As the employee benefit plan audit season gets underway and the Form 5500 due date to the Department of Labor approaches, plan sponsors should take this time to examine the company’s employee benefit plan operations and related fraud risks.

Most plan sponsors rely on a third party administrator to handle the bulk of the operations of the plan, and therefore believe the fraud risks of a plan to be minimal.  Too often, internal controls and segregation of duties surrounding a company’s benefit plan are overlooked or considered an afterthought. However, as indicated by the lengthy list of actual fraud cases published by the AICPA’s Employee Benefit Plan Audit Quality Center, retirement plans, even those with reliable third party administrators, are not immune from fraudulent schemes.

Whether it be distributions, expenses, contributions, investments, or some other plan aspect, proper internal controls and segregation of duties should exist within the plan.  Otherwise, schemes such as the following real world frauds could occur:

  • Distributions – An HR manager requested distributions for terminated employees that had been gone from the company for quite some time. The HR manager then redirected the funds into the manager’s personal account.  The HR manager was able to steal more than $30,000 in funds.
  • Expenses – A plan representative requested that the custodian pay certain vendors, all of whom were fictitious, for ordinary plan “expenses.” These payments were directed into the plan representative’s personal account.
  • Contributions – An HR employee redirected payroll taxes and plan contributions withheld from employees’ paychecks into the employee’s personal account. The scheme lasted more than half a year before the employee fled the country.
  • Investments – A plan administrator overrode the recordkeeping system and redirected a substantial portion of the earnings from a particular investment into the plan administrator’s personal participant account within the plan.

Given the significant investment balances in an employee benefit plan as well as the numerous fraud affecting retirement plans, the plan sponsor and the employee benefit plan’s advisory committee should routinely review the plan with the goal of identifying fraud risks and vulnerabilities.  As a CPA firm that annually audits more than 130 plans and is a Top 100 firm in the country for this type of work, Barnes Dennig is well versed in internal controls, fraud risks, and other matters as they relate to employee benefit plans.  If you or your plan’s advisory committee has any concerns, feel free to contact us here.

Additional Resources

For an annual update on “What Employee Benefit Plan Sponsors Need to Be Talking About,” consider registering for our employee benefit plan seminar on June 8th, 2017 at the Cintas Center.