Pension Scheme (and other benefits)

Control Objectives for Pension Scheme (and other benefits)

(a) To ensure that pensions schemes are correctly established and operated in
accordance with the prevailing legislation and good practice, so as to protect
members interests and safeguard the funds;
(b) To ensure that the scheme is suitably authorised and subject to a suitable
Trust Deed if required;
(c) To ensure that pension funds are kept completely separate from company
funds and fully accounted for;
(d) To ensure that membership eligibility rules are established and that only
bona-fide employees are accepted as members in accord with the membership
rules;
(e) To ensure that the prescribed investment and funding policy is followed in
all transactions, and periodically reviewed in order to remain pertinent;
(f) To ensure that all contributions (employee and employer) are accurately
calculated, recorded, deducted, paid over and fully accounted for;
(g) To ensure that trustees (and management) are kept regularly informed of
the performance and status of the fund;
(h) To ensure that the accumulated funds are adequate in order to meet the
projected pension and benefits demands;
(i) To ensure that the fund is subject to external audit scrutiny and that any
recommendations are appropriately followed-up;
(j) To ensure that members are kept informed of their accrued pensions rights
and other benefits;
(k) To ensure that all death in service and lump sum claims are validated and
handled in accordance with the prevailing legislation and tax regulations;
(l) To ensure that pension payments are correctly calculated, accounted for
and only paid over to bona fide pensioners;
(m) To ensure that refunds of contributions are valid, permissible under the
law and fully accounted for;
(n) To ensure that transfers to/from other pension schemes are correctly
valued and accounted for;
(o) To provide suitably experienced and qualified staff to administer the
scheme and respond efficiently to members enquiries, etc.; and
(p) To ensure that any Employee Share, Share Option or Profit Related Pay
Schemes are correctly established, comply with the relevant legislation, are fully
accountable, and are only operated for the benefit of bona fide and eligible
members.

Risk and Control Issues for Pension Scheme (and other benefits)

1 Key Issues

1.1 How can management be assured that the pension scheme is

correctly established and operated, and complies with the current legislation
and good practice?
1.2 Is the scheme in its current form authorised by management and
supported by documented procedures, rules and a suitable Trust Deed (if
applicable)?
1.3 Would any failure to comply with either the established rules or
prevailing legislation be promptly detected?
1.4 How can management and Trustees be certain that all pension funds
are kept strictly separate from company activities and remain fully
accounted for?
1.5 What mechanisms prevent either unauthorised or ineligible
employees becoming members of the pension scheme?
1.6 Has the preferred investment policy and strategy been defined,
agreed and documented, and how can management and Trustees be assured
that it is always followed in investment transactions?
1.7 How can members, management and Trustees be assured that all
pension contributions are valid, correctly calculated, deducted, paid over,
and accounted for?
1.8 What processes would detect anomalies or irregularities in respect of
contribution accountability, and how is any corrective action evidenced?
1.9 Are management and Trustees regularly supplied with accurate,
timely and relevant information on the scheme in order to discharge their
responsibilities?
1.10 Is the fund subject to regular scrutiny by suitably qualified external
auditors (or any other regulatory bodies), and are their recommendations
and observations adequately followed-up?
1.11 Are there processes in place to ensure that all payments from the
fund are valid, authorised, correctly calculated, paid over to bona fide
persons, and fully accounted for?
1.12 How can management be assured that the operations of any other
schemes (i.e. Employee Shares, Share Options, Profit Related Pay, etc.) fully
comply with the current legislation and tax regulations, and are fully
accounted for?

