The Impact of COVID-19 on Benefit Plan Audits: An Auditor’s Perspective
In addition to the well-known provisions on business loan programs, paid vacation and individual stimulus checks, the CARES Act included certain elements related to qualified pension plans – 401 (k), 403 (b) and government 457 ( b) – such as authorizing distributions related to the coronavirus, modifying the rules relating to loans to participants and minimum distributions required, and allowing delays in pension contributions.
While these changes, and COVID-19 in general, have undoubtedly had an impact on plan sponsors and members, another consideration is the impact of the new rules on benefit plan audits.
A major difference between past audits and those today is that they are now almost entirely performed in a remote environment. So the security of sensitive information passed from the plan sponsor to the auditor (and vice versa) has never been more important. Auditors should stay in close contact with plan sponsors and remind them to consider potential cybersecurity issues, as sensitive member information is held by the plan sponsor as well as a service provider. SSAE16 service provider reports should be reviewed by plan management to ensure that appropriate internal security and controls are in place, and plan sponsors should review their internal security with respect to the plan and discuss with the pension plan committee.
Equally important is the effectiveness of audit tests and questions to the plan administrator in a remote environment. The plan sponsor resources available to devote to the plan audit may have changed, so the following should be considered:
- Plan audit priority and schedule;
- Errors in the execution of the provisions of the plan due to lack of resources and / or time priority;
- Changes in eligible compensation possibly due to leave and other events that may have occurred in 2020, which could create errors in the determination of eligible compensation for the purposes of employee deferrals and matching contributions of the employer;
- Timely deposits of employee contributions in the event of termination of employment of employees responsible for payroll; and
- Lack of formal corrections when errors are found.
When it comes to changes to benefit plans, auditors will need to consider several unusual items in light of the ongoing pandemic and the resulting legislation. If distributions increase in 2020, auditors may be required to select larger samples for distribution and loan testing. Additionally, auditors should review any changes in internal controls due to downsizing, if any, and ensure that appropriate controls are still in place to protect plan assets. Other new considerations may include:
- Partial purposes of the diet: The most recent stimulus package extended the determination period to March 31, 2021 for 2020. This will allow sponsors of defined contribution pension plans to avoid the partial plan termination rules if the number of members as of March 31 2021 represents 80% of active participants. count at the time the state of national emergency is declared. Note that this is a general rule and that you must also consider the facts and circumstances.
- Plan changes: Ensure that formal changes required by the CARES Act or due to suspension or temporary suspension of employer contributions are completed by the end of 2020.
- Business continuity: Consider the plan sponsor ‘s ability to continue to operate and fund the plan.
- Fraud: While audits are not designed to detect fraud, there will be close scrutiny as desperate times sometimes call for desperate action. In these uncertain times, are there gaps in internal control that could allow funds to be fraudulently withdrawn from plan assets?
As the audits are carried out a year later, the impact of COVID-19 on audits of employee benefit plans will not be fully noticed until 2021, when the December 31, 2020 audits are completed. Employees have always relied on plan sponsors and auditors to protect their retirement savings. The COVID-19 pandemic has made this even more important. To stay abreast of ever-changing circumstances, plan sponsors and auditors will need to change the way and when plan audits are performed. These changes will likely have an impact on plan audits for years to come. With this new information in mind, listeners are up to the challenge.