The federal Department of Labor has
issued new enforcement initiatives
for the filing of Form 5500. The initiatives are designed to improve the quality
of employee benefit plan audits and help
employers select a qualified auditor to
ensure the audit is performed correctly.
“Oct. 15, 2007 is the extended deadline
for the filing of Form 5500 for employee
benefit plans, which may require the
attachment of an audit report,” says
Meresa Morgan, audit shareholder for
Briggs & Veselka Co. in Houston. “The
annual audit has an original filing requirement of July 31, but can be extended to
Oct. 15, if necessary.”
Smart Business talked to Morgan about
why audits are necessary, who should perform them and the consequences for not
filing the audits on time.
How do you know if your benefit plan
requires an audit?
There is not a single answer, but generally speaking, an audit is required if you have
more than 100 eligible participants at the
beginning of a plan year. This means even
if an employee does not make contributions to a plan offered by the employer, if
he or she is eligible to participate then he
or she is still counted when making that
determination. Therefore, you could have
100 eligible participants with only 10
actively participating in the plan and still
meet the requirement for an audit.
Who is responsible for engaging firms to
conduct the audits?
The plan administrators have the fiduciary responsibility of engaging a ‘qualified’
independent certified public accountant to
perform the audit of an employee benefit
plan.
Why are these audits necessary?
In late 2005, the DOL began a new
enforcement initiative to monitor the quality of the audits being performed by CPAs.
This program was created because previous reviews had documented that audit
deficiencies were occurring at an unacceptably high rate.
Just because a company uses a CPA to
prepare tax returns or compile the company’s financial statements, it does not mean
that the CPA meets the qualifications to
perform an audit of an employee benefit
plan.
How does a business owner know if an auditor is qualified?
Due to the complexity of the process, a
business owner needs to find out if his or
her CPA has a dedicated team that helps
ensure compliance with the appropriate
standards and changes in regulations related to employee benefit plan audits. Find out if the CPA firm has an ERISA
(Employee Retirement Income Security
Act of 1974) practice division. Of course,
make sure the auditor is licensed. Inquire
of the audit firm that it is independent,
meaning it doesn’t have any financial interests in the company or the plan sponsor or
the plan itself, that would hinder the firm’s
ability to render an objective and unbiased
opinion.
Inquire if the auditor received adequate
training and if the auditor has adequate
experience with employee benefit plan
auditing. Perform reference checks of
other ERISA clients of the auditor.
Business owners can perform verifications
with appropriate state regulatory authorities. They can inquire if the audit firm is a
member of the American Institute of
Certified Public Accountants Employee
Benefit Plan Audit Quality Center.
Membership is voluntary, but I can almost
guarantee that if a firm has a dedicated
team performing employee benefit plan
audits, it will be a member of the center.
Are there penalties for inadequate or nonfiling of audits?
The DOL has the authority to assess
penalties of up to $1,100 a day or $30,000
per year against plan administrators who
fail to file or file inadequate Forms 5500
and the respective audits.
For more information on how to select a
qualified auditor, plan administrators
can go to www.aicpa.org/EBPAQC.
MERESA MORGAN is audit shareholder for Briggs & Veselka
Co. in Houston. Reach her at (713) 667-9147 or [email protected].
