How to Avoid an Employee Benefit Plan Audit

But if you can’t, how to get through one

 By Craig Dart

Does your plan need to be audited?

Large employee benefit plans (generally defined as plans with greater than 100 participants) and some small plans are required to be audited annually and attach an independent auditors report to the filing of the plan’s tax return; also known as the Form 5500.

What factors trigger an audit by the Department of Labor

1. Complaints from participants
2. The Department of Labor (DOL) and IRS has various targeting initiatives based on type of plan, size and types of investments held
3. The DOL and IRS also look at the Form 5500 for preparation mistakes and attachments with incomplete or irregular information.
4. The DOL is actively reviewing the financial statements of plans that are currently audited and are looking for reporting  failures such as  not complying with generally accepted accounting principles (GAAP) and presentation disclosures required by Employee Retirement Income Security Act of 1974 (ERISA)

Tips for getting through an audit

How does a company avoid getting audited or what should you do if you are required to have an audit because you have a large plan or if you get selected by the DOL or IRS?  Here are some suggestions.

1. Select a qualified CPA who has the expertise to perform an audit in accordance with professional auditing standards.  It ok to keep the same CPA to prepare your corporate tax returns, but have a CPA  with benefit plan expertise perform the audit to ensure compliance with the DOL regulations.
2. Provide adequate training to management and staff who will be administering the plan on behalf of the Company and its employees.  Your CPA can provide you with resources and answer many of your questions.  There are also numerous classes and resources offered by the AICPA and DOL for plan administrator.  Ask your CPA for guidance.
3. Actively monitor  and review the plans investments and investment performance  with an investment advisor
4. Use a recordkeeper who has experience in your industry and the type of plan you have
5. Make sure that the reports you receive match your internal records
6. Ask for the audit to be performed at your CPA’s office

What can go wrong with the administration of an employee benefit plan

Companies and their employees value their plans because they are a great way to save for retirement and offer many tax advantages.  However, the administration of the plan is sometimes labor intensive and the rules for administration can be very confusing.  As a result, there are many common mistakes that can occur such as the following:

1. Incomplete or inaccurate employment records
2. Failure to remit participant contributions timely
3. Failure to process participant distribution requests timely and accurately
4. Employer matching contributions or profit sharing contributions are not calculated correctly
5. Plan investments are not properly valued

What do you do if you find a mistake?

Plan administrators have a number of options if something goes wrong.  When something very serious occurs it is best to contact a CPA or an ERISA attorney.  However, the DOL also offers the Voluntary Fiduciary Correction Program (VFCP).  The VFCP is designed to encourage employers to voluntarily comply with ERISA by self-correcting certain violations of the law.

For more plan tips like these or ideas on how to properly plan for your audit or administer you plan, contact Craig Dart from C Dart CPA at 951-300-9680.