While the term “audit” is usually associated with tax returns, it also has other applications. One type of audit many employers need to familiarize themselves with applies to the financial statements associated with their sponsored health care and retirement plans.

Enter the Employee Retirement Income Security Act (ERISA). Under this law, the financial statements of benefit plans with 100 or more participants, and with account balances on the first day of the plan year, must be audited annually by a qualified, independent third party.

Fulfilling Your Obligations

Why are audits required? For starters, ERISA’s provisions legally mandate plan administrators to help ensure that their benefit plans’ financial statements follow U.S. Generally Accepted Accounting Principles and are properly audited.

Also, independent audits help stakeholders assess whether financial statements provide reliable information about a plan’s ability to provide retirement, health, or other promised benefits to participants. In addition, they may help management evaluate and improve internal controls regarding the plan’s financial reporting.

Administrators who fail to obtain audits, or who hire unqualified plan auditors, may face substantial penalties from the U.S. Department of Labor (DOL). In addition, plan administrators who don’t follow the basic standards of conduct under ERISA and DOL regulations may be held personally liable for restoring plan losses.

Keeping Up

As organizations grow, the administrative challenges associated with employee benefits tend to also increase. The need for audits of plan financial statements is just one example.

And if you’ve been required to do audits for a while now, it’s important not to lose sight of your obligations. Contact us for assistance with your employee benefit plan audit needs.