The Employee Retirement Income Security Act of 1974 (ERISA) requires annual audits of plan financial statements by a qualified independent public accountant of plans with 100 or more eligible participants at the start of the plan year.  This audit is required as part of your obligation to file an annual return/report (FORM 5500 Series)[1]

For many, this can be a stressful event, but familiarity with the process can greatly reduce stress – so here are a few tips to help make your audit a fast, effective and low-cost event.

Stage 1: Preparation

Make sure you understand the plan.  Be prepared to discuss key policies and procedures that impact the plan, any changes that have been made to those key policies and procedures made since the last audit, and any changes to the plan document. Also, be prepared to share any known or potential compliance issues.  By proactively addressing these issues at the start, the audit team can quickly, easily identify risks they should focus on during the audit.

Understand the Plan

The scope of the audit (limited scope or full scope[2]) is determined by the arrangement in which investments are held. And the extent f audit procedures and required financial statement disclosures are determined by the type and complexity of investments.  With all of this in mind, the planning stage is the best time to gather this information from your plan’s custodian or investment advisors.

Selecting Your Auditor

Federal law requires the auditors to be licensed or certified as a public accountant by a State regulatory authority. The auditor(s) should also be independent, meaning they should not have any financial interests in the plan or plan sponsor that would affect their ability to offer objective, unbiased opinions about the financial condition of the plan.

With those basics covered, keep in mind that experience matters.  The more experience, the more familiar the auditor should be regarding any special auditing standards and/or rules that may apply to your plan’s practices and operations.

For further information, check out the AICPA’s Employee Benefit Plan Quality Center.

Single Point of Contact

To create and manage a smooth, efficient process, designate a single point of contact for the auditor(s).  Ideally, this person will have primary responsibility for the administration of the plan and can direct the auditor(s) to the appropriate internal and external contacts.

Fast, Easy and Secure Access to Auditor’s Request List

Prior to the actual fieldwork, your auditor will provide you with a list of documents such as updated plan documents or amendments, employee census reports, activity level internal control narratives, spreadsheet templates to summarize certain plan activity, completed confirmation templates and the plan’s financial statements.

Stage 2: Fieldwork

During this phase, be available to meet with the auditor(s) to discuss processes and controls – especially information technology controls.

To enhance the timely flow of accurate information, you may wish to involve the plan’s third-party administrator (TPA). This can be especially valuable when addressing questions concerning the plan’s investments.

Also, have available all documents that the audit team will need for testing participation and plan-level data, non-discrimination, forfeitures applied and prohibited transactions such as late remittance of participant contributions to the plan.

If you are undergoing a full-scope audit, investment valuation and transaction testing will be performed.

Stage 3: Wrap-Up

The auditor(s) will provide a detailed list of information they need to address any unanswered questions, and a timeline for completion will be agreed to by both parties.

A management representation letter will be signed and presented to the auditor(s), as well as a report that addresses the audit process and findings.  And then prior to the issuance of the audit report, a draft Form 5500 will be reviewed to ensure it agrees with the draft audited financial statements.

Conclusion

Working closely with your auditor(s) throughout the process, ensuring that accurate information is made available in a timely manner will help make your audit process quick and efficient.

If you have any further questions, call <Name, Credentials, Title>, at 443-471-5911 for a confidential, no cost or obligation discussion. Or, click here to schedule an appointment.

Footnotes:

[1] Some pension plans with fewer than 100 participants also may be required to have an audit if they fail to meet certain conditions relating to their plan investments, bonding, and disclosure requirements. For more information, you should consult with your attorney, plan advisor, or accountant. See www.dol.gov/ebsa/faqs/faq_auditwaiver.html.

[2]To learn more about full-scope and limited-scope audits, contact us at 443-471-5911.