Plan Audits not Immune from Pandemic

COVID-19, along with the measures adopted to address the pandemic’s effects and the actions taken under those measures, have had unexpected effects—including an impact on plan audits.  

The changes that have taken place, as well as the pandemic itself, have affected both plan sponsors and participants, and “one additional consideration is how the new rules impact employee benefit plan audits,” writes Nancy Cox in “COVID-19’s impact on employee benefit plan audits: An auditor’s perspective,” a commentary in Accounting Today. She offers a different perspective on the effects of the pandemic.

Those changes, Cox notes, include CARES Act provisions that affect 401(k), 403(b) and 457(b) plans—such as those that allow distributions related to the virus and delays of contributions, and change rules concerning participant loans and required minimum distributions. 

Cox argues that there are important ways in which plan audits in these times differ from those that were conducted before we were beset by the pandemic; namely, where they take place, practical concerns resulting from changes in the availability of resources and changes to the functioning of benefit plans themselves.  

Venue 

Cox notes that unlike pre-COVID times, audits are now conducted remotely almost exclusively. And that, she says, means that making sure sensitive information is transmitted securely “has never been more important.” In that vein, she suggests that: 

• auditors stay in close touch with plan sponsors and remind them to consider cybersecurity;
• plan management review service provider SSAE16 reports to make sure there are proper security and internal controls; and 
• plan sponsors review their security internally and discuss with the retirement plan committee.

Practical Considerations 

Cox also cautions that in the current environment, the availability of resources from the plan sponsor for an audit may be different than they were before, and that the following considerations may be important: 

• the priority of the plan audit;
• the timing of a plan audit;
• failure to follow plan provisions because of resources or priorities;
• changes in compensation expenditures;
• timing of deposits of employee contributions; and 
• failure to correct errors. 

Benefit Plan Functioning

The changes that new laws and the regulations that implement them have made have resulted in some changes to how benefit plans have functioned, Cox notes. For instance: 

• Distributions may have increased, which could affect the samples needed for distribution and loan testing. 
• Staff changes may have affected internal controls. 
• The determination period for partial plan terminations was extended. 

Accordingly, Cox suggests that one: 

• Make sure that: 
  • plan amendments required by the CARES Act were done on time; 
  • the plan sponsor can fund the plan; and
  • the plan sponsor can continue to function.
• Be aware that the risk of fraud is higher. 

Remember that the impact of the pandemic on audits may not be evident until this year, Cox cautions. “Think beyond the pandemic with exclusive resources to help you build a thriving virtual practice,” she suggests.