2 Detailed Issues

Pensions

2.1 Are the pension administrators and trustees kept fully aware of the current
legislation and good practice affecting the operation of pension schemes, and how
is this evidenced?
2.2 Has the establishment and ongoing operation of the pension scheme been
subject to appropriate authorisation?
2.3 Has senior management sanctioned the extent of the company
contributions to the scheme, the costs of operation, the methods of funding and
the membership rules?
2.4 Are adequate and up-to-date pension scheme rules and procedures in
place, and made available to scheme members and potential members?
2.5 Has a suitable Trust Deed been established for the scheme, and does it
define the nature and purpose of the scheme, the names of the trustees, the rules
for appointing trustees, the trustees' terms of reference, the method of funding,
the investment policy, benefits and conditions of membership, and the reporting
and auditing requirements?
2.6 How can management (and members) be assured that the requirements of
the Trust Deed are complied with?
2.7 Do the nomination and election processes for Trustees comply with the
regulations and good practice, and are the appointed Trustees suitably
experienced and adequately represent the interest of scheme members?
2.8 Are Trustees and/or the scheme administrators held accountable for their
actions, and have their responsibilities and duties been clearly defined?
2.9 Are separate bank accounts and fund accounts maintained for the
operation of the fund, and is there adequate segregation from company funds and
activities?
2.10 Are all investment transactions authorised and confirmed as being in
accordance with the documented investment policy and aims of the scheme, and
what prevents the processing of invalid or unauthorised transactions?
2.11 How are members and potential scheme members confirmed as being
eligible for membership, and how are all eligible members identified at the
appropriate time?
2.12 Are all contributions (employee and employer) calculated in accordance
with the rules of the scheme?
2.13 What prevents the level of individual members contributions exceeding
any statutory or regulatory limits?
2.14 Are all Additional Voluntary Contributions (AVCs) in accordance with the
prevailing regulations and scheme rules, and correctly accounted for?
2.15 Are all scheme contributions accounted for within the fund, and what
prevents the incorrect calculation and deduction of contributions?
2.16 Are all staff leavers identified and correctly notified of their options under
the pension scheme, and what processes prevent either incorrect or invalid
advice/data being provided?
2.17 How are all contribution refunds confirmed as being valid, accurate,
within the scheme rules, and in compliance with current legislation?
2.18 Are all contribution refunds correctly calculated, accounted for, trailed
and confirmed as only paid to bona fide members?
2.19 How can trustees, members and management be assured that the
accumulated fund is sufficient to meet the projected pension demand, and how
can they be confident that the current fund valuation is accurate and realistic?
2.20 Are trustees kept informed of the fund performance in order that they can
appropriately discharge their responsibilities to members?
2.21 What evidence is there that appropriate action is taken by trustees to
respond to investment or fund concerns?
2.22 Are trustees obliged to meet regularly and are minutes of their meetings
and details of the authorised actions appropriately maintained?
2.23 Are audited accounts provided to members on a regular basis?
2.24 Are all members queries and concerns about the fund and its
administration recorded and confirmed as being adequately (and independently)
dealt with?
2.25 Are the conditions under which the organisation can declare a
contribution holiday clearly defined and subject to adequate review and
authorisation?
2.26 Are regular statements of their entitlements provided to members, and
how is the accuracy and validity of this data confirmed?
2.27 How are Death in Service payments confirmed as being valid, authorised,
correctly calculated and paid over to bona fide beneficiaries?
2.28 What mechanisms prevent either pension department staff, trustees or
management from misappropriating members funds?
2.29 How are tax free lump sum payments confirmed as being valid, correctly
calculated in accordance with the relevant regulations, and accounted for?
2.30 Are all members approaching retirement identified and correctly advised
of their pension valuations?
2.31 How can management and trustees be assured that pension payments are
not made to invalid persons?
2.32 How can trustees and pension administrators be sure that they are aware
of all pensioner deaths and that the payments of pension benefit are either
accordingly ceased or correctly routed to eligible and valid dependents?
2.33 Are all transfers from other schemes accurately assessed for their
eligibility, confirmed value, and the relative value in the target scheme?
2.34 Are the best interests of the members taken in account when transfers to
and from the scheme are being considered, and how can members be assured that
they are receiving accurate and appropriate information and guidance?
2.35 How are all transfers into and from the pension fund accounted for,
authorised and trailed?
2.36 Are pension administration staff suitably experienced and qualified?
2.37 How are surplus scheme funds identified and dealt with, and is the action
taken authorised and confirmed to be within the law and in the best interests of
scheme members?
2.38 How is accuracy of data input from other systems (i.e. payroll and bank
accounts) confirmed?
2.39 How is the accuracy of data output to other systems (i.e. accounting
systems) confirmed?
2.40 What mechanisms prevent the unauthorised access to and misuse of
pension scheme and membership data?
2.41 Are pension administration and any external fund costs authorised and
monitored by management?

