Scope Audits for Plan Sponsors
Sheldon M. Geller
2006 - The Employee Retirement Income Security Act (ERISA)
allows plan sponsors to instruct an auditor not to perform
any auditing procedures with respect to investment information
prepared and certified by a bank or similar institution,
or by an insurance carrier that is regulated, supervised,
and subject to periodic examination by a state or federal
agency that acts as a custodian or trustee. This action
is available only if a trustee or custodian certifies to
both the accuracy and the completeness of the plan asset
information needed for the audit engagement.
limited scope exemption results in reduced audit procedures
and fees. It does not exempt the plan from the audit requirement,
but rather reduces an auditor’s responsibilities.
The limited scope audit provision does not apply to information
about investments held by a broker-dealer or a mutual fund,
but some have established separate trust companies that
will provide a limited scope certification.
plan sponsors may use information certified by a trustee
or custodian to prepare the plan’s financial statements.
Auditors should remember that while they may not be auditing
plan asset investments when performing a limited scope audit,
they can be responsible for ensuring that required financial
statement disclosures are adequate. Auditors and plan sponsors
should note that the certification often does not cover
scope audit is not available where one or more individuals
is named trustee and the custodian for plan asset investment
does not issue a limited scope certification. Furthermore,
not all corporate trustees issue certifications enabling
auditors to conduct a limited scope audit.
Department of Labor (DOL) issued a field assistance bulletin
on the fiduciary duties of directed trustees. As a general
principle, a directed trustee has no exposure to fiduciary
liability for actions that it takes pursuant to directions
given in accordance with plan terms unless the directions
are contrary to ERISA. Nevertheless, the appointment of
a corporate trustee or certain corporate custodians is advisable
to obtain the limited scope audit certification. Appointing
a corporate trustee may also avoid the appointment of individuals
as named trustee, and the associated personal liability.
M. Geller, Esq., is managing director of the Geller
Group LLC, a member of Focus Financial Partners.