It’s spring cleaning season. Clean out your garage. Make sure your lawn mower still works after being stored all winter. And by all means, please review your plan documentation, disclosures, and operations. Reading legalese is never anyone’s idea of a good time, but the disclosures are supposed to exist for your protection. Lately, we’ve been disappointed by the clear gaps in the disclosure from professional investment managers and custodians, so it really is in your best interest to check the documentation and the processes designed to support your business operations. If you don’t review and understand the disclosed information, the disclosure is essentially pointless. Actually, it’s even worse than pointless because there is now an expectation that, when you receive a disclosure, you understand it. Ergo, you are more liable for understanding it.
Using similar logic, it is equally important to understand the big picture – the various inputs and outputs of a business process. We have become concerned that the mere presence of legalese and disclosures at a final level of reporting will convince plan sponsors that there is a level of professionalism and formality that must permeate the initial levels of business operations.
For example, plan auditors typically depend on SOC 1 or SAS 70 financial reporting standards. To explain, very briefly, these reports reflect the auditor goals to ensure that information is processed in a standardized way. However, these reports also clearly point out that if the information they are initially given is incorrect, than the results will also be incorrect. In other words, garbage in – garbage out.
Having documentation and fiduciary reviews can create a false sense of security if business processes haven’t been formalized on multiple levels. If the underlying raw materials – the data - for business operations or reporting are flawed, then it’s not going to improve anything by polishing the final results. Wrapping your arms around the totality of a business isn’t easy, but extending your vision periodically can avoid problems down the road.