How happy are you with your most recent employee benefit plan (EBP) audit? While dealing with an audit is rarely anyone's idea of a good time, many audit issues — including inexperienced auditors, inefficient processes and late deliverables — can make a hectic time of year even more painful. So if your last audit didn't run as smoothly as you'd like, now is the time to start looking for a new EBP auditor.
Many firms offer EBP audits but finding the right one for your business isn't always easy. For example, a firm might be stretched thin and unable to devote staff to your audit. Inexperienced auditors might not understand employee benefit plan provisions and compliance well. Or they might rely on outdated technology and processes that cause friction and slow down the audit, costing you time and money.
Let's look at ways you can streamline the search process and choose an EBP auditor who is the right fit for your organization.
What is an Employee Benefit Plan Audit?
In 1974, the Employee Retirement Income Security Act (ERISA) was passed into law, ensuring that retirement savings are free from mismanagement, inaccuracy or abuse. ERISA also clarified that employee benefit plans must be held to high standards in order to make sure that both participants and their beneficiaries interests are protected.
An EBP audit is critical to ensure that a company's plan complies with all relevant regulations so that employers and employees can rest assured that their benefits are secure. The audit is conducted by an independent, qualified third party who provides valuable insight into the plan's financial health and ensures compliance with governmental requirements. Ultimately, an audit could prevent significant problems in the future, enhancing employee trust and greatly benefitting businesses.
The U.S. Department of Labor (DOL) generally requires all organizations that offer employee benefit plans with 100 or more participants on the first day of the plan year to have an annual EBP audit. EBPs that haven’t previously been required to be audited become subject to the audit requirement when they have more than 120 participants on the first day of the plan year.
During the EBP audit, the auditor looks at the plan's financial statements, employee and employer contributions, loans and distributions, and internal controls around the accuracy and completeness of participant accounts.
Organizations must attach audited financial statements to the plan's Form 5500 annual informational return, which has an extended due date of Oct. 15 for calendar year-end plans.
How to Prepare for an Employee Benefit Plan Audit
When preparing for an EBP audit, being proactive should be your number one priority. As the plan administrator, one of your responsibilities is maintaining the plan's financial records and providing those records to the audit team. Maintaining and monitoring the systems and processes in place can significantly impact your audit's success.
You should also ensure that your plan is up to date with regulatory changes and that you have adequate internal controls.
Some of the documents your auditor may ask for as part of the audit include:
- Participant or personnel records
- Payroll files
- Contributions summary and records
- Loans and distributions
- Plan amendments
- Minutes from committee meetings
- Service agreements with trustees, custodians, third-party administrators, etc.
This list isn't all-inclusive, and your auditor may request additional documentation before or during the audit fieldwork. You and your team should be ready to respond quickly and thoroughly to ensure the audit continues on time and within the budget.
Choosing the Right EBP Auditor
There are many reasons you might consider switching your EBP auditor. For example, you might want to get quotes from other firms to ensure the fees you're paying align with the market. Or you may want to work with more experienced auditors who can provide recommendations to ensure your plan complies with Internal Revenue Service (IRS) and DOL requirements. The DOL provides guidance on selecting a reputable auditor.
When you begin evaluating potential firms, here are some criteria to consider:
- Licensing. The DOL requires an auditor who perform EBP audits to be licensed or certified as a public accountant by a state regulatory authority. You can usually check the status of the auditor's license or certificate via your state's board of accountancy.
- Independence. Auditors of employee benefit plans must be independent. This means they don't have any financial ties or other conflicts of interest with the plan or its sponsor that would impact their ability to provide an objective, unbiased opinion about the plan's financial condition.
- Membership With the AICPA Employee Benefit Plans Audit Quality Center. Membership in the AICPA's Employee Benefit Plans Audit Quality Center is voluntary for firms that complete EBP audits. However, members have access to many valuable resources and tools to help them stay on top of best practices and other developments in EBP audits.
- A High Level of Experience With Employee Benefit Plan Audits. EBP audits are different from other financial statement audits. In fact, according to a DOL study, firms that perform only one or two EBP audits annually had a 76% deficiency rate in audit quality, compared to just 12% in firms that perform 100 or more EBP audits per year. To ensure your organization receives a high-quality and accurate audit, ask how many EBP audits the firm conducts each year and whether they have a dedicated team that focuses on these audits.
- References. When choosing an audit firm, ask for references from past EBP audit clients. References can help speak to the quality of the auditor's work and the level of service they deliver to clients.
If you're looking for a new EBP auditor, who can provide the expertise and quality-driven results that your business needs, contact our team today. Our auditors are highly experienced and well-equipped to make sure your audit is compliant and in line with applicable standards. We know how to navigate the complex world of EBP audits and can make complying with IRS and DOL rules simple and convenient.
Published on January 09, 2023