Lynne Houri Discusses Audits of Employee Benefit Plans

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Lynne Houri, CPA, is an Audit and Assurance Partner & Operations Partner. She has worked in the accounting field for 26 years, 24 of which have been with WNDE. She serves on its executive committee.
Lynne earned her B.A. degree in accounting from Cal State Fullerton in 1988. She earned her CPA designation in 1990. Lynne’s expertise is in manufacturing and distribution with a specialization in employee benefit plans and pension audits. She recently shared her insights on audits of employee benefit plans.

What basic requirements does the government have through the Employee Retirement Income Security Act of 1974 (ERISA), Department of Labor (DOL) and other regulations for employers regarding audits of their employee benefit plans?
The IRS and Department of Labor jointly have oversight over ERISA. The IRS requires Form 5500 to be filed for all ERISA plans meeting certain specifications. Those plans with over 100 participants (defined as anyone benefiting from the plan rather deferring or not) are required to include an audited financial statement for the plan with the Form 5500. Filings that do not include the required attachment are deemed not to be filed timely and are subject to penalties up to $1,100 a day.

Why are benefit plan audits important?
Benefit plan audits are important as they are meant to provide a level of protection to the participant that plan specifications are being followed. For most employees, the retirement plan that exists with their employer is the main means of saving for retirement. To have these assets protected is of major importance to the majority of family households.

When you audit an employee benefit plan, what are some key things you’re looking for?
In a typical audit, the purpose is to make sure the financial statements are fairly stated in accordance with Generally Accepted Accounting Principles. In an ERISA audit, the DOL also requires the auditor to test many aspects of the plan document to verify provisions are being followed for things such as contributions, benefit payments, eligibility and loans.

What are some common problems you observe, and how are you able to help correct them?
Common problems are found in the definition used for wages, timeliness of remittances and loan defaults. Many plan documents spell out wages as being W-2 earnings which is all inclusive. Many plan sponsors apply a differing wage base in applying deferrals due to situations such as bonuses, commissions and allowances. Many plan sponsors are still remitting contributions under a false sense of security that the 15th day of the following month is a safe harbor.
The DOL has been actively reviewing this and really expects that most plans remit contributions within three business days. Additionally, many plans fail to monitor loan repayments and apply default terms when applicable. Many of the errors we find can be self-corrected through various programs allowed for by the DOL and IRS. Some require ERISA attorney involvement and we are able to assist in navigating those waters.

Is it difficult for an organization to prepare for a benefit plan audit, and is it a difficult process to go through?
Generally speaking, a well-managed benefit plan should not produce a difficult audit process. However, if it has not had adequate oversight or is an initial audit, it can produce extra work to reconcile amounts and find required documents. In many cases, competent and organized service providers such as financial advisors, third party administrators and custodians can really help make this process easier. We take pride in helping our clients find ways to make this process and as easy as possible.

Why is an organization’s selection of an auditor important? What qualities should an organization look for in an auditor?
ERISA puts the burden of a proper audit at in the hands of the plan sponsor. Therefore, selecting an auditor that is well-versed in the uniqueness of ERISA audits resides with the plan sponsor. Not all audit firms perform these audits as they have special requirements. An organization should select an auditor that belongs to the Employee Benefit Plan Audit Quality Control Center of the AICPA which holds members to standards that demonstrate a commitment to audit quality and accuracy. In my opinion, an organization should make sure the audit firm does a sufficient amount of ERISA audits to enable them to have an expertise in this arena.

What experience does WNDE have in auditing employee benefit plans?
WNDE has been performing ERISA audits for over 15 years. Our assurance department is committed to these audits and almost all staff members maintain the required education and training necessary. We audit annually between 50 to 80 plans, which allows us to stay not only relevant to these audits but also very in touch with the competent service providers in this industry (TPAs and financial advisors). WNDE is a member of the BDO alliance which gives us access to a network of national and international firms. BDO is very involved with the ACIPA quality control center and we have direct access to their training and informative events. We are, therefore, always at the forefront of the DOL’s latest directives.

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