Employee Benfit Plan Audits
ERISA section 103(a)(3)(A) Counseling
Form 5500 "Large Plan" Counseling
State and Local Requirements
At Black & Pinckard LLC, we specialize in audits of employee benefit plans that satisfy the filing requirements of ERISA section 103(a)(3)(A). Pursuant to this section, employee benefit plans are generally required to engage an independent qualified public accountant to perform an audit if filing the Form 5500 as a "large plan" (plans with 100 or more eligible participants).
In a 1997 assessment of the level and quality of the audit work being performed by auditors with respect to employee benefit plan audits, the DOL found that 19% of the audits failed to comply with one or more of the established professional standards. They also found that 33% of the audit reports failed to comply with one or more of ERISA’s disclosure requirements. The findings stated that this error rate is at an unacceptably high level. Among the reasons for the failure rate was:
The nature of the problem is this – lack of knowledge. Most accounting programs do not include employee benefit plan audits in their curriculum because it is not emphasized on the CPA exam. Furthermore, as a result of the small budgets that accompany the audit, usually the staff person with the lowest billing rate is assigned to complete the task. Due to their lack of knowledge, they are forced to replicate the prior year’s procedures, providing little to no value to the plan audit or the plan sponsor. With the increased scrutiny by the DOL and the IRS into employee benefit plan audits, it is imperative that companies evaluate the quality of their audit and ensure that there is a professional with specialized audit and accounting experience involved in the audit.
Many corporate executives, as well as some auditors, view the audit of the benefit plan as a mere compliance headache which provides no value to the company or to the plan. Overlooking the importance of these audits can be costly. The DOL has stated that financial statements that do not comply with the requirements will be considered to be incomplete. The failure to file a complete return could result in significant penalties to the plan sponsor. DOL regulations provide for a penalty of up to $1,100 per day for each day that a plan sponsor fails to file a complete return. A specialized auditor with ERISA knowledge can bring to light any operational or compliance-related weaknesses prior to the involvement of the Internal Revenue Service or the Department of Labor (DOL) as well as ensure complete and accurate preparation of plan financial statements. If corrected timely, management can avoid or mitigate any penalties or hassles, which could result from non-compliance.
ERISA audits require effective planning and supervision as well as a thorough understanding of the applicable laws and regulations. Selecting a firm with the specialized knowledge and experience in performing the employee benefit plan audit can prove to be invaluable to a plan sponsor. With over thirteen years of combined experience in audits of employee benefit plans, we have developed an audit process that is driven by quality, efficiency and cost-effectiveness. We perform the audit in compliance with generally accepted accounting standards, Department of Labor and Internal Revenue Service regulations. We also devote our continuing professional education to plan matters and emerging audit issues by regular attendance at local industry meetings, as well as the annual AICPA Employee Benefit Plan Conference. Our primary responsibility is to provide you with the highest quality professional service by utilizing our specialized knowledge in planning and executing your audit.
In a 1997 assessment of the level and quality of the audit work being performed by auditors with respect to employee benefit plan audits, the DOL found that 19% of the audits failed to comply with one or more of the established professional standards. They also found that 33% of the audit reports failed to comply with one or more of ERISA’s disclosure requirements. The findings stated that this error rate is at an unacceptably high level. Among the reasons for the failure rate was:
the inadequacy of training and knowledge on the part of the auditors conducting the audits
the lack of awareness of the auditors as to the uniqueness of the plan audits
the perception by plan administrators and auditors of the importance of plan audits
the failure of auditors to perform necessary work
the failure of auditors to even understand the limited scope exemption
The nature of the problem is this – lack of knowledge. Most accounting programs do not include employee benefit plan audits in their curriculum because it is not emphasized on the CPA exam. Furthermore, as a result of the small budgets that accompany the audit, usually the staff person with the lowest billing rate is assigned to complete the task. Due to their lack of knowledge, they are forced to replicate the prior year’s procedures, providing little to no value to the plan audit or the plan sponsor. With the increased scrutiny by the DOL and the IRS into employee benefit plan audits, it is imperative that companies evaluate the quality of their audit and ensure that there is a professional with specialized audit and accounting experience involved in the audit.
Many corporate executives, as well as some auditors, view the audit of the benefit plan as a mere compliance headache which provides no value to the company or to the plan. Overlooking the importance of these audits can be costly. The DOL has stated that financial statements that do not comply with the requirements will be considered to be incomplete. The failure to file a complete return could result in significant penalties to the plan sponsor. DOL regulations provide for a penalty of up to $1,100 per day for each day that a plan sponsor fails to file a complete return. A specialized auditor with ERISA knowledge can bring to light any operational or compliance-related weaknesses prior to the involvement of the Internal Revenue Service or the Department of Labor (DOL) as well as ensure complete and accurate preparation of plan financial statements. If corrected timely, management can avoid or mitigate any penalties or hassles, which could result from non-compliance.
ERISA audits require effective planning and supervision as well as a thorough understanding of the applicable laws and regulations. Selecting a firm with the specialized knowledge and experience in performing the employee benefit plan audit can prove to be invaluable to a plan sponsor. With over thirteen years of combined experience in audits of employee benefit plans, we have developed an audit process that is driven by quality, efficiency and cost-effectiveness. We perform the audit in compliance with generally accepted accounting standards, Department of Labor and Internal Revenue Service regulations. We also devote our continuing professional education to plan matters and emerging audit issues by regular attendance at local industry meetings, as well as the annual AICPA Employee Benefit Plan Conference. Our primary responsibility is to provide you with the highest quality professional service by utilizing our specialized knowledge in planning and executing your audit.