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The right auditor provides more than compliance – they help strengthen your organization

September 18, 2015


An employee benefit plan audit fulfills your compliance obligations, but it can also be a tool to strengthen your organization. The right auditor will do more than just check the boxes – they’ll look at the big picture to make recommendations and help you correct and prevent errors. Put simply, a quality auditor will help you get the most mileage out of your audit experience.

More than compliance – quality

An audit provides a third-party, independent report summarizing the plan activity, investments and provisions, which enables the plan sponsor, participants and regulators to assess the plan’s ability to pay future benefits to participants. A quality audit enables plan fiduciaries to execute fiduciary responsibilities and demonstrate plan oversight.

During a plan audit, the auditors gain an understanding of plan controls and conduct compliance tests of critical plan provisions such as eligibility, employee/employer contribution calculations, timeliness of contribution remittances, loans and benefit payments. Plan auditors also review tax filings and non-discrimination testing results that are required for the plan to maintain a qualified status. This puts your auditor in a unique position to offer advisement based on the knowledge they’ve gained through your audit.

Here are ways a qualified audit team can help a plan sponsor:

  • Recommending plan control improvements or process efficiencies
  • Identifying operational errors to ensure participants are receiving promised benefits
  • Delivering regular accounting and regulatory updates
  • Providing IRS or DOL audit assistance
  • Presenting audit information at trustee meetings
  • Offering access to national benefit experts

Completing and attaching the audited financial statements to a large plan’s Form 5500 filing is a fiduciary requirement. But plan sponsors need to be focused on more than just compliance. When you take your eye off of quality, you put yourself at risk. Plan sponsors are at a higher risk of fines, operational failures, increased liability, fraud, and missed cost savings as a result of an incomplete, inaccurate or untimely audit.

A poor quality audit can also lead to rejection of the Form 5500 filing by the DOL, or additional scrutiny of your plan by regulators due to inaccurate reporting.

Saving you from errors

Plan administration can be complex and cumbersome, so it’s not surprising that errors can surface. And if audited by the IRS or DOL, correcting identified errors is generally more costly and time consuming than having a qualified auditor discover – and help management correct them – at the outset.

Here are the four most common errors identified during plan audits:

  1. Delinquent remittance of employee contributions – Delinquent remittance of employee contributions is a prohibited transaction and has to be reported separately to the DOL. Participant contributions must be remitted on the earliest date the funds can be segregated, and on a consistent basis throughout the year. Plan sponsors can expect additional scrutiny by the DOL and possible penalties if delinquent.
  2. Incorrect eligible compensation definition – It is fairly common that plan sponsors fail to follow the definition of eligible compensation as it is written in the plan document. This issue often arises when the definition is misinterpreted, if employees who are responsible for payroll are not informed of plan changes or if new earnings codes are added during the year. It is imperative to properly include and exclude specified earnings types. Be clear in your plan documents, and closely review eligible compensation for accuracy.
  3. Exclusion of ineligible participants – Your plan must have an accurate recording of eligible and ineligible participants. Maintain all participant enrollment, change and election forms and check to ensure documentation is accurate.
  4. Incorrect documentation of employer contributions – Some plans allow for multiple types of employer contributions, and it can be difficult for plan sponsors to properly apply and document contribution provisions. As a result, issues can arise with employer contribution calculations. Plan sponsors need to carefully review the plan document and record the annual approval of any discretionary employer contributions, including matching and profit sharing contributions.

The benefits of a quality audit go far beyond compliance. Working with the right auditor can reduce risk and offer plan fiduciaries peace of mind. If you’d like more information on how to identify errors in your benefit plan, request a free executive-level fiduciary assessment with a CSH advisor.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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