Guidance on DOL requirement that Auditors test and report on timeliness of deferrals

[Guest Mikefcpa]

Does anyone have any informaton or advice for this information? I have searched the DOL site as well as others, but can not find much.

Do all of the employee deferral deposits have to tested or just a sample? I find it hard to believe that 100% must be tested. Also, do the results have to be reported in the Auditor's report even if all deposits were made as soon as segregated?

I understand that prohibited transactions must be disclosed, but my preliminary readings indicate that the Auditor must disclose (in the report) the results of the testing.

I appreciate any information you can provide.

[Harwood]

There certainly does not need to be 100% testing at the Participant level.

However, it seems entirely appropriate to see that, for the plan as a whole, the deferrals for each and every paydate were received by the Trust on a timely basis.

[Guest Mikefcpa]

Thanks for the reply. Testing the receipts of the deferrals at the Trustee or TPA level certainly would be easier.

I am curious about the reporting requirements as well. Some literature I have indicates that the results of the testing must be disclosed in the report. This doesn't seem to make sense really. The point of the testing is to verify the employers answer on the 5500 involving the timeliness of the deferral deposits.

What seems strange to me is that this appears to be a significant change for Auditors, but very little authoritative guidance can be found.

Anyhow, thanks for the response so far.

[JanetM]

Get your hands on copy of AICPA audit guide for employee benefit plans. I don't have the latest and greatest - mine is 2001 version.

[Harwood]

The latest "Audits of Employee Benefit Plans" goes through March 1, 2003. Perhaps some CPA has access to an AICPA update on this issue [the news about the change to the 2003 5500 requirements was announced around January 2004].

http://www.corbel.com/news/technicalupdates.asp?ID=243&T=P has a little bit on the subject

[Guest Mikefcpa]

I just ordered the AICPA Audit Guide today. Our current copy is 1-2 years old. The latest edition is expected to ship the first week of May.

Unfortunately, I have 4 401k audits that could be completed if not for this.

Meanwhile, I will check that link.

Thanks.

Followup: I checked that link and had already found that site. That wording was my original point. It is vague but somehow indicates that all of the deposits have to verified by the auditor and the Report must contain the conclusion.

[E as in ERISA]

I don't think that technically this is a new requirement.

The auditors have always had procedures for reviewing related party transactions and have been required to make sure that the footnotes to the client's financial statements include appropriate disclosure of any related party transactions (including exempt ones) and that the attached schedules show any nonexempt transactions. (A late deposit would be a loan from the plan to the sponsor, which would be a nonexempt related party transaction).

They are also required to compare the financial statements to the Form 5500 and make sure that they agree (or that there is a footnote explaining why they don't agree). A lot of the items on the Form 5500 can't be compared to anything in the audited financials (and vice versa). So in the past, I think that they have primarily compared the financial information on both -- and not much else.

I think that the DOL is just clarifying that one of the items that they must specifically compare is the reporting on late deposits -- that the answer on Line 4a of Schedule H agrees with what they found in the audit and what is disclosed in the footnote/schedules. I don't think that there are any other changes.

http://www.dol.gov/EBSA/PDF/2003-5500inst.pdf (p. 42)

[Guest 5500]

Katherine is correct. I don't think there is anything new here from the audit side. The DOL is stressing that participant contributions that are not paid over to the trust on a timely basis are a PT. Also that the payments are due as soon as administrativley feasible. I see many advisors that continue to tell clients thay have until the 15th day of the month after the month of the deferral to make the contribution. In many cases this is later than the date that DOL considers timely.

The auditors responsibility has not changed. As far as the audit report, if you become aware of a nonexempt PT that has not been properly reported on the 5500 schedules, you would have an adverse or modified opinion on the supplementary schedule, depending on the materiality to the financial statements.

There is no new requirement to test 100% of the deferrals. The amount of testing would depend on your assessment of control risk and other factors.

[Guest 5500]

To clarify my previous post - the PT for delinquent employee deferrals still affects the auditors opinion on the supplemental schedule since, for purposes of the audit, they are considered part of the schedule even though for 2003 thay are not actually presented on the schedule anymore. (How's that for confusing). I have not faced this situation for 2003, but I guess I would modify my report the same as if the required schedule had been omitted.

[Guest Mikefcpa]

Thanks for that information Kathryn and 5500.

I found some non authoritave information that supports your positions. Some of the original information I have suggests that the auditor must report the findings in the auditors report whether that are positive or negative. That just didn't make sense at all.

The tone of the articles suggested that the auditor should bear a larger amount of responsibility for the employers claims that the deposits were made timely within the regulations.

Thanks again.