June, 2008
The Auditors have arrived!
ERISA audits will be more intense this year due in part to Statement on Accounting Standards (SAS) No. 104-111 which deal with Risk Assessment Standards. The Statements are effective for periods beginning on or after December 15, 2006; early adoption was permitted. These Standards provide guidance for the auditors in assessing risks of material misstatement in a financial statement audit as well as the design and performance of the audit.
What plans are subject to an ERISA audit?
Generally, ERISA audits are required for funded plans (most qualified plans and some health and welfare plans) with more than 100 participants at the beginning of the plan year. However, special rules apply for plans with less than 100 participants with “non-qualifying” assets. (http://www.dol.gov/ebsa/faqs/faq_auditwaiver.html).
What impact will the Statements have on ERISA audits?
Bottom line – the cost of the audit will be higher– more time spent by the auditors and more time spent by plan sponsors preparing for and during the course of the audit. Anything you can do to prepare information up front and to assemble and organize documentation will save on fees.
What do the Statements require?
The Statements require that the auditors:
- Obtain an in-depth understanding of the plan and its environment, including internal controls with the goal of identifying the risks of material misstatement in the financial statement and what the plan sponsor is doing to mitigate them
- Perform more rigorous assessment of the risks of material misstatement of the financial statements based on that understanding
- Establish linkage between the assessed risks and the nature, timing and extent of audit procedures performed in response to those risks.
What can you expect?
The Employee Benefit Plan Audit Quality Center has prepared a list of questions to assist auditors. The list is titled “What Could Go Wrong” Questions; the complete list can be found at: (http://ebpaqc.aicpa.org/NR/rdonlyres/4403180F-F501-4ABA-AA1E-ADBE3C35F956/0/What_Can_Go_Wrong_Questions.pdf)
The questions are divided by topics including investments, contributions and related receivables, benefit payments, participant data, participant allocations and plan obligations, administrative expenses. The following is a sample of some of the questions:
Investments:
What ensures that:
- All investments are recorded?
- Interest, dividends, and other sources of income are actually received?
- Income is properly allocated among participant accounts, if applicable?
Contributions
What ensures that:
- All contributions are recorded?
- Recorded contributions and related receivables represent actual assets of the plan?
- Loans receivable from plan participants and related interest income are properly identified, classified, and reported?
Benefit payments
What ensures that:
- All benefit payments are recorded?
- Payments are determined and authorized in accordance with the plan instrument?
Participant data, participant allocations and plan obligations
What ensures that:
- Participant eligibility is determined in accordance with authorization?
- Employees are notified of their eligibility?
- Access to participants’ data is controlled to prevent unauthorized changes or additions?
Administrative Expenses
What ensures that:
- Administrative expenses are recorded at the appropriate amount and in the appropriate period on a timely basis?
- Access to accounts payable and cash disbursements records is controlled to prevent or detect on a timely basis unauthorized or duplicate payments?
What can you do?
If you haven’t already done so, document your procedures. In most organizations, there are different departments involved in the plan administration process (e.g., HR, payroll, finance); make sure you have a clear understanding of who does what and the controls in place. Conduct a compliance/operational review to affirm at a minimum
- that the plan is being administered in accordance with its terms,
- that all key players understand their roles and responsibilities, and
- that procedures and controls exist to protect participant contributions and data integrity and ensure the plan is administered in accordance with its terms.
Additional Resources
Further information regarding the Statements can be found at http://ebpaqc.aicpa.org/Resources/General+Accounting+and+Auditing/New+Auditing+Standards/Risk+Assessment+Standards+Nos.+104-111.htm
Further information regarding the importance of plan reviews
A tool to help you conduct a 401(k) self-audit is available for purchase at https://www.erisadiagnostics.com/compliance_corner.asp. Click on the self audit link.
The 401(k) self audit is also available from the International Foundation of Employee Benefit Plans website at www.ifebp.org/books.asp?8698E.
Note: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plans. For more information on this ErisaALERT, contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.
Copyright©2008, ERISAdiagnostics, Inc. www.erisadiagnostics.com
ErisaALERT 2008-1
