For plan sponsors that are required to conduct an employee benefit plan audit, the process can be stressful. The Internal Revenue Service (IRS) and Department of Labor (DOL) regulate benefit plans and require an independent accounting firm to conduct an audit of the plan. Their role is to review and audit the plan’s operations, which means requests for financial disbursements, participant eligibility, insurance, investments and other plan documentation. Once audit work has begun, it’s common for auditors to make additional requests for information, ask questions about specific aspects of the plan and review information with you. While this may seem overwhelming, especially if it’s the company’s first benefit plan audit, there are steps you can take to make the process go smoothly. To help clients, prospects and others prepare for their first plan audit, JLK Rosenberger has provided a list of preparation tips below.
Preparing for Your First Plan Audit
- Hire a Qualified Auditor – It’s important to work with an experienced plan auditor who understands the nuances of benefit plan audits. There is a misconception that if a firm can conduct a financial statement audit they are automatically qualified to perform the plan audit. This is simply not true as experience is the key. In a study published by the Department of Labor there was a clear link between the number of plan audits performed by a firm and the quality of audit work performed. While this doesn’t mean an experienced audit firm will never commit mistakes, it does highlight an important trend that plan sponsors need to consider.
- Determine Audit Type – There are two types of benefit plan audits that are generally conducted: full and limited scope audits. In a limited scope audit your auditor is relying on the accuracy of the information certified by the bank or other financial institution. In a full scope audit additional examination takes place to ensure certain pieces of financial information are accurate. To determine which audit type is needed, communicate with your custodian to ensure they can provide the certification needed.
- Proactive Communication – The best thing you can do is communicate with your auditor as early as possible about what to expect during the audit and what information is needed. Initial discussions about how many people will be on site during the audit, how long it will take and when documentation is needed from you will be very helpful. Through these discussions you can determine how much time you will need to be available to work with auditors as the need arises while they are on site. It also allows you to ready requested documents ahead of time and ensure they are available during fieldwork. Remember, proactive communication with your auditor will help ensure your expectations are aligned and questions are answered.
- Obtain Needed Documents – As discussed above, it’s important to have the needed documents ready for auditor review. While each benefit plan audit is different, there is a common set of documents that must be examined during a plan audit. Information on participant distributions, loans, plan documents, employee files, payroll records, investment reports, service provider agreements, fidelity bond, investment policy statements and a copy of the draft IRS Form 5500 is an excellent starting point. It’s also important to share information on prohibited transactions that may have occurred.
- Discussion with Third Party Administrator (TPA) – Getting on the same page with your TPA is important because they often manage much of the information your audit firm will need. Key issues to discuss with them include who your main point of contact will be during the audit, whether online access to reporting is available, what information is needed from you to ensure timely reporting and when you can expect them to have the reporting package ready. Having these discussions early will minimize the opportunity for surprises and unexpected delays.
There is no doubt that the first-year plan audit can be challenging. However, through proper planning and communication, the process often runs much smoother. If you have questions about preparing for your first plan audit or need assistance with your plan audit, JLK Rosenberger can help. For additional information please call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.