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Audit & Assurance

Employee Benefit Plan Audit: What It Is & Why Is It Important?

What is an employee benefit plan (EBP) audit, and how can it help businesses? This is an important question. An audit is essential to ensure that your employee benefit plan complies with all applicable rules and regulations and to comply with Department of Labor (DOL) requirements.

The primary goal of ERISA is to safeguard EBP participants and their benefits. ERISA guarantees that EBPs follow guidelines that protect the employee benefit plan administrators from misusing plan assets.

When your plan reaches a certain participant count, it’s time to hire a certified public accountant (CPA) to audit financial statements to ensure your plan is compliant with regulations. In general, an audit is required if your plan has more than 100 participants as of the beginning of the plan year. The audited plan financial statements are filed with Form 5500 on an annual basis and are subject to DOL and IRS review. Form 5500 is part of ERISA’s comprehensive reporting and disclosure framework designed to verify that EBPs are managed and operated in accordance with relevant standards and procedures. The main goal of this system is to deliver crucial information to participants, beneficiaries, and regulators to preserve beneficiaries’ and participants’ rights.

It is critical to carefully follow each stage of this process because if Form 5500 is not filed on time, or the submission is refused, a fine may be levied until the filing is completed accurately.

What Is an Employee Benefit Plan Audit?

The purpose of an audit of an employee benefit plan’s financial statement is to ensure the plan’s financial integrity in order to deliver health, retirement, and other benefits to plan participants throughout the course of payments.

According to the American Institute of Certified Public Accountants (AICPA), financial statement audits for all employee benefit programs should cover benefit payments, participant data, contributions (employer and employee), investments, participants’ loans, participants’ allocations, costs of administration, and obligations and responsibilities under the plan.

However, employee benefit plan audits can be tricky and require auditors experienced in plan audits. In addition to financial reporting and audit requirements, the plan is also reviewed for certain DOL and IRS compliance requirements which can sometimes make it more complex than a financial statement audit.

The Employee Benefit Plan Audit Process

During an employee benefit plan audit, the audit firm looks for any major misstatements in the financial accounts, which could result from deceitful reporting or unintentional errors. The auditor works with plan management, the recordkeeper, and the third-party administrator to perform detailed tests on a sample of transactions.  The audit firm will also look to identify control weaknesses and operational errors as part of the audit process and make recommendations for control improvements or corrections to get the plan into compliance.

By assessing the strengths of the internal controls involved in financial reporting, an employee benefit plan audit may assist a company in streamlining and making the plan’s operations more efficient.

How Windes Can Help

Windes is dedicated to providing clients with the highest level of trust and confidence when it comes to auditing their employee benefit plans. Our members are experts in auditing standards, DOL, and ERISA filing requirements. For additional information on how we may assist your company, or for a complimentary plan audit quote, connect with us today.

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