Audit Risk? Going from Small to Large Plan

Client is moving from the short form 5500 to the long form based on the number of participants. In your experience is that switch more likely to trigger an audit? There are some other issues that require some expensive clean up. TIA

What kind of audit are you concerned about? an IQPA audit? IRS audit? DOL audit?

Unless I'm misremembering, if you are subject to circular 230 the chance of audit shouldn't really be a consideration when giving advice. 

and if they are going to the long form due to participant count - typically they are subject to an IQPA audit anyhow - so I'm not sure I understand the concern? 

Can you elaborate?

I am concerned about DOL or IRS audit. 

They are also switching from filing as a single employer plan to a multiple employer plan. 

There are some testing and compliance issues from the past. I am concerned that the changes to the 5500 could raise a red flag in the system to make it more likely that they will be slected for an audit.

I know that it is impossible to predict an audit. But, I just went through a random 5500 audit with another client, so I can't say that it never happens. 

My experience with hundreds of IQPA filings by a very large accounting firm and working with DOL on their processes in the past is that it should not necessarily trigger an audit just by the act of becoming subject to the IQPA audit unless there are some underlying problems in the return itself.

On 2/6/2020 at 1:18 PM, chibenefits said:

Client is moving from the short form 5500 to the long form based on the number of participants. In your experience is that switch more likely to trigger an audit? There are some other issues that require some expensive clean up. TIA

In my experience (45 years) I would suggest that a "normal" 5500 for the first time when previously a short form was appropriately used does NOT itself increase the chance of either a DOL or IRS audit.  The issue is always what is on the form that might interest the regulators, not what they did last year.  In any case, it is always a crap shoot as to who is going to get audited on a random basis.

The short form does not reveal much in terms of operational compliance.  To the extent that the IQPA audit report (filed as an attachment to the long form) includes footnotes or  notes financial adjustments as a result of compliance errors,  I would think the chance of DOL or IRS examination would be higher.  But I have no information to  prove that these agencies read the full auditors reports.  

If the plan has issues and you have selected an IQPA (CPA auditor) that has expertise in auditing employee benefit plans, the CPA auditor are going to find the problems first.  And then possibly hold up the audit completion until the problems are fixed or disclose the issues in the footnotes to the financial statements that are filed as an attachment to the Form 5500.

Just because you hire a very large accounting firm doesn't always mean they have expertise in auditing employee benefit plans.