Ensuring Compliance and Fiduciary Responsibility: The Role of Employee Benefit Plan Audits

Employee benefit plan audits play a crucial role in ensuring compliance and fiduciary responsibility within organizations. These audits are designed to assess the financial statements, internal controls, and regulatory compliance of employee benefit plans. To further understand employee benefit plans, we will discuss compliance regulations and the role of employee benefit plan audits.

Understanding Employee Benefit Plans

There are various types of employee benefits plans, such as health insurance plans, 401(k, and pension plans. Each of these plans serves a specific beneficial purpose for the employees and administrators, fiduciaries, and plan sponsors each having their own roles and responsibilities in managing and overseeing these plans. The framework of regulations over these employee benefit plans includes regulations from the Internal Revenue Service, the Department of Labor, and the Employee Retirement Income Security Act, also known as ERISA.

Compliance Requirements for Employee Benefit Plans

Compliance with regulatory requirements is a critical aspect of managing employee benefit plans, such as reporting and disclosing with regard to obligations. Reporting and disclosure obligations require transparency and provide participants with the necessary information, while internal controls are essential for maintaining the integrity of plan operations. Compliance requirements state that companies must accurately track and account for participant eligibility and contributions. To fulfill fiduciary duties, plan investments require careful management, which requires plan distributions and loans to comply with all applicable regulations.

The Role of Employee Benefit Plan Audits

Employee benefit plan audits assess the plan’s financial statements, compliance with regulatory requirements, and internal controls. The audits can focus on specific areas (limited-scope audits), or cover all aspects of a plan (full-scope audits), while qualified and experienced auditors perform the audits and provide an objective perspective of how the plan operates. The frequency of these audits varies based on the size of the plan and other factors. 

Key Areas Covered in Employee Benefit Plan Audits

There are several key areas that are covered during an employee benefit plan audit to ensure a comprehensive evaluation. Experienced auditors examine financial statements and disclosures to ensure accuracy and transparency in reporting by testing plan transactions and operations to verify the reliability of the data. The auditor also assesses compliance with requirements to identify areas of non-compliance and evaluate the effectiveness of internal controls and governance processes.

Consequences of Noncompliance and Fiduciary Breaches

Noncompliance and fiduciary breaches in benefit plans have severe consequences, as penalties and sanctions may be imposed based on the applicable laws and regulations. The organization may also face lawsuits and litigation risks from those seeking restitution. Additionally, noncompliance and fiduciary breaches can also result in damage to the company’s reputation and a loss of trust from employees, clients, or customers. The damage to the company’s reputation and the loss of trust impact the organization in ways that they may not realize.

Contact Us 

At Taurus CPA, we’re a member of the Employee Benefit Plan Audit Quality Center of the American Institute of Certified Public Accountants, which means we understand the importance of following regulations and compliance. As a member firm, we also have exclusive resources for employee benefit plan audits. For your employee benefit plan audit needs, reach out to us by filling out our online form, calling, or emailing us.