It may be tempting to brush aside an audit of your employee benefit plan financial statements as “just another to-do item,” but such nonchalance could prove exceptionally risky. After studies uncovered a relatively high level of deficiencies in these audits, the U.S. Department of Labor is cracking down—not necessarily on the auditors, but on those responsible for hiring them: the plan administrators.

As a result, failing to file an accurate Form 5500 for the plan that complies with all applicable ERISA and DOL requirements can leave your organization vulnerable to these two risks in particular:


Substantial penalties for plan administrators.
If your plan filing is rejected by the DOL, you have 45 days to correct it before they start assessing penalties. Once they begin assessing penalties, these could total up to $1,100 per day, without limit. What’s more, the DOL is likely to assess penalties back to the original filing date, not beginning after the 45-day grace period.
Fiduciaries may be personally liable for restoring losses to the plan.

This statement should make fiduciaries of employee benefit plans (i.e., trustees) stop and take notice. Because the hiring of a plan auditor is considered a fiduciary function, this action, like all fiduciary responsibilities, is not without potential liability. In the case of these audits, fiduciaries who do not hire a qualified auditor may be personally liable for restoring losses to the plan. Meaning, yes, the DOL could come after trustee Joe Smith.

What could this look like? Say Joe Smith hired an inexperienced auditor who didn’t properly test for missed contributions. As a result, several instances of non-compliance were left undiscovered. If Joe recognized the issue and corrected it with a year’s time, the liability would be minimal. However, if these missed contributions went on for more than a year, he could be liable for restoring the match portion plus 25 percent of the missed contribution. After two years, it would be the match portion plus 50 percent. As you can see, if these errors continue for years before the DOL catches on, the liability can really add up.


The moral of the story: Practice due diligence when hiring a plan auditor.

Because a deficient audit report could cause your filing to be rejected and bring penalties your way, hiring a qualified auditor is not something to take lightly. Before you hire an auditor, carefully evaluate the firm’s experience and technical capabilities. Employee benefit plan audits require specialized knowledge and training, so it’s important to hire a firm that has a proven track record in this area.

For a good place to start, seek out firms that are members of the AICPA Employee Benefit Plan Audit Quality Center (for a searchable database, click here). You could also ask your third-party administrator for recommendations. Once you’ve narrowed down your list, check each firm’s website for information about employee benefit plan audits—look for statements about staff training in this area, as well as proof that the firm’s auditors have certifications in employee benefit plan audits.

 

A sound audit leads to sound nights of sleep.

With the right auditor on board, you can relax knowing your employee benefit plan audit is not only in compliance but also serving its intended purpose: Providing an independent, third-party report to participants, plan management, and other interested parties verifying the integrity of the plan’s financial statements while assessing its present and future ability to pay benefits. And this knowledge, of course, is priceless.