increases so wages wouldn't be stagnant.

However, Frank noted that the agency's review found the company was in compliance with other parts of the contract, including pension and health benefits.

The union 32BJ, which is part of the Service Employees International Union and has been working to unionize about 50 guards employed by SOS, first asked the state agency to conduct the audit after hearing complaints from the employees about incorrect wages, missed pension contributions and unaffordable health insurance. Earlier this month, the guards waged a one-day strike to draw attention to their concerns.

"The DAS report confirms what we already knew: SOS is not living up to its commitment with its employees or with the taxpayers of Connecticut," said Kurt Westby, 32BJ's Connecticut director. "SOS Security has been exposed for what its employees have long claimed: an irresponsible contractor."

The guards work at buildings that house the Department of Public Works, the Office of Policy and Management, the Department of Mental Health and Addiction Services and other agencies. SOS is one of at least five firms that provide security services at state buildings.

In a letter to the agency, Frank, said SOS agreed with the state back in 2007, when they were negotiating a rate increase, that it was important to provide extra pay to more senior guards. However, he said DAS only provided a 2 percent increase in the billing and pay rates, so "there was no room to provide any pay increase or premium pay for SOS's employees who had seniority over newer guards."

He said SOS and the state verbally agreed on a longevity program that included gradual pay increases over time, and that's why guards were paid at a lower rate during their first year-and-a-half of service. But according to DAS's letter, the contract that's under review is for Feb. 1, 2010, through Jan. 31, 2015, and "any prior contract terms and conditions do not apply" and "verbal agreements are not recognized as binding."

"As a lawyer, I understand their position," Frank told the AP.

SOS also maintains that it has tried to be a good partner with the state during difficult budgetary times. Frank said the agency approached the company in 2008 and 2010 and requested the company lower its billing rates.

"As a gesture of shared sacrifice, SOS agreed to lower its billing rates under the contract, while leaving pay rates unchanged," wrote Frank, adding how SOS also agreed "as a further gesture of good will" to stop billing for vehicles and radios provided under the contract.

"During each decrease, SOS worked diligently to provide value to DAS, while keeping our officers from bearing the burden of these changes," Frank wrote.

Besides the wage issues, the agency's report shows SOS breached its contract with the state by not properly calculating holiday pay. However, DAS determined SOS has offered health care benefits that are comparable to similar companies and has not breached its contract. Some guards have said they cannot afford the coverage and have to rely on taxpayer-funded programs for coverage.

The DAS report also determined that SOS did not breach its contract with the state by canceling its 20 percent matching contribution to the workers' 401(k) retirement plans because the contract only encourages employer paid pension contributions. They are not mandated.

Frank said the company hopes to reinstate the 401(k) match in 2013. He said the firm has been negatively affected by the economic downturn and limited by how much money its customers are willing to pay.

"They set the price and we have to fit the wage within the price," he said.