Employee Deferrals - Reconciliation Shortages as Late Deposits?

When reconciling employee deferral/Roth contributions to deposits on an annual basis there is a shortage (and overage) for some participants - but a net shortage overall. When this doesn't tie out to a specific payroll (or at least doesn't appear to since I don't have payroll and deposit detail by paycheck) and the amounts can be small ($4 or $20, for example) - do you report these amounts on the 5500 as late deposits? Would you need to track down the shorted paycheck for lost earnings calculations?

You need to contact the client about the differences and ask to see their payroll records so you can reconcile the deposits. If there are late deposits they go on the Form 5500 and earnings should be calculated. 

Not sure how you would deal with this but I question a payroll system that has shortages and overages that can't be reconciled.  Of course, I don't deal with this all the time so maybe it is not unusual but the accountant in me bristles at the notion...  Note there are no de minimis exceptions for this type of error.

If you've got people who don't tie out, you're going to need the client to give you their amounts week by week.  It might reveal an entire screwed-up week company-wide for you, though, so there's that silver lining, right?

Consider also what scope of work your service agreement provides, and whether it’s wise or unwise to do something beyond that scope.

There is a distinction between late deposits and crediting contributions to the wrong participant. 

Late deposits are tied to the company not timely transferring participant money to the trust.  When looking at the payroll-by-payroll funding, if at anytime there was a shortfall, then that is a late deposit.

If there were crediting of contributions to participants so that at times some participants were underfunded and and at times some participants were overfunded, then not only should the correct total contributions be credited correctly, but also that related investment earnings should be credited correctly.  This may require funding if there is a net shortfall.

Don't forget to look at participants who were affected by this mess and who have taken distributions from the plan.

This definitely is not a trivial exercise and consider having the client sign an engagement letter prior to starting work.