How Companies Can Ensure an Employee Benefit Plan Audit Will Be a Success


Benefit plans are, by their very nature, decentralized. Certain aspects of the plan are likely to be outsourced to third party service organizations specializing in accounting and investment record keeping functions. However, somewhat ironically, companies bear full responsibility for the integrity of all aspects of their benefits plan, including those managed by third parties.

Organizations with more than 100 employees eligible to participate in their benefits plan are required to have an audit performed on an annual basis and filed with Form 5500. Although the audit must be performed by an outside firm, preparing for it and effectively managing the process is key and can result in an overall streamlining of your benefits plan processes.

Choose an experienced company


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

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Assign an internal person to manage the audit process

Since employee benefits can encompass retirement, health care, dental care and more, the various providers involved and the information required for auditing can be quite sprawling. When companies do their first benefits plan audit, they often underestimate what’s involved.

The auditor should understand all activities surrounding the plan, internal controls and financial processes that are directly related to the operation of the plan. They will also need to understand what systems you use, such as payroll, a plan trustee, and a records manager.

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

Understand your processes and controls

The processes and system controls that impact your benefits plan are an essential component of a benefits plan audit. This includes oversight and monitoring controls of any third party service organizations that have a role in these processes.

For example, employees frequently change the percentage of their salary that is diverted to their retirement account. The company has a responsibility to make this change to its payroll system in a timely manner. Understanding how these changes are received and effected in the payroll system and ensuring that procedures are established to ensure they occur is important.

The company must also ensure that it does not hold onto its funds longer than it should. Dues, which include employee dues plus any employer consideration, must be forwarded to the Trustee and Recorder in a timely manner.

Maintaining these controls is no small task, but it is essential to protecting the financial integrity of the employee benefit plan. Hitches along the way aren’t something to worry about – auditing can help management improve, streamline operations associated with the plan, 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 grown rapidly. As a result, the human resources department was understaffed and overloaded with other normal responsibilities internally. They weren’t able to make timely or accurate changes to their payroll system for employee contribution percentages, or sometimes didn’t even make changes requested by employees.

When we went in and tested the contributions made for employees, the amounts the employee requested to withdraw were either understated or overstated. This had to be corrected before the end of the audit. More often than not, companies that have good policies and procedures on employee contributions to the plan would have identified this issue and resolved it prior to 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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