What will the auditor look for?
The auditor wants to make sure participants’ money is going where they want it to go. If someone wants his money to go into mutual funds 1, 2, 3 and 4, it should be going there and not into funds 2, 3, 5 and 6. It’s up to the custodian to get the money into the right place.
Also, if there’s a company match, the auditor ensures that participants are getting the proper match. He or she also looks at when the money is coming out of employees’ paychecks and whether it’s being remitted to the plan as quickly as possible. There’s no hard and fast deadline on the number of days it should take, but it should happen very quickly so that employees’ money is going to work for them as fast as it can.
In a defined benefit plan, the auditor is making sure that in good years and in bad, the company is putting into the plan the amount determined by an actuary to cover all eligible participants.
If errors are detected during an audit, who is responsible — the plan sponsor or the custodian of the funds?
It could be both. If a company is not remitting funds as quickly as it’s supposed to be, that is clearly the company’s responsibility. But if participants are saying they want their money in one set of funds and the custodian of the accounts is making the mistake and putting it in different funds, that is the responsibility of the custodian. But even if it’s the custodian’s mistake, that doesn’t necessarily alleviate the plan sponsor from responsibility because that company is responsible for choosing, overseeing and managing a qualified custodian.
Usually the penalties are relatively small, but if a company does something intentional — say the plan sponsor hangs on to its participants’ money to help pay the bills — the penalties and the consequences can be severe. There are also penalties for noncompliance and for failing to file on time.
What should a business leader look for when hiring an independent auditor?
First and foremost, retain a firm that has experience in auditing benefits plans. You don’t want to be the only company or one of only a few companies that the firm audits, because an incomplete or inadequate audit can result in penalties against the plan sponsor.
Ask how many plans the firm audited and what is the size of those plans. A large public company could have a plan or plans with billions of dollars, while a private company might have a plan with a few million dollars, and there can be a big difference in the complexity of the audit. You want a firm that has experience auditing within the general ranges of your size plan.
Look at the combination of experience, skill and cost. You can always find someone who will do an audit inexpensively, but you get what you pay for. The cost of errors can be expensive. A good auditor will bring discrepancies to the attention of the business owners and help them correct those discrepancies.
A firm that doesn’t know as much is much less likely to identify the problem and then be able to help the company through the correction process.
KEN LEVINE, CPA, is a director of assurance services at SS&G Financial Services. Reach him at (800) 869-1835 or [email protected].