Last but not least on our “wish list” is Be Proactive.
- When you are asked to prepare a census to send to the TPA, send it to your auditors at the same time. You or the TPA will eventually have to send it to them anyway, so you are saving everyone a step.
- When there is an issue to resolve, or a finding that the auditors need to report, work to fix it immediately.
- At year end, fix any errors to receivables/payables – are any monies owed to plan participants? Take care of those on your own before the auditor steps in almost half a year later to work on the audit.
- If you have a question, just ask. It is better to get the matter resolved now, before you are staring down the approaching audit deadlines.
This year, I encourage you to at least grant one of these wishes for your 401(k) auditors – it will make their day and will most likely improve the entire process.
As you manage the audit process from the plan sponsor side, what would make the process easier? Knowing in advance what the auditor will need is one way to create a smooth experience with an employee benefit plan audit. Last week we discussed being prepared well in advance of the actual audit. The second item on an auditor’s wish list is Be Available.
- Make yourself available to the auditors when they are working on your employee benefit plan audit, especially when they are on-site. When possible, coordinate your schedules so you are in the office on the same days, even taking lunch at the same time so you can be available when the auditors need you. It may feel limiting for those few days, but think of it as managing your company’s investment in the auditing process.
- Provide your auditor with electronic access to TPA’s secure portal – then they can access the information easily and they won’t have to take your time to get the information they need. They know what they are looking for and can find it immediately, rather than going through a third party. Also, auditors will be viewing your financial data in depth – they can be trusted with this high-level access, or they shouldn’t be your auditors.
- When possible, respond to your auditor’s requests within one business day. Audit teams are often organized to work on your 401(k) plan during a set time frame. Being responsive to their questions will keep them on schedule, which allows them to complete field work and have time for the partner review. An uninterrupted timeline will result in full access to the firm’s dedicated resources, quicker turnaround times, and fewer annoying follow-up emails from the auditors.
Join us next week for the last auditor wish – Be Proactive.
As we approach the audit deadline for employee benefit audit plans, hopefully things are already in motion with your plan auditors. You have received the list of items they need to complete the audit, documents have been exchanged, and meetings are planned. But what else can you do to make this year’s audit more efficient, less painful and dare we say more enjoyable than last year?
As an employee benefit plan auditor with more than 18 years of experience working with hundreds of defined contribution plans, I have gone over my past interactions with plan sponsors and created a “wish list” for the things all auditors would like from their plan sponsor clients. These wishes fall into three main categories: Be Prepared. Be Available. Be Proactive.
If you do these three things, you will be further on your way to meeting your audit deadlines, avoiding Department of Labor (DOL) fees and penalties and keeping your audit fees in line with original estimates. Not to mention your auditors will be easier to work with and even more effective.
- The largest part of preparation is being organized – check over your plan records well in advance of the first auditor communication you receive. I suggest starting after your year-end.
- Your auditor should provide you with a document request list of the items they will need to perform the audit – start gathering those items immediately. An organized auditor will usually send out this list several months in advance – procrastinating could result in a scheduling delay, which means extensions, fees and possibly penalties from the DOL.
- Keep copies of plan documents and amendments together in one folder – this will save a lot of time in the long run, and you will avoid scrambling to find each amendment when asked by the auditor.
- Send all requested information from the Third Party Administrator (TPA) to your auditor in one package – don’t send each piece one at a time as you have it ready. You will not only save your TPA’s time, but your auditor’s as well.
- Keep plan/account transactions separate from regular accounting files, and maintain this information on a consistent basis.
We will discuss the other two auditor wishes – Be Available and Be Proactive – in later posts.
As a plan sponsor, we thought you’d be interested to know what employee benefit managers are saying about helping employees gain the knowledge and resources they need to retire. In a recent Employee Benefit News article, the magazine discussed the results of a survey of 401 employee benefit plan decision makers.
“Benefit directors nationwide believe their organizations are not doing enough to help employees make critical decisions at the point of retirement, according to a recent survey.”
Click here for the full article.
Tying back to our previous post on fraud risk factors in 401(k) plans, the second condition that needs to exist for a person to commit fraud is the opportunity presents itself. As auditors, PBTK consults its clients on how to put in place certain internal controls to help mitigate those risks.
According to the AICPA’s Employee Benefit Plan Audit Quality Center, the nature of the industry or the plan’s operations provides opportunities to engage in fraudulent financial reporting that can arise from the following:
- Senior management of the plan sponsor appointing itself trustee of the plan and having the opportunity to that position to benefit the plan sponsor (for example, to use the plan’s money for speculative investing or to support the plan sponsor through purchasing employer assets or supporting a supplier)
- Significant related-party transactions not in the ordinary course of business or with related plans not audited or audited by another firm
- Non-readily marketable investments where valuation is based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate, such as unregulated investments (hedge funds or “alternative investments”) or real estate
- In-kind contributions from the plan sponsor
- There is ineffective monitoring of management as a result of the following:
- Lack of oversight by plan management of outside service providers such as investment custodians, investment managers, recordkeepers, claims administrators, or paying agents
- Domination of plan management by a single person or small group without compensating controls
- Ineffective board of directors or committee oversight over the financial reporting process and internal controls
- Lack of competence of plan trustees because of background and lack of training
Internal control components are deficient as a result of the following:
- Inadequate monitoring of controls, including automated controls
- High turnover rates or employment in ineffective accounting, internal audit, or information technology staff
- Ineffective accounting and information systems including situations involving reportable conditions.
Source: AICPA Employee Benefit Plan Audit Quality Center