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@example.com.