A firm's auto-enrolment compliance should be checked as part of its regular audits because small errors can quickly amount to millions of pounds in liability if left unchanged, a consultancy has claimed.
Mark Ellis, director at Sanctum Software, said about 26 per cent of firms could be getting auto enrolment wrong to the point where consumer detriment is caused.
A survey his firm carried out among 17 advisory firms at the early stages of auto-enrolment, about two-and-a-half years ago, found 59 per cent thought employers were getting auto-enrolment wrong from a systems point of view.
A further 26 per cent of the advisers thought consumer detriment would be caused by the failings.
He said: “This was two years ago but I have seen nothing to suggest the amount of errors out there are anything less than 26 per cent now.”
Sanctum Software works with large and mid-size businesses.
The software is typically used by the firm's adviser to assess the potential liability from any mistake made.
Mr Ellis said the firms where it found the most errors were those employing between 300 and 2,000 people, which are "large enough that a problem can have a significant financial impact but they are unlikely to have in-house auto-enrolment expertise."
He said problems did not always occur at staging, they could creep up during staff changes later down the line, but any mistake made could quickly grow in scale.
One firm Mr Ellis had looked at had amassed liabilities of £500,000 involving 500 members of staff over the course of just a few years.
He said: "Although there are complexities in the detail of complying with auto-enrolment legislation, we and our partners have seen numerous examples of basic errors, including employers using the wrong contribution levels and errors in the application of tax relief.
"Auto enrolment hasn't hit the radar until recently because the financial impact hasn't been large.
"[But] we are seeing cases where basic errors in how auto-enrolment has been set up can, if undetected, result in significant liabilities for a business.
"The problem is people don't like to own up to this [unless they have to].
"Make this part of a standard company audit and then we will get some real data."
He also said auto-enrolment compliance had started to become a standard part of the due-diligence process in corporate transactions.
This is driven by concerns that undetected auto-enrolment compliance failures could result in significant liabilities, he said.
Besides, there is regulatory and legal risk as The Pensions Regulator has started to crack down on bad practice and employees could group together to form a class action, he said.
But Raj Mody, partner at PWC, said responsibility for checking compliance should not be pushed onto independent audit firms.
He said: "While the issue is obviously important, it is not the job of an external company audit to check day-to-day good management of an organisation.
"Plus given there are many detailed and technical aspects to auto-enrolment compliance, I doubt that all of that would routinely form part of a company audit.