Typically, all employee benefit plans that have over 100 participants are required to have an audit accompanying their Federal annual report (Form 5500). This includes 401(k), 403(b), pension, and other retirement and health and welfare plans.
One of the most important jobs of the plan administrator is to choose an auditor. The quality of the audit itself depends upon the quality of the auditor selected. A high-quality audit will help protect the financial integrity and assets of the plan and ensure that the necessary funds will be available to provide the benefits promised. It is also required to file a complete and accurate annual report. An incomplete, inadequate, or untimely audit report can result in penalties being assessed against your client.
What To Look For In An Auditor
When your client is seeking out a public accountant to audit their business’s benefit plan, there are several things they should be looking for. They should confirm the prospective auditor’s:
According to Federal law, any auditor engaged for an employee benefit plan audit must be licensed or certified as a public accountant by a State regulatory authority. Certification is not optional, so your client needs to double check with the regulatory agency that the auditor’s license or certification is indeed valid and up-to-date before hiring them.
An auditor cannot have any financial interests in the employee benefit plan or your client, the plan sponsor. If they did, they would not be able to render an objective, unbiased opinion about the financial condition of the plan as required by law. Any potential conflicts of interest should be exposed and dealt with before engaging an auditor.
The Department of Labor states that the most common reason for deficiencies in audits of benefit plans is a lack of experience auditing such plans. Special auditing standards and rules apply to employee benefit plans, and an inexperienced auditor can easily miss them. Routine audit procedures performed by a less experienced auditor should always be reviewed by an experienced benefit plan specialist.
AICPA Employee Benefit Plans Audit Quality Center Membership
The AICPA maintains a directory of employee benefit plan auditors that meet specific experience, training, and practice monitoring requirements. Members of this directory tend to have the fewest plan audit deficiencies because of the high standards they must adhere to in order to participate.
Questions To Ask A Prospective Auditor
Just picking someone from the AICPA’s directory will not guarantee your client an excellent auditor or a smooth working relationship. Because of the importance of an audit’s quality, they need to take the time to thoroughly vet a potential auditor to ensure their experience level and commitment to quality. Here are some questions that may be helpful to ask during the process:
- How many benefit plan audits does your firm perform on an annual basis?
- Is your firm a member of the AICPA Employee Benefit Plans Audit Quality Center?
- Do you have personnel dedicated to employee benefit plan audits?
- What kind of training do these benefit plan specialists have?
- How do you keep your staff up-to-date on benefit plan industry developments?
- How do you communicate pertinent information about industry developments to your clients?
- What exactly will you need to review as part of the audit?
- What is your audit process, including planning, fieldwork, and completion?
- How is the engagement team structured?
- What is your specific experience related to our specific plan type (403(b), pension, etc.)?
- Do you have experience dealing with our specific third party administrator or custodian?
- Do you have any references you can provide from current or former clients?
Using questions such as these should help your client get a good grasp on the quality of auditor they are interviewing and how well the two companies will work together.
How I Can Help
A well-performed audit is a vital protection for your client’s employee benefit plan. As such, choosing an auditor is an important fiduciary responsibility. If any of your clients need help finding an auditor or facilitating the audit process, I can help. I am an experienced pension consultant and can answer any questions you may have by email at email@example.com.
About Kenny Phan
Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.