Federal regulators recognize that a quality audit will help protect the assets and financial integrity of your Employee Benefit Plan (EBP) and ensure that the necessary funds will be available to pay retirement, health and other promised benefits to your employees. For this reason, the federal law requires benefit plans with 100 or more participants to have an annual audit as part of their obligation to file an annual Form 5500. A quality audit should also help plan management to improve and streamline plan operations by evaluating the strength of the plans internal controls over financial reporting and identifying control weaknesses or plan operational errors.
The Department of Labor regulations identifies the plan’s sponsor and trustees as the responsible parties for ensuring that the plan has a quality audit. In May 2015, the Department of Labor released their results of a review of the audit work of 400 benefit plans from 2011. That report indicated that there were major deficiencies in 39% of the audits tested. The risk to the plan sponsor and trustees is that the Department of Labor can reject plan filings and assess penalties up to $1,100 per day, without limit, on responsible parties for the deficient filings.
Despite these risks, the selection of a plan auditor does not have to be a cumbersome task. In preparation for sending requests for proposal for the benefit plan audit, pre-screen your proposed auditor.
- The Department of Labor has identified one of the most common reasons for deficiencies in audits are the failure of the auditor to perform tests in areas unique to EBPs. Inquire from the prospective auditors how many plans they perform each year and their commitment to specific employee benefit plan audit training. The AICPA has an Employee Benefit Plan Audit Quality Center in which firms may become members by voluntarily adhering to higher standards of audit quality in their policies, procedures, and training related to the performance of benefit plan audits.
- Prepare a request for proposal that includes details of the plan including its year-end, size, trustee, administrator and any unique requirements.
- Request proposals to be completed in a common format with similar information. This will facilitate comparison between the various proposals received.
- Ask for the prospective auditor’s EBP experience and continuing education plan. We also recommend calling client references to inquire about the firm’s quality, knowledge of issues and requirements, timeliness of audit delivery and value of the management comments and recommendations.
Once technical skills and value of proposed services have been evaluated and qualified firms have been identified, prices can be reviewed.
Remember: the lowest price does not always translate into a quality audit and can result in additional expenses and time-related to resolving compliance issues or unqualified audits.
At MarksNelson, our commitment to helping our employee benefit plan clients begins with our dedication to audit quality. Our experience, commitment to training, and use of current technical guidelines helps your plan to be compliant with both the Department of Labor and IRS regulations. Additionally, we offer advice on improving and strengthening processes and compliance related issues.
If you have any questions or to find the right Employee Benefit Plan audit firm contact Don Towle or your MarksNelson professional at 816-743-7700.
About the author
Don Towle directs the firm’s Employee Benefit Plan Audits. He is committed to providing a quality audit that meets federal obligations while keeping clients aware of changes and identifying improvements.