Quality Retirement Plan Audits and Compliance is Essential in Protecting Employees’ Benefits

by: John Granger, CPA

A recent study published by the U.S. Labor Department’s Employee Benefits Security Administration (EBSA) found that 39% of the audits reviewed were deficient and failed to comply with professional standards.  These results revealed both an alarming issue regarding the quality of employee benefit plan audits.  Over the past 10 years, not only has the number of deficient audits increased, but the total number of deficiencies is on the rise as well. Additionally, the review performed by EBSA supports the following conclusion:

• The number of employee benefit plan audits and the quality of the audit work performed by a CPA were positively correlated.  Of the CPA firms reviewed, those who performed the least amount of audits had a deficiency rate of 76% and the CPAs performing the most audits only had a deficiency rate of 12%.
• It was also noted that CPA firms that were members of the American Institute of Certified Public Accountants’(AICPA) Employee Benefit Plan Audit Quality Center tended to have audits with fewer deficiencies.

A well performed audit and engaging a qualified, experienced auditor will provide vital protection for your employee benefit plan.  Federal law requires that an auditor engaged to perform an employee benefit plan audit be licensed or certified as a public accountant by a State regulatory authority (i.e. Accountancy Board of Ohio).  Failure of an auditor to meet professional quality standards and plan compliance regulations could prove financially harmful for both a plan’s sponsor and participants, so care must be taken to ensure the plans are being administered correctly.   

Remember, benefit plan audits are unique engagements and are not your typical balance sheet audits.  It is in your best interest and the interest of your plan’s participants to ensure a quality audit is being performed to help protect the assets and financial integrity of your plan.

Employee Benefit Plan Audit Preparation Tips  

Understanding the tests and procedures performed by the auditor per professional auditing standards, will help reduce time spent searching for requested documentation and sending incorrect information.  Here is a list of the areas examined during an audit:

• Contributions – sample of participants and total contributions (i.e. deferrals, employer contributions) reported on statements provided by the third-party administrator (TPA) need to agree with the amounts on the participant’s payroll summary covering the plan year (i.e. Form W-2’s, Year-end Payroll Summaries).

• New Hires– sample of new entrants to the plan during the year under audit will be selected to ensure the participant is eligible for participation.  Therefore, have all hiring and plan enrollment documentation (if applicable) easily accessible and ensure that all information on these forms (i.e. D.O.B., hire date, SSN, first and last name, etc.) agree with each other before being processed and filed.  These forms include form I-9, employment application, form(s) of ID, plan enrollment form, etc.

• Participant Elections / Requests – if participant elections and requests (deferral %’s, distributions, loans) are paper filed with the sponsor’s plan administration, be sure copies of these documents are on file.  Failure to produce this documentation during a request may result in an audit finding / deficiency.

• Payroll – review and/or update company policy regarding documentation of payroll.  Company documentation of all employee / participant pay rates and any subsequent appraisals will reduce the possibility any deficiencies being noted while testing payroll.  This will also help ensuring that compensation used agrees with the definition in the Plan Document.  

*It is a good idea to be sure the administrator at the plan sponsor has online access to their account(s) at third party payroll service providers or maintains a reliable contact.  This will expedite the process of acquiring all payroll documents, summaries and reports needed.

• Plan Documents and Amendments – auditors are required to have copies of all updated plan documents and amendments for the plan in a permanent file.  

*It is a good idea to compile these documents throughout the plan year and be able to provide them upon request.

In addition to being prepared, we recommend that the plan administrator see if the plan’s TPA offers online access for auditors.  Providing this type of access will greatly reduce the amount of time spent by the TPA fulfilling the requests from the auditor.

Hobe & Lucas is a member of the AICPA Employee Benefit Plan Audit Quality Center.  For any questions you may have regarding employee benefit plan audits, DOL compliance, filing requirements, or audit documentation requests, please feel free to contact us at 216.524.8900 to speak with an experienced employee benefit plan auditor.