Compliance

Plan Financial Audits May Uncover 'Red Flags'

By Kevin McGuinness editors@plansponsor.com | April 17, 2014
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April 17, 2014 (PLANSPONSOR.com) – When performing annual retirement plan financial audits, plan sponsors and their auditors should look for potential 'red flags' for regulators.

James E. Merklin, partner in charge of Assurance Services for the CPA firm of Bober Markey Fedorovich in Aktron-Ohio, explains, “Every year since ERISA was passed in 1974, employer-sponsored benefit plans, including retirement plans, with 100 or more participants have been required to undergo an annual audit of the plan’s financial statements by an independent auditor. The results of this audit are then included with the submission of that company’s Form 5500 paperwork to the federal government.” ERISA is the Employee Retirement Income Security Act.

Merklin tells PLANSPONSOR, “The auditors are looking to see if the statements are in line with generally accepted accounting principles, or GAAP. The auditors are looking to see how many types of transactions are present in the statements and how many they have to sample to reach a reasonable conclusion about the plan’s GAAP compliance. In this respect, the audit focuses on numbers and on making sure that disclosures are made properly.”

Merklin says auditors are also looking to see whether or not the plan still qualifies for tax-exempt status. “One purpose of the audit is to make it less likely that the Department of Labor or the Internal Revenue Service will come along and say that your plan or company owes taxes,” he says.

But GAAP compliance and maintaining tax-exempt status are not the only things auditors should be looking for, added Merklin. “There may be some things that the plan is doing wrong, and that can eventually become a problem for both the plan sponsor and the plan. Plan sponsors shouldn’t be afraid to have auditors, as well as legal counsel, take a deep dive into the plan documents and examine whether areas such as contributions are being carried out properly. Plan sponsors want to be the first ones to be aware of any issues, before the DOL or IRS spot them.”