How Businesses Can Make Sure a Benefit Plan Audit is Successful


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Benefit plans are by their very nature decentralized. Certain aspects of the plan may be contracted out to third party service organizations specializing in accounting and investment record keeping functions. Paradoxically, however, companies take full responsibility for the integrity of all aspects of their benefit plan, including those managed by third parties.

Organizations with more than 100 employees eligible to participate in their benefit plan are required to have an audit performed on an annual basis and complete Form 5500. Although the audit should be performed by an external company, if applicable Preparing for and managing the process effectively is essential and can lead to an overall streamlining of your benefits plan processes.

Choose an experienced company

Audits of benefit plans are submitted to the US Department of Labor, which actively encourages companies to use experienced audit firms. According to the DOL, accounting firms that perform the fewest benefits audits are six times more likely to make errors than those that perform a high volume of employee benefits audits.

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Designate an internal person to manage the audit process

Since employee benefits can encompass retirement, health care, dental care and more, the different vendors involved and the information required for the audit can be quite sprawling. When companies do their first benefit plan audit, they often underestimate the implications.

The auditor should gain an understanding of all activities surrounding the plan, internal controls and financial processes that are directly related to how the plan operates. They will also need to understand the systems you use, such as payroll, a plan trustee, and a records keeper.

Designating someone within your organization to be the point of contact for the audit and to handle the compilation and sharing of this information will ensure the process runs smoothly and reduce the load on the rest of your team.

Understand your processes and controls

The processes and system controls that impact your benefit plan are an essential part of a benefit plan audit. This includes monitoring and controlling controls over third party service organizations that play a role in these processes.

For example, employees frequently change the percentage of their salary that is diverted to their retirement account. The company is responsible for making this change in its payroll system in a timely manner. It is important to understand how these changes are received and made in the payroll system and to ensure that procedures are established to ensure they occur.

The company also needs to ensure that it does not hold its funds longer than it should. Contributions, which include employee contributions as well as any employer matching, must be sent to the Trustee and Records Manager in a timely manner.

Maintaining these controls is no small task, but it is essential to protect the financial integrity of the employee benefit plan. Don’t be afraid of hiccups along the way: auditing can help management improve, streamline plan operations, and strengthen internal controls over reporting within the plan.

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A concrete example

My company was working with a technology company that had experienced rapid growth. As a result, the human resources department was understaffed and overburdened with other normal internal responsibilities. They weren’t able to make timely or accurate changes in their payroll system for employee contribution percentages, or sometimes even didn’t make the changes employees requested.

When we went to test the contributions paid for the employees, the amounts that the employee had asked to withdraw were either underestimated or overestimated. This had to be corrected before the audit was completed. More often than not, companies that have good policies and procedures on employee contributions to the plan would have identified this problem and resolved it before the audit process.

An audit helps the company file a complete and accurate Form 5500 for the plan with the DOL, but it can also help plan management improve and streamline plan operations.

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