How auditors protect hard-earned employee benefits
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Professional Insights

How auditors protect hard-earned employee benefits

5 months ago · 4 min read

Workers spend a lifetime saving money to make sure their golden years are actually golden and their job-related benefits are safe.

If they need surgery, they want their company-affiliated medical insurance to keep them out of debt. If they are hurt on or off the job, they want their disability insurance to give them a source of income to help with their bills.

Employee benefit plan (EBP) auditors help protect employees’ stakes in all these hard-earned benefits, guarding the public interest in a way that few workers think about but most of them rely on.

“These [benefits] are ways to take care of your employees,” said Bertha Minnihan, CPA, who leads Moss Adams’s EBP audit practice. “…I want to be at the table to help.”

Employee benefit plans give companies a way to reward their people. CPAs who audit those plans provide companies and employees with assurance that some of the most important capital devoted to human capital is protected by controls that are designed as safeguards.

“That human capital enterprise, if you will, is very important, and we have to take care of that,” Minnihan said. “And so that's why I feel good [at the end of the day], because I want to work with employers to support their biggest asset and their most valuable asset, which is their employees.”

Getting maximum advantage

Minnihan serves the public interest through her audit practice, but she also believes it’s important for employees to educate themselves and take maximum advantage of their benefits. Best practices for the public include:

  • Taking full advantage of the matching funds in your retirement plan. Many plans only pay matching funds if the employee contributes some of their own money. Workers who don’t make that contribution essentially are taking a voluntary pay cut.

  • Getting appropriate investment advice. Typically, a worker in their 20s would follow a much different investment strategy from a person who is close to retirement.

  • Figuring out which health plan is best for you if multiple options are provided. Many health plans offer worksheets and case studies that can help you decide which plan has the best benefits for the right price for any individual’s situation.

  • Asking questions if you’re uncertain about your benefits. Human resources and the plan provider should be willing and able to help.

“I think sometimes as employees we trust our organizations, as we should,” Minnihan said. “However, we also should individually take a little more responsibility to understand what they are providing. Let’s maximize our use of what they’re providing.”

Auditors’ role

While plan participants have some responsibility for getting the most out of their benefits, EBP auditors provide a valuable service to employers, employees and the public by following a specialized, prescribed set of rules designed to determine the accuracy of financial reporting, adequacy of controls over the financial reporting process, and compliance with laws and regulations. Audits of EBP financial statements are intended to help safeguard a plan’s ability to pay the benefits it has promised in the present and the future.

Various employee retirement plans, health and welfare plans, and certain other plans that have 100 or more participants are required by federal law to have their financial statements audited each year. During an EBP audit, practitioners gather documents related to the plan, analyze payments by and contributions to the plan, examine data on participants in the plan and administrative expenses, and ultimately issue a report on the plan’s financial statements.

The process is quite different from a traditional financial statement audit, though, partly because there are more parties involved. In a traditional financial statement audit, the relevant accounts are maintained by the audit client.

In an EBP audit, the plan typically outsources the investment of participants’ assets and the administration of their benefits to service providers such as investment companies and insurance companies. But the plan administrators still have a fiduciary duty to run the plan solely in the interest of the participants and beneficiaries, and for the exclusive purpose of providing benefits and paying plan expenses.

“Benefit plans are unique in the sense that their world is quite a bit bigger,” Minnihan said. “The players — there’s the custodians, there’s the external trustee, there’s a payroll provider, there’s the investment adviser — are outside of the realm of the plan management.”

The balance sheet and income statement of an employee benefit plan may look simple compared to the financial statements of the companies they’re associated with. But each line on the EBP plan’s statements may have a lot of associated documentation that needs to be gathered from multiple parties and analyzed. EBP auditors understand where to find this documentation and how to test plan data for anomalies that would indicate something is amiss with a plan.

Oversight and resources

All this work is performed under the oversight of the AICPA’s peer review program and Professional Ethics Division. In addition, the U.S. Department of Labor works closely with leadership of the EBP audit profession to help practitioners understand best practices. The DOL performs audit quality reviews and refers substandard work to the American Institute of CPAs (AICPA) and state boards of accountancy. The DOL also periodically issues reports addressing the overall quality of these engagements and recommendations for improvement.

Meanwhile, the AICPA Employee Benefit Plan Audit Quality Center provides resources to help CPAs in their performance of these engagements and brings them up to date on the latest developments related to these audits.

These resources help auditors such as Minnihan perform the important job of protecting the interests of people who participate in employee benefit plans. When her parents retired, she saw the importance their savings played in supporting them at that time of their life. And she realized that she wanted to play a part in that process for other people.

“We're helping people that don’t realize it,” Minnihan said. “They have other things to do, right? They’re working. They’re taking care of their families. They’re raising kids. So, they’re doing a lot of things, and we’re here to say, ‘Hey, this is important. Let us provide professional services to your company to help safeguard your plan’s ability to pay the benefits it has promised.’”

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