Motivation for delay in way the contributions are handled

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Reference no: EM131042695

You are the internal auditor for a firm which has a defined contribution plan for its employees. The plan is a 401(k), named after the Tax Code section that specifies the conditions for the favorable tax treatment of these plans. The plan calls for the employer to match one dollar for every two dollars of employee contributions. Approximately, $500,000 of contribution is deducted from employee paychecks each month for investment in one of three employer-sponsored mutual funds. While performing an audit, you notice that employee contributions do not show up on mutual fund statements for up to three months following the end of pay periods from which the deductions are drawn. On further investigation, you discover that when the plan was first begun, contributions were invested within one week of receipt of the funds. When you question the firms investment manager, you are told that the company's CEO has ordered the contribution to be first deposited in the corporate investment account. At the end of each quarter, the firm adds the employer matching contribution and deposits the entire combined amount into specific employee mutual funds.

1. What is the CEO's apparent motivation for the delay in the way the contributions are handled?

2. Do you perceive an ethical dilemma? Explain your reasoning.

Reference no: EM131042695

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