The most comprehensive resource available for human resources professionals providing HR news, white papers, custom research answers, webinars and OnDemand programs on the hottest HR topics,...
Retirement plans experienced fraud losses because of weak internal controls and risky investments, the IRS said Feb. 2.
The agency's Employee Plans Compliance Unit audited more than 800 Forms 5500 series that reported fraud losses, and examined the circumstances around the loss, how the plan accounted for that loss, what actions were taken to recover the plan loss and what actions were taken to prevent future losses, the IRS said.
The audit, called the Fraud Project, showed the majority of the results, 68 percent, came from a line entry error in return preparation. Whether the error was made by a handwritten or electronic entry, the most common problem was the fidelity bond amount being entered on a line for a loss caused by fraud or dishonesty, the IRS said.
The audit, one of the first projects by the unit, found that only 13 percent of returns showed an actual fraud loss and 19 percent of the cases involved a system line conversion error, the IRS said.
Some suggestions for establishing strong internal controls include tracing deposits and payments to original documents; having a third party check books and records; reconciling bank, investment and account information regularly; and ensuring payments are sent to correct vendors, the IRS said.
Risky investments can expose plans to additional taxes on prohibited transactions or unrelated business income, the IRS said.
The unit also audited Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, and found errors in reporting taxable distributions.
In the audit, called the Form 1099R-72(t) Project, the unit reviewed Forms 1099, that were marked with early distributions and then checked to see if the individuals reported the taxable distributions and the 10 percent early distribution tax on Form 1040, the IRS said.
The unit found that almost 40 percent of individuals made errors on Form 1040, with most of them not qualifying for an exception to the 10 percent tax on early distributions. The unit asked those individuals to amend their returns to appropriately report the distributions, the IRS said.
The agency is to use the information gathered during the audit to target areas for additional guidance and education, the IRS said.
For more information, see Compensation and Benefits Library's “IRS Guidance: 401(k) Plan Compliance Checklist” chapter.
To contact the reporter on this story: Allison M. Gatrone Washington at firstname.lastname@example.org.
To contact the editor on this story: Michael Trimarchi at email@example.com.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)