3 Common Audit Findings and How to Avoid Them

Audit Findings

Written by Rachel Burrow

November 22, 2022

Another audit season for employee benefit plans has come to a close. To provide some insight on potential issues that plans should watch out for in the future, here are a few of the most common audit findings from the 2021 audit season.

1. Plan Compensation

Every plan document has a definition of what eligible plan compensation is. This compensation is used to calculate the amount of employee deferrals that will be withheld from each paycheck. Often times, special payments like bonuses, are not set up to properly have deferrals taken on them. If these payments are included in the plan’s definition of eligible compensation, employees would need to specifically elect a different percentage or elect not to defer on that payment. If the plan excludes special payments like bonuses from eligible compensation, it is acceptable for them not to have deferrals. Plan administrators need to review how the plan is set up on a regular basis, and if changes are desired for plan compensation, the plan document can be amended.

2. Overreliance on Third Party Administrators

All plan administrators have a fiduciary duty to their plans. They are responsible for ensuring the plan is operating in accordance with its plan document, verifying contributions are being withheld in accordance with participants’ elections, and reviewing the plan on a regular basis. If plan administrators are relying on third party administrators to perform these duties without any review procedures in place to verify this, it can result in a finding for overreliance on the third party administrator. To avoid this finding, plan administrators can tie out contributions from the custodian statement to the payroll records, pick a sample of participants on a periodic basis to verify investment selections are in line with their elections and recompute vesting, if applicable, on benefit payments.

3. Timely Remittance of Employee Contributions

The Department of Labor regulation 2510.3-102 requires that participant contributions be remitted to the plan on the earliest date which they can be reasonably segregated from the company’s general assets, but no later than the 15th business day following the end of the month. To avoid having a finding for this, it is recommended that plans have a backup trained in payroll and remittance procedures if an individual is responsible for manually releasing these payments for the company. In addition, if one is not in place, a written remittance policy should be created and followed to ensure consistent and timely contributions.

Each plan can struggle with different aspects of the audit. The previous findings are just a few of the issues that can be detected. The most important thing to keep in mind is to review the plan document on a periodic basis and ensure the plan is operating in accordance with these guidelines. Please contact your Hawkins Ash CPAs representative for additional information on these topics.

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Rachel Burrow
As an audit manager in the firm’s La Crosse, WI, office, I provide audit services for commercial entities, nonprofit organizations and employee benefit plans.

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