Employee benefit-plan audits


When we purchase stock from a corporation, we want evidence that its earnings statement is accurate. We want to know we’ll get a just return.

When we do business with another organization, we want confirmation that its records are clean.

When we invest dollars into a 401(k) plan at our place of work, we expect that this money will be deposited into the plan in full, and distributed where we want it.

“An audit basically verifies that all the information is correct,” says Ken Levine, director in the auditing and accounting department of SS&G Financial Services Inc. His specialty is performing benefit-plan audits, an in-demand service for businesses with more than 120 employees enrolled in a plan. “You take money out of your paycheck and put it in a plan. The Department of Labor requires that someone else audits that plant to make sure it gets your dollars and those dollars are being invested where you want them invested.”

Smart Business spoke to Levine about which businesses need the audits, what they involve and how to locate a reputable firm to perform the evaluation.

What does an employee benefits plan audit involve?
Essentially, an outside accounting firm reviews the books and records of a benefit plan, which is considered a separate legal entity from the business. The auditor then tests information in these records to ensure that information is accurate.

These audits typically cost from $8,000 to $15,000, though most mature plans may contain several million dollars or more. The investment in checking that records are correct is slight compared to the amount employees invest and earn over time. Usually, the company that sponsors the plan will pay for the audit.

What businesses are required to get an audit?
The DOL requires that companies with more than 120 certified participants get an audit of their employee benefit plan. Businesses with fewer participants aren’t required to get the audit. By setting a 120-employee cutoff, the DOL allows smaller businesses to avoid this expense.

How should businesses prepare for an employee benefits plan audit?
Business owners can make the process as efficient as possible by communicating with their auditors and coordinating efforts. There are certain documents an auditor will request.

First, the company must produce an annual trustee statement. This may come from a bank, insurance company or an investments firm like Fidelity or Vanguard.

Next, auditors will review participant information. Most plans require that employees work at a company for a set period of time before they are eligible for enrollment. The auditor will see that no who qualifies for the plan is barred from participation, and that those who participate meet standards. Each plan has its own nuances.

Then auditors will ensure that vesting is accurate. Let’s say a company matches 25 percent of employees’ contributions. The plan requires that employees work at the company for one year to get 20 percent of their investment, two years for 40 percent, and so on. These numbers must be accurate and clearly reported so auditors can approve them.

Finally, businesses should produce an audit report on their investment service provider. Because we operate in a virtually paperless environment, the auditor wants to know that controls are in place at the company that provides the benefits plan. Think of it this way: Your auditor is checking your numbers, and he or she wants to know that the investment company you work with is in the clear, too.

How can a business owner find a firm qualified to perform employee benefits plan audits?
Seek out a firm that expresses a major commitment to auditing employee benefits plans in particular. Find out if they are members of the AICPA Employee Benefit Plan Audit Quality Center. Ask for references. Hire an outside consultant with technical experience in how benefit plans work so he or she can provide solutions if there are discrepancies in the report. There are corrections processes set by the DOL, and the firm should understand how these might apply to businesses that find themselves in trouble. Usually, these slips are inadvertent and can be easily remedied with the help of a professional.

In the end, an employee benefits auditor will deliver an opinion that hopefully confirms that financial statements are accurate. Companies, by in large, take these audits very seriously. They realize that they are dealing with their employees’ money, and they want to do it right.

KEN LEVINE, CPA, is a director in the Accounting and Auditing Department of SS&G Financial Services Inc. Reach him at [email protected] or (440) 248-8787.

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