Employee benefit plan audits conducted by the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL) can potentially cause headaches for many businesses. The DOL continues to add resources to enable them to increase the number of audits they perform annually. They are also continuing their initiative to improve audit quality by CPA firms. Fortunately, you can conduct the proper due diligence to ensure that you are well-prepared for such inquiries into your existing benefit plans.

Preparing for DOL audit

Do not take an audit lightly. The DOL has the authority to seek criminal penalties against any person who willfully violates certain provisions. It is very important to contact your CPA to assist you with the DOL requirements.

Areas of DOL examination might include:

• Has the plan been audited by a qualified CPA firm?
• Have Form 5500s been filed?
• Have the Summary Plan Description and the Summary of Material Modifications been provided to all participants?
• Are employees receiving benefit statements?
• If the assets are participant directed, have the annual and quarterly fee disclosures been made to plan participants as required under ERISA regulation 404a5?
• Have all deposits of employee 401(k) or 403(b) deferrals and loan payments been made in a timely manner?
• Have any plan assets reverted back to the employer?
• Have the plan fiduciaries determined that the plan fees are reasonable as required under ERISA regulation 408b2?
• Does the plan provide education for the plan participants annually?

DOL guidance on audits

According to DOL, employee benefit plans with 100 or more participants are required to have an audit as part of their annual reporting. Therefore, the selection of an experienced and reliable auditor is extremely important. You want the confidence that the financial aspects of your plan are in qualified hands. The DOL can levy fines of up to $50,000 on plan administrators for the failure to have quality audits perform on their plans by a qualified CPA firm.

Below are some important questions to ask when selecting an auditor:

• Does the CPA firm have experience auditing employee benefit plans?
• How many employee benefit plans does the firm audit?
• Does the CPA firm have a peer review conducted that specifically addresses employee benefit plan audits?

Additionally, plan administrators should ask whether an auditor is listed in the American Institute of CPAs Employee Benefit Plans Audit Quality Center. This directory of employee benefit plan auditors can reveal if he or she meets specific experience, training and practice monitoring requirements.

DOL emphasized the importance of selecting a qualified professional, noting that the company that administers the plan could be provided with penalties if the audit is not performed properly.

There are many specific requirements to properly perform one of these audits, and failing to meet them could potentially result in the plan suffering sanctions from DOL due to noncompliance.