Internal Control for Plan Management

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Plan administrators are faced with numerous rules and restrictions put in place not only by those in charge of retirement plan regulation, but also as stipulated in the plan document itself. Strong internal controls are essential for the administration of any plan to ensure accurate financial reporting, protection of plan assets and compliance with all regulatory requirements. A well designed system of internal controls will work to reduce the risk of fraud and to minimize errors as well as potential instances of noncompliance. When implemented properly, efficiencies in day to day operations will be increased and interactions with outside service providers, auditors, and regulatory bodies will be more effective and less painful for everyone involved.

There are various types of controls that can be implemented depending on what the objective of the control is determined to be. Generally speaking though, an internal control can be described as a systematic process, such as a review or procedure, put in place to assist individuals in conducting business in an orderly and efficient manner while safeguarding company or plan assets, increasing the likelihood of detecting and deterring errors, and overall producing reliable and accurate information that can be used by management and others in need.

According to the AICPA Employee Benefit Plan Audit Quality Center, the general characteristics of a good system of internal controls over financial reporting include:

  1. Policies and procedures that provide for adequate segregation of duties to reduce the likelihood that deliberate fraud can occur
  2. Personnel qualified to perform their assigned responsibilities
  3. Sound practices to be followed by personnel in performing their duties and functions
  4. A system that ensures proper authorization and recordation procedures for financial transactions

The internal controls implemented will vary based on the size, complexity, and type of plan as well as the size of the organization and the involvement of outside parties. However, despite the complexity of the plan or the organization, controls should not only be established, but should be well documented and communicated to all. One thing to remember is the controls put in place are only effective if they have been properly designed and are actually operating as intended. Monitoring and adjusting of controls is essential to ensure the systems in place are providing the protection they were designed to.

By Crystal L. Becerril, CPA