Audit Report Not Available

Hi -  

We have a client that has failed to file Forms 5500 for several years, and for all years in question, were subject to audit requirement.  Unfortunately, prior to around 2016, information necessary for the auditors to do a complete audit is not available.  Therefore, we are unable to get the auditors to sign off on those audit reports. 

Are there any recommendations on how to proceed?  We obviously want to file under DFVCP and pay the late filer penalty, but will not be able to do so without the auditor's report.  Any suggestions on whether we should

• not file the 5500s at all (seems like a bad idea)
• file without auditor's report (again, seems like a not so great idea, but better than not filing at all)
• file with an incomplete report, with explanation of the situation 

Thanks,

First, hire an ERISA attorney. Then decide the rest.

Thanks @Bill Presson.  Unfortunately we are the ERISA attorneys.  We originally proposed filing an incomplete report with explanation.  However, after discussions with a help desk agent at the DOL (take that for what it is worth), they informed us that the only options were to file the auditor's report (completed) or undue the plan as the plan could never be in compliance since an auditors opinion couldn't be produced for earlier years, therefore there was no way to substantiate any numbers in any subsequent 5500s. 

48 minutes ago, Guest121121 said:

Thanks @Bill Presson.  Unfortunately we are the ERISA attorneys.  We originally proposed filing an incomplete report with explanation.  However, after discussions with a help desk agent at the DOL (take that for what it is worth), they informed us that the only options were to file the auditor's report (completed) or undue the plan as the plan could never be in compliance since an auditors opinion couldn't be produced for earlier years, therefore there was no way to substantiate any numbers in any subsequent 5500s. 

Yikes. I've had plans that had to go back for audits, but we're always able (eventually) to get an opinion even with lots of caveats and disclaimers. Perhaps talking to a different audit firm would help? Perhaps one that exclusively does ERISA plan audits?

8 hours ago, Guest121121 said:

Unfortunately, prior to around 2016, information necessary for the auditors to do a complete audit is not available.  

What does this mean?  Which information?  Trust records?  Payroll?  Employer records? Why isnt it available?

Not available is rather vague.  Have they done all the possibly can do?  Is cost a factor? 

Like Bill, I have always been able to get what I need in the end, but some of them werent pretty.  I even had a client who had several decades of records destroyed in an explosion manage to get their audit done after considerable effort and expense. 

Thanks everyone.  

@RatherBeGolfing, to answer you question, I think it is bits and pieces of everything you listed.  I think there is some partial trust information, payroll records, etc., but not all the records (we have not personally been out to the client's physical location, so I cant speak for certain).  It appears as though they just did not keep good records prior to 2016.  They worked with a local payroll provider for a while (and they are in Alaska) and (I think), may have been doing a lot of their own plan administration (rather than using a TPA).  Even when they worked with a TPA/REcordkeeper, the TPA "fired" them because they were not responsive to their request for information to complete annual testing, etc. (they were under a different owner, which has since changed and is why they are now looking to address all these issues).  Unfortunately it does seem like a lot of the reason why information is not available is because the local payroll provider is no longer around (and hasn't been for years) and our client failed to retain any of their own records.   

Also @RatherBeGolfing, cost is not a factor (to some extent).  They realize this is going to be extremely expensive and was built into the sale negotiations.  I believe they have budgeted for about $500k in expenses (and are willing to go higher if needed).  On the other hand, i think we we start exceeding that amount by too much, than yes, cost then would become a factor.  

A method is using a separate (and unassociated) accounting firm to retrieve (including getting from the IRS the employer’s income tax returns and payroll tax returns), fill-in, and reconstruct the unreported years’ records.  (A plan’s administrator wants its independent qualified public accountant to maintain independence.)

On 11/4/2021 at 10:57 AM, Guest121121 said:

Unfortunately, prior to around 2016, information necessary for the auditors to do a complete audit is not available.  Therefore, we are unable to get the auditors to sign off on those audit reports. 

This then would be a "disclaimer of opinion", not a valid reason for the auditor to withhold or not sign the reports. From the instructions for Form 5500, Schedule H, Line 3a(3), "Check if a disclaimer of opinion was issued. A disclaimer of opinion is issued when the IQPA is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the IQPA concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive."

This is why this category originally existed, when the auditor couldn't timely, or ever, obtain all the materials it thought was needed, or prove that there was actual wrong-doing and to what effect it impacted the participants.  The limited-scope use of this category has become the default, and most audits are physically performed by junior associates who may not have any experience otherwise.

Obviously the reports would be full of warnings and whatever notes the auditors wish to include, and management may also include a rebuttal letter of explanation to the audit report if they so desired.  But it is not an excuse not to issue the report, if they are reluctant to do so for reasons not supported by SAS 136, fire them for breach, and hire someone who understands the situation and is willing to work with what you have available.