5500-SF reconciliation w/prior year not reconciling

[TPApril]

tpa firm cannot reconcile 5500 with prior year's trust on a new account.

thinking to file current 5500 with actual opening balance, which would not match prior year's 5500 closing balance, and also without amending prior year's 5500 since cannot reconcile that year's opening balance as well.

curious of other best approach practices to this scenario?

[BG5150]

Open with 2015 5500 closing balance and put the difference in 'Other Income'

[ESOP Guy]

I am pretty sure you will get a letter asking why your beg bal doesn't match if you do your idea.  I agree with BG5150.

If the prior year's work comes up in an audit the prior TPA can defend their work in my opinion. But most likely the audit lottery is on your client's side and no questions will be asked.  

[RatherBeGolfing]

If it is small enough, I agree with BG.  Otherwise, you may need to amend prior year 5500.

[hr for me]

Is anyone interested in finding out why it doesn't reconcile? I'd be concerned about  an underlying problem unless it can be proven where the mistake on the 5500 happened.   Too many years of reconciling trusts for 401(k)s that never allowed for even a penny's difference.  But I do understand that investigation takes time and money. 

How big is the difference and is it too much or too little?

[Bill Presson]

I would also be interested in how the 5500 compares to the participant accounts (assuming it's a DC plan).

[RatherBeGolfing]

1 hour ago, hr for me said:

Is anyone interested in finding out why it doesn't reconcile? I'd be concerned about  an underlying problem unless it can be proven where the mistake on the 5500 happened.   Too many years of reconciling trusts for 401(k)s that never allowed for even a penny's difference.  But I do understand that investigation takes time and money. 

How big is the difference and is it too much or too little?

Short answer?  Yes.  

I normally do not take on clients who are unwilling to fix known errors.  Can you prepare statements and returns using numbers you know are wrong? Especially when you don't even know why the numbers are bad? I personally don't think so.

Do I miss out on some business because clients refuse to correct prior bad work? Yup, but a vast majority of clients would rather get it fixed than just continue with bad data.

In order to "patch" differences between return and report, you have to at least know what you are patching and why.  If there is an unexplained difference, you need to investigate.

That is my opinion, your mileage may vary.

[Calavera]

Possible mismatches may come from accounting for payables/receivables benefit payments and/or expenses on 5500. Also some statements sometimes show the accrued income, and some do not.

[My 2 cents]

1 hour ago, Calavera said:

Possible mismatches may come from accounting for payables/receivables benefit payments and/or expenses on 5500. Also some statements sometimes show the accrued income, and some do not.

Accrual vs cash accounting etc. - one is supposed to follow the same methodology year after year, so if they counted accrued interest and/or receivable contributions, you should too!

[RatherBeGolfing]

2 minutes ago, My 2 cents said:

Accrual vs cash accounting etc. - one is supposed to follow the same methodology year after year, so if they counted accrued interest and/or receivable contributions, you should too!

And those items would easily be accounted for when reconciling the trust and return. 

[TPApril]

Let's just say it all sounds easier said than done. Am I curious to know why it doesn't reconcile? You better believe it.  Yes I've exhausted every type of reconciliation item I can think of and a number of hours I won't be billing them for. This particular takeover plan was doing it in house and former employee tasked with the 5500 did not leave records. Yes I have looked for potential fraudulent transactions. My inquiry above may seem simple, but I've always managed to reconcile every other account over a good number of years and have never had to proceed as such. It's actually a good case study of why 5500's are best left to professionals.

[ESOP Guy]

I always cringe when I hear I am being assigned a client who did the plan's work in house before me.  The odds of a VCP are always very high. 

[Bird]

Been there.  At some point you do the best you can and adjust - I'd hope the trust report and individual account records are right, and the 5500 was wrong, and adjust that in the current year. 

[TPApril]

11 hours ago, ESOP Guy said:

I always cringe when I hear I am being assigned a client who did the plan's work in house before me.  The odds of a VCP are always very high. 

On the one hand, yes it's cringy...on the other hand, VCP's such as the one we are indeed doing for said plan do bring in extra revenue....and keep us on our toes with compliance issues...