Employee Share Schemes

2.42 Has management authorised the scheme and ensured that it conforms to
the prevailing legislation and regulations?
2.43 Have the scheme rules been defined, agreed and documented?
2.44 How is membership eligibility confirmed and what prevents the
acceptance of invalid members?
2.45 Are staff leavers accurately identified, correctly notified of their options
under the scheme, correctly processed, and removed?
2.46 Are staff share holdings held in trust for the prescribed period and are all
holdings accurately identified and accounted for?
2.47 How can management be assured that the periodic allocation of shares is
correctly calculated and that the individual allocations are accurately recorded and
accounted for?
2.48 Are appropriate individual share holdings transferred from the trust to
personal ownership at the correct time (as determined by the current regulations)?
2.49 Are all scheme and individual share holdings correctly registered (and are
accurate holding certificates issued in good time)?
2.50 How can management be certain that all dividends due on scheme and
individual holdings are accurately calculated and paid over to bona fide share
holders?
2.51 Are all ownership transfers of scheme/individual holdings (i.e. upon the
death of the employee) confirmed as valid, authorised and accounted for?
2.52 How is accuracy of data input from other systems confirmed?
2.53 How is the accuracy of data output to other systems confirmed?
2.54 What mechanisms prevent the unauthorised access to and misuse of
scheme and membership data?

Share Option Scheme

2.55 Has management authorised the scheme and ensure that it conforms to
the prevailing legislation and regulations?
2.56 Have the scheme rules been defined, agreed and documented, and how is
compliance with them confirmed?
2.57 How is membership eligibility confirmed and what prevents the
acceptance of invalid members?
2.58 How is the accuracy and validity of the option allocations confirmed?
2.59 Is the accuracy of scheme data confirmed?
2.60 When members wish to exercise their rights to purchase shares from the
scheme, are their requests validated to the rules and confirmed as complying with
the current taxation regulations?
2.61 Are members payments for shares confirmed as being correct, recorded
and fully accounted for?
2.62 Are all shares purchased by members from the scheme subsequently
correctly registered and the appropriate ownership documentation issued?
2.63 Are members leaving the scheme or the organisation correctly advised as
to their rights and liabilities?
2.64 How is accuracy of data input from other systems confirmed?
2.65 How is the accuracy of data output to other systems confirmed?
2.66 What mechanisms prevent the unauthorised access to and misuse of
scheme and membership data?

Profit Related Pay

2.67 Has management authorised the scheme and ensured that it conforms to
the prevailing legislation and regulations?
2.68 Have the scheme rules been defined, agreed and documented, and how is
compliance with them confirmed?
2.69 How is membership eligibility confirmed and what prevents the
acceptance of invalid members?
2.70 How can management to certain that all entitlements are correctly
calculated, disbursed and accounted for?
2.71 What processes ensure that only eligible staff partake in the scheme and
what prevents unauthorised and ineligible participation?
2.72 Are payments under the scheme authorised by management, and how is
this evidenced?
2.73 Is the scheme subject to management review as to its effectiveness?
2.74 How is accuracy of data input from other systems confirmed?
2.75 How is the accuracy of data output to other systems confirmed?
2.76 What mechanisms prevent the unauthorised access to and misuse of
scheme and membership data?