Don’t Fall Prey to Audit Perils

By ASPPA Net Staff • December 02, 2015 • 0 Comments
Employee benefit plan audits are not a suggestion — they are a requirement, at least for a plan that has more than 100 participants, which must include such an audit with the Form 5500 it submits. But the peril of failing to comply is not the only danger associated with this obligation.

Adam S. Lilling, partner in Lilling & Company, in “The Hidden Risks of Employee Benefit Plan Audits,” a piece which appeared in CFO, argues that there is more to beware of than simply giving in to the temptation to roll the dice and not bother. He points out that a chief financial officer loath to perform the function should think twice before delegating it to someone else.

The Department of Labor (DOL) has issued a similar warning. It has been sending letters highlighting the risks plans face at the hands of auditors that render “substandard audit work” and cautioning plan administrators to be careful when they choose an auditor.

Lilling joins the DOL in suggesting care regarding auditors. Lilling says, “Hiring an auditor is considered a fiduciary obligation, and failure to properly fill that obligation may result in personal liability for the officers of the plan sponsor — including the CFO.”

But Lilling’s caution also concerns delegation to in-house personnel. “Many CFOs consider these audits unnecessary and delegate the audit process to the controller or human resource manager,” Lilling writes.

That may seem cost-effective and is certainly convenient, but a CFO who uses such a strategy washes his or her hands of any role in the process at their own peril. “What many finance chiefs don’t realize,” Lilling writes, “is that in doing so they are ceding all control of the management of a risk that can come back to bite them personally.”

The audits themselves must be conducted in accordance with generally accepted auditing standards, and the statements that have been audited must be presented in accordance with generally accepted accounting principles, Lilling points out.

Additional matters that require attention, Lilling adds, include a census of plan participants and its supporting documentation, as well as procedures concerning hardship withdrawals.