The Hidden Risks of Employee Benefit Plan Audits
An employee benefit plan (EBP) that has over 100 participants is required to have an audit to accompany the filing of its Form 5500. Many CFOs consider these audits unnecessary and delegate the audit process to the controller or human resource manager.
What many finance chiefs don’t realize, however, is that in doing so they are ceding all control of the management of a risk that can come back to bite them personally. Failure to submit an EBP audit that meets standards can result in the U.S. Department of Labor bringing civil action against the plan sponsor and/or fining the sponsor up to $1,100 a day without limit. In such cases, the plan sponsor often incurs legal fees and spends a significant amount of time trying to resolve the situation.
The Employee Retirement Income Security Act (ERISA) requires plan administrators to ensure that plan financial statements are audited in accordance with Generally Accepted Auditing Standards, and that they are presented in accordance with Generally Accepted Accounting Principles, both of which are specialized for EBPs. Hiring an auditor is considered a fiduciary obligation, and failure to properly fill that obligation may result in personal liability for the officers of the plan sponsor — including the CFO. Read more on CFO.