The Importance of Reviewing and Improving Internal Controls

By ASPPA Net Staff • February 13, 2017 • 0 Comments
“There just isn’t time.” “We’re stretched too thin; we barely have the resources to perform essential functions.” These are common objections to reviewing and improving a retirement plan’s internal controls, notes a recent column, but they may be a siren song of false economy.

In “Internal Controls in a Retirement Plan,” a recent blog entry by auditing firm Belfint Lyons Shuman, plan auditor Chris Ciminera, CPA, QKA argues not only that internal controls are important to the plan, but also that they should be refreshed. “Although lack of time or resources is understandable, controls are an important aspect of running a plan accurately and completely and should be constantly reviewed and improved,” he argues.

“As auditors, we are required to review the controls in place at a plan sponsor of a retirement plan and its service providers to assess the risk of material misstatement resulting from control risk,” writes Ciminera. “In doing so, we constantly evaluate the adequacy of the control structure and recommend improvements to strengthen the processes to prevent errors,” he adds.

But merely applying internal controls isn’t enough, Ciminera says. “Reviewing controls helps auditors understand the processes in place to administer each retirement plan and design the audit strategy to address any identified control weaknesses.”

Cinimera offers ideas on areas that should be reviewed, and improvements that can be made in the areas of general plan controls, eligibility for plan participation, contributions, distributions and plan loans.

One improvement Ciminera suggests is expanded automation of plan processes. “This may be a good control because automation minimizes manual errors and puts plan administration in the hands of an independent third-party that is more knowledgeable about plan provisions and legislation,” he writes. But he adds the caveat that it is not a panacea, and that monitoring “is still crucial to ensure that the automated process is working.” He adds, “It is always a good practice to have someone at the plan sponsor regularly monitor and review all transactions. The excuse that the third-party administrator processed the transaction is not a viable one in the eyes of the IRS or DOL.”

“The complexity of retirement plans has given opportunities to many knowledgeable and qualified third-party service providers such as third-party administrators, investment advisors, ERISA attorneys, and CPAs to specialize and provide cost-effective expertise to sponsors with limited resources,” writes Ciminera. “It is important to remember that it takes a village to run a retirement plan,” he adds, arguing that choosing the right team “is an effective way to put controls in place to avoid costly mistakes.”