Limited Scope Audits for Plan Sponsors

By Sheldon M. Geller

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APRIL 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.

The 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.

Accordingly, 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 participant loans.

A limited 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.

The 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.


Sheldon M. Geller, Esq., is managing director of the Geller Group LLC, a member of Focus Financial Partners.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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