Employee Benefit Plans (EBPs) are a cornerstone of any organization’s commitment to its workforce. Whether it’s a 401(k), pension, profit-sharing, or health and welfare plan, these benefits not only attract and retain talent but also carry a significant responsibility — ensuring compliance with the Employee Retirement Income Security Act (ERISA) and U.S. Department of Labor (DOL) requirements.
For organizations sponsoring benefit plans with 100 or more eligible participants, an independent EBP audit is required as part of the annual Form 5500 filing. This audit ensures the plan’s financial integrity, accuracy of participant data, and adherence to regulations — safeguarding both the employer and the employees’ interests.
At Trusty Accounts, we assist CPA firms and businesses across the U.S. with complete EBP accounting and audit support — ensuring accuracy, compliance, and efficiency at every step.
Understanding the Purpose of an EBP Audit
An EBP audit provides independent assurance that the plan’s financial statements are fairly presented in accordance with U.S. GAAP and that all operations align with ERISA and DOL guidelines.
The audit’s goal is to:
- Verify plan assets, liabilities, and transactions.
- Confirm participant contributions, distributions, and loan accuracy.
- Ensure timely remittance of employee contributions.
- Evaluate compliance with plan documents and IRS regulations.
By performing this audit, plan administrators demonstrate fiduciary responsibility — proving that the plan’s financial reporting is reliable and trustworthy.
Types of EBP Audits
There are two main types of EBP audits based on the scope of testing:
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Limited-Scope Audit
- Allows the auditor to rely on a certified investment statement from a qualified institution.
- Typically used when plan assets are held by banks, insurance companies, or regulated trustees.
- The auditor focuses on areas outside the certification — such as participant data, contributions, and distributions.
-
Full-Scope Audit
- Required when no certified statement is available.
- The auditor performs complete testing of all plan assets, investments, and transactions.
Understanding which type applies is essential for compliance — and choosing experienced professionals ensures the audit meets all regulatory standards.
Step-by-Step Process of an EBP Audit
Conducting an EBP audit involves a structured process designed to ensure completeness and accuracy. Below is an overview of how a typical audit proceeds:
1. Planning and Risk Assessment
The auditor begins by understanding the plan’s structure, internal controls, service providers, and key risk areas.
Key steps include:
- Reviewing plan documents and amendments.
- Identifying service organizations (record keepers, trustees, custodians).
- Assessing internal controls over contributions and disbursements.
At this stage, communication with management and plan administrators is critical to align expectations and timelines.
2. Testing of Participant Data
Accuracy of participant records forms the backbone of EBP auditing. Auditors verify:
- Eligibility and enrollment records.
- Accuracy of payroll and contribution calculations.
- Proper allocation of employer matches.
- Vesting status and participant account balances.
This ensures that each employee’s benefits are correctly reflected in the plan.
3. Testing of Contributions and Distributions
Timeliness and accuracy of contributions are key compliance areas.
Auditors check:
- That employee deferrals are remitted promptly after payroll.
- Employer contributions are consistent with plan provisions.
- Distributions, rollovers, and hardship withdrawals are properly authorized and documented.
Delayed remittances or unauthorized withdrawals can lead to DOL penalties, making this step highly critical.
4. Investment and Income Testing
Investment valuation is another vital component.
Auditors verify:
- Fair value of investments as of year-end.
- Proper classification between participant-directed and non-participant-directed assets.
- Accuracy of investment income, interest, and unrealized gains/losses.
For limited-scope audits, certified statements from financial institutions are reviewed to confirm accuracy.
5. Review of Plan Expenses
EBP audits must ensure that all plan-related expenses are:
- Authorized under the plan document.
- Reasonable and properly allocated.
- Consistent with DOL’s prohibited transaction rules.
Improper expense allocation can result in non-compliance findings, making expense testing essential.
6. Form 5500 and Financial Statement Review
The auditor evaluates whether the Form 5500 aligns with the plan’s financial statements and disclosures.
This includes:
- Reviewing required schedules.
- Ensuring reconciliation of trust statements and plan records.
- Confirming completeness of disclosures regarding related-party transactions, loans, and contributions.
Once completed, the auditor issues a report expressing an opinion on the fairness of the financial statements.
Common Mistakes Identified During EBP Audits
Auditors frequently encounter recurring issues during plan audits, such as:
- Late deposit of employee contributions.
- Incorrect eligibility or contribution calculations.
- Untimely updates of plan amendments.
- Lack of documentation for distributions or loans.
- Missing or outdated fidelity bond coverage.
Identifying and addressing these issues promptly helps avoid DOL or IRS penalties.
Auditor Responsibilities and Best Practices
As auditors, maintaining independence and professional skepticism is key. The following best practices help ensure audit quality:
- Understand the plan operations thoroughly — including third-party service providers.
- Communicate regularly with plan administrators to clarify discrepancies.
- Document all findings clearly for transparency and regulatory compliance.
- Stay updated with AICPA’s EBP Audit Guide and DOL reporting requirements.
- Perform analytical procedures to identify unusual transactions or balances.
Auditors must also maintain confidentiality and integrity throughout the engagement, as EBP audits often involve sensitive employee information.
How Trusty Accounts Supports EBP Audits
At Trusty Accounts, we understand the technical and compliance complexities of Employee Benefit Plan audits. Our specialized support services help CPA firms and businesses streamline the entire process through:
- Accurate financial data preparation for plan audits.
- Comprehensive reconciliation of participant data, contributions, and investment accounts.
- Automated reporting support for Form 5500 filings.
- Audit documentation assistance aligned with AICPA and DOL standards.
- Error identification and correction support to ensure compliance before audit submission.
Whether you are a CPA firm managing multiple plan audits or a business preparing for your first one, our experienced accounting professionals ensure every audit runs smoothly and efficiently.
Conclusion
Employee Benefit Plan audits are more than a compliance requirement — they reflect an organization’s integrity and fiduciary responsibility toward its employees. Ensuring accuracy, transparency, and adherence to regulations is vital for maintaining trust among stakeholders.
At Trusty Accounts, we provide tailored EBP accounting and audit support solutions that simplify the process for both businesses and CPA firms. From data accuracy to documentation readiness, our focus is on delivering audit-ready, compliant, and efficient support every time.
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