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There comes a time when a 401k, 403b or other employee benefit plan is required to undergo an annual plan audit. According to the rules outlined in the Employee Retirement Income Security Act of 1974 (ERISA), this requirement is triggered when a plan crosses the 100 eligible participants mark. Although there are some exceptions, such as the 80-120 rule, at the 100 participant point most plan sponsors will need to identify a benefit plan audit firm to manage the task. When faced with the new requirement most will reach out to their existing financial statement auditor or accountant to determine if they can help. While it makes perfect sense, a benefit plan audit requires specific skills and technical knowledge that not every audit firm or accountant possesses. In fact, the Department of Labor (DOL) has found that firms with limited plan audit knowledge have a higher rate of deficient professional work. To help companies find a quality plan auditor for their first or next plan audit, JLK Rosenberger has provided a summary of essential insights below.
The Challenge of Limited Experience
There is no substitute for experience. The more one has, the more effective and efficient one becomes at performing a task or refining a skill. This is as true in sports such as hockey, basketball, and baseball as it is in accounting and auditing. The DOL has conducted several studies that have identified various factors where inexperience compromises the quality of the plan audit. These factors include the amount of plan audit training received by audit team members, the extent of the quality of review and internal process controls, number and types of plans audited by the firm and depth of experience with limited scope audits.
Finding a Quality Plan Auditor
The challenge many companies face is understanding exactly what makes a quality plan auditor. On the surface, it appears that many audit firms offer the same thing – an independent audit report which is submitted to the DOL. While it’s true the actual product is the same, what makes the difference are all the intangibles between the time the audit starts and the final report being issued. While it can be difficult to distinguish, below are key items to look for during the evaluation period.
- Licensing – If this is your first plan audit, it’s important to note that plan auditors are required to be licensed as a CPA by a state regulatory authority. Most providers are registered in the state where they operate and offer services, and all should have the proper license and credentials. Don’t hesitate to ask for such documentation as it will ensure prospective providers follow relevant laws and regulations.
- Experience – As mentioned above the DOL has found that experience is an essential factor in finding an audit firm that will conduct a quality audit. For this reason, it’s important to work with a plan auditor that has a depth of experience conducting such audits. Since there are various types of plans, i.e., defined benefits (pension plans) and defined contributions (401k plans) and audit scope (limited and full scope audits), it’s essential to find a provider that is well experienced with your plan type. Additionally, find out if the provider is a member of the American Institute of Certified Public Accountants (ACIPA) EBP Audit Quality Control Center. (EBPAQC). The EBPAQC provides CPAs with additional training, internal controls and quality guidelines to follow. Search their member directory to determine if potential providers are involved.
- Technical Training – Much like other professional providers such as physicians and attorneys, accountants also receive ongoing professional training. In fact, certified public accountants (CPAs) are required to receive a standard amount of continuing professional education (CPE) hours to maintain their license. When evaluating a provider be sure to inquire about the type and amount of benefit plan audit training members of their team receive annually. Since training and quality are often connected, it’s important to understand how much training is received annually.
- Audit Focus – The DOL has identified that plan audits are often deficient because of auditor failure to test key areas unique to plan audits. This often includes information related to participant data, participant loans, plan obligations, benefit payments, and prohibited transactions. Talk with prospective providers to identify the areas where their audit work will focus. Find out how they will test these essential areas and inquire about other common “trouble spots” plans like yours often face. The result will be additional confidence in the providers’ ability to meet your quality needs.
Finding the right benefit plan auditor for your company does not have to be a daunting task. In fact, there are likely many qualified providers that can manage your audit needs. However, it’s important to be aware of the key questions to ask and issues to consider as begin and go through the process. If you have questions about selecting a quality plan auditor or need assistance with your 2018 plan audit, JLK Rosenberger can help! For additional information call us at 949-860-9890 or click here to contact us. We look forward to speaking with you soon.