403b audit findings rarely result from intentional errors. More often, they stem from internal controls that are informal, undocumented, or not applied consistently, which is a common issue in any employee benefit plan audit.
Understanding where these control gaps occur is one of the most effective ways for plan sponsors to reduce audit risk before fieldwork begins.
Key takeaways:
- 403(b) audit findings typically result from control breakdowns, not missing paperwork.
- Remittance timing, payroll alignment, and eligibility tracking are three of the most common areas where issues arise.
- Informal processes that “usually work” often fail under audit testing.
- Documented, consistently applied controls are essential for compliance.
- The most effective time to address gaps is before audit fieldwork begins.
Internal Control Issues That Commonly Lead to 403(b) Audit Findings
As Bennie Lewis, CPA, President & Partner at Assurance Dimensions, explains, “Most 403(b) audit findings aren’t surprises. They come from controls that work some of the time, but not consistently.”
The issues below are among the most common sources of findings in 403(b) plan audits.
Issue #1: Late or Inconsistent Remittance of Employee Contributions
Department of Labor regulations require that employee contributions be deposited into the plan “as soon as administratively feasible” after each payroll date. This means remittance delays, even minor ones, are one of the first things a benefit plan auditor looks for.
Common issues include:
- Inconsistent remittance timing across pay periods.
- A lack of monitoring between payroll processing and deposit dates.
- Informal processes that work most of the time, but not always.
Auditors view remittance timing as a significant control failure because late deposits constitute a potential prohibited transaction, a serious compliance issue that can trigger Department of Labor action.
Issue #2: Weak Controls Over Deferral Elections and Eligible Compensation
Payroll processes should accurately apply participant deferral elections and eligible compensation definitions in accordance with the plan document. When they don’t, common control gaps include:
- Elections not reconciled to payroll.
- Incorrect compensation definitions applied during processing.
- Data entry or system overrides that go undetected.
Lewis notes, “If payroll timing and deferral elections are not reviewed regularly, those gaps tend to surface during the audit. That’s one of the most common issues we see in 403(b) plans.”
Issue #3: Failure to Apply Eligibility and Entry-Date Rules Correctly
403(b) plans are subject to specific eligibility and entry-date rules, and plan sponsors are responsible for applying those rules consistently. Issues often arise when eligible employees are enrolled late, missed entirely, or tracked through informal processes rather than documented procedures.
When documentation of eligibility decisions is missing or inconsistent, auditors have limited assurance that the plan is operating in accordance with its terms.
What Plan Sponsors Can Do Before the Audit
Before the audit begins, plan sponsors should:
- Review payroll-to-recordkeeper processes to confirm remittances are timely and consistent.
- Reconcile deferral elections and compensation definitions against payroll data and plan terms.
- Document eligibility tracking procedures, especially for part-time and hourly staff.
- Identify gaps early so corrections can be made before they become audit findings.
As Lewis puts it: “The easiest way to reduce findings is to identify control gaps before the audit starts, not during it.”
How Assurance Dimensions Helps Plan Sponsors Reduce Findings
Assurance Dimensions brings deep experience with ERISA 403(b) plan audits and other benefit plan audits, along with an understanding of the operational challenges unique to nonprofits, schools, and healthcare organizations. Our approach focuses on early risk identification, practical control recommendations, and efficient audit engagements designed to minimize disruption.
Many audit findings can be addressed before fieldwork begins. If your organization is preparing for a first-time 403(b) audit or working through prior-year findings, Assurance Dimensions can help you evaluate key risk areas in advance.