If your plan has not been recently audited, it is likely only a matter of time before the Internal Revenue Service (IRS) or the Department of Labor (DOL) comes knocking. If/when you are notified of an audit, early preparation can help streamline the process, keep the investigation narrow, and avoid potential financial penalties and interest.

No one wants to be caught flat-footed when the auditors come calling. With a new standard issued by the American Institute of Certified Public Accountants (AICPA), both auditors and plan sponsors will be subject to new responsibilities.

Several events can trigger a DOL or IRS audit, such as employee complaints or self-reporting under the annual submission of the Form 5500. Oftentimes an audit is a random event, which is why you should always be prepared.

“What records should I keep? How long should I keep them? How should I organize my files?”

Beware of the IRS and DOL: Four Red Flags They Seek on Form 5500

The Form 5500 is an ERISA requirement for retirement plans to report and disclose operating procedures.

The Internal Revenue Service’s (IRS’s) Employee Benefit Audit Program is used to audit and enforce. The IRS’s emphasis, with respect to defined contribution plans is on compliance with the requirements of the Internal Revenue Code (the Code), the plan’s tax qualification and administration of all plan documents. In the event of noncompliance with regulations, the IRS can impose taxes, penalties and interest.