If your company provides an employee benefit plan and it has 100 or more participants, you’re generally required to have the plan’s annual report (Form 5500) audited under the Employee Retirement Income Security Act of 1974 (ERISA). Plan administrators have fiduciary responsibilities to hire independent qualified public accountants to perform quality audits.
Watch out for deficiencies
A recent study by the U.S. Department of Labor (DOL) revealed that four out of 10 employee benefit plan audit reports contained major deficiencies with respect to one or more relevant Generally Accepted Auditing Standards (GAAS) requirements. These deficiencies would lead to rejection of a plan’s annual report and put approximately $653 billion and 22.5 million plan participants and beneficiaries at risk.
Of the 400 plan audit reports reviewed, 17% failed to comply with one or more of ERISA’s reporting and disclosure requirements. The DOL’s findings underscore the importance of selecting an experienced accountant who specializes in handling employee benefit plan audits.
Select a qualified auditor
In addition to requiring employee benefit plan auditors to be licensed or certified public accountants, ERISA guidelines require auditors to be independent. In other words, they can’t have a financial interest in the plan or the plan sponsor that would bias their opinion about a plan’s financial condition.
Experience is another important selection criterion. The more training and experience that an auditor has with plan audits, the more familiar he or she will be with benefit plan practices and operations, as well as the special auditing standards and rules that apply to such plans. Examples of audit areas that are unique to employee benefit plans include contributions, benefit payments, participant data, and party-in-interest and prohibited transactions.
The conclusion of audit work is a good time to ask such questions as the following:
In addition to providing an opinion, your auditor’s report will highlight any problems unearthed during the audit. Experienced auditors can suggest ways to improve your plan’s operations.
Protect yourself and your employees
Employee benefit plan audits offer critical protection to plan administrators and employees. Your company can’t afford to skimp when it comes to hiring an auditor who is unbiased, experienced and reliable. If your CPA doesn’t provide this service, ask him or her to recommend another specialist to audit your plan.