How satisfied are you with your most recent employee benefit plan (EBP) audit? Audits aren’t often enjoyable, and issues like inexperienced auditors, inefficient processes, or late deliverables can add unnecessary stress. If your last audit wasn’t as smooth as you’d like, it may be time to consider working with a new EBP auditor.
Many firms offer EBP audits, but finding the right fit for your business can be challenging. Some firms may be stretched thin and unable to dedicate sufficient staff to your audit, while others might assign auditors who lack experience with employee benefit plan provisions and compliance requirements. Additionally, reliance on outdated technology and inefficient processes can create unnecessary friction and delays, ultimately costing you time and money.
Here are some strategies to help you streamline your search and select an EBP auditor who best meets the needs of your organization.
What is an Employee Benefit Plan Audit?
In 1974, the Employee Retirement Income Security Act (ERISA) was signed into law to safeguard retirement savings from mismanagement and abuse. ERISA established high standards for employee benefit plans, ensuring that the interests of participants and their beneficiaries are protected.
An EBP audit plays a critical role in verifying that a company’s plan complies with all applicable regulations, helping ensure the security of employee benefits. The U.S. Department of Labor (DOL) requires that benefit plan auditors be independent, qualified public accountants. A quality audit not only protects the assets and financial integrity of the plan but also helps build employee trust and can prevent significant issues in the future.
Generally, an audit is required when plans reach more than 100 participants, subject to specific rules and exceptions. Organizations must attach audited financial statements to the plan’s Form 5500 annual return, which has an extended due date of Oct. 15 for calendar year-end plans.
An auditor’s role is to provide an independent opinion on whether the plan’s financial statements are presented fairly and whether the plan followed relevant ERISA and IRS requirements. This involves evaluating contributions, distributions, investments, participant data, and overall plan compliance to ensure proper plan operation.
How to Prepare for an Employee Benefit Plan Audit
When preparing for an EBP audit, being proactive should be your top priority. As the plan administrator, you are responsible for maintaining the plan’s financial records and providing them to the audit team. Maintaining and monitoring the systems and processes in place can significantly enhance your audit’s success.
Additionally, you should ensure that your plan stays current with regulatory changes and that you have adequate internal controls in place.
Some of the documents your auditor may ask for as part of the audit include:
- Investment certification from a qualified institution (bank, trust company or insurance company) to perform an “ERISA Section 103(a)(3)(C) audit,. If no certification is provided, a full-scope audit requires detailed documentation, including investment valuations, trust statements, and transaction records, to verify the completeness and accuracy of plan assets
- Participant or personnel records
- Payroll files
- Contributions summary and records
- Check copies, tax forms, and requests for loans and distributions
- Plan documents and amendments
- Minutes from committee meetings
- Service agreements with trustees, custodians, third-party administrators, investment advisors, etc.
This list is not all-inclusive, and your auditor may request additional documentation before or during audit fieldwork. You and your team should be prepared to respond promptly and thoroughly to help ensure the audit proceeds on schedule and stays within the budget.
Choosing the Right EBP Auditor
There are several reasons you might consider switching your EBP auditor. You may want to obtain quotes from other firms to ensure your fees are competitive, or you may be seeking more experienced auditors who can offer valuable recommendations to help your plan remain compliant with IRS and DOL requirements. The DOL also provides guidance to assist plan sponsors in selecting a reputable auditor.
When you begin evaluating potential firms, here are some criteria to consider:
Licensing.
The DOL requires that auditors performing EBP audits be licensed or certified as public accountants by a state regulatory authority. You can typically verify the status of an auditor’s license or certification via your state’s board of accountancy.
Independence.
Auditors of employee benefit plans must be independent. This means they must not have any financial ties or other conflicts of interest with the plan or its sponsor that could affect their ability to provide an objective and unbiased opinion on the plan’s financial condition.
Membership in the AICPA Employee Benefit Plans Audit Quality Center.
Membership in the AICPA’s Employee Benefit Plans Audit Quality Center is voluntary for firms that conduct EBP audits. However, member firms benefit from access to valuable resources and tools that help them stay current on best practices and developments in EBP audits.
A High Level of Experience With Employee Benefit Plan Audits
EBP audits differ significantly from other financial statement audits. According to the most recent DOL EBP audit quality study, 30% of audits reviewed (3 out of 10) had major deficiencies related to generally accepted auditing standards. To ensure your organization receives a high-quality and accurate audit, ask prospective firms how many EBP audits they conduct annually and whether they have a dedicated team specializing in these audits.
References
When selecting an audit firm, be sure to request client references specifically for EBP audits. These references can provide valuable insight into the quality of the firm’s work and the level of service they deliver to their clients.
If you are seeking a new EBP auditor who can deliver the expertise and quality-driven results your business needs, contact our team today. Our auditors are highly experienced and well-versed in ensuring audits are compliant and meet all applicable standards. We understand the complexities of EBP audits and can help make IRS and DOL compliance more manageable for you and your team.
Frequently Asked Questions
If your last audit involved late deliverables, frequent staff turnover, limited EBP expertise, inefficient processes, or poor communication, it may be time to consider a new auditor who is better equipped to support your plan.
An EBP audit is generally required when a plan reaches more than 100 participants, subject to certain rules and exceptions. Audited financial statements must be filed with the plan’s Form 5500.
Plan sponsors should maintain accurate financial records, stay current with regulatory changes, implement strong internal controls, and be prepared to provide key documents such as payroll records, plan documents, investment certifications, and participant data.
Key qualifications include proper licensing, independence, significant experience with EBP audits, familiarity with ERISA and DOL requirements, and—ideally—membership in the AICPA Employee Benefit Plans Audit Quality Center.
Employee benefit plan audits are highly specialized. Auditors without sufficient EBP experience are more likely to miss compliance issues, which can lead to deficiencies, delays, and potential regulatory scrutiny.
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