You may have just found out that your 401k plan needs an audit. If you have not had one before a common first question is how much will this cost me?
Each audit firm obviously sets their own prices and fee structure. However, pricing is driven by the work required, staffing needed to complete that work and other costs related to the audit practice such as software licensing, state permits, etc. The work required to complete a 401k audit is probably more involved than you are expecting if you have never been through an audit before. Audit requirements are driven by professional audit standards, accounting requirements for the financial statements and Department of Labor and IRS requirements. Much of the work that needs to be conducted is very technical to ensure all compliance requirements are covered in the audit and being handled appropriately by the company sponsoring the Plan and all service providers that administer the Plan.
The Plan Sponsor is ultimately responsible for ensuring the audit is completed not only timely but accurately. Considering the fee charged as you select the audit firm for your audit is of course, an important selection criterion. However, you should also factor in the experience level of the auditor that will complete the work. Do they have experience in this area, do they conduct several audits of this type, and do they receive training on the latest audit requirements to ensure they are up to speed on compliance changes? These are all good questions to help you assess the competency of the auditor.
Fee structure options
Audit firms may structure their fees in several different ways. They may charge an hourly rate. This method has been used for years for accounting services. However, if it’s your first audit, it may be difficult to assess what the total charge for your audit will be. The firm may provide an estimated fee. This structure, at least, provides some transparency around what the total charge will be. If your target firm suggest this method, you should ask them what would cause the audit to overrun the estimate. If they mention plan structure components, you can review your plan document to see if these will apply. If an overage would be driven by documentation not provided timely, you can work to ensure all requests are answered timely to ensure the final cost stays within the estimated amount. If issues identified during the audit could drive additional fees, you can ensure you inquire frequently if any delays are encountered during the audit. This will help make sure you stay on top of issues encountered so they can be resolved quickly to help reduce overall fees.
Summit fee structure
Summit uses a fixed fee structure. We charge a set fee for the audit determined at the beginning of the audit based on a few criteria. These factors include the size of the Plan (based on number of participants), the type of audit that is needed (103a3C versus non-103a3C), if the plan is terminating, and if the plan has changed service providers (payroll, record-keeper or custodian) within the last year. Based on the answers to these questions, a fee is determined and Summit charges 50% of the fee at the beginning of the audit and the remainder upon delivery of the final report. We find this billing and charging structure is easy to administer, easy for clients to understand and provides a set price for our clients that will not change as the audit progresses.
One other billing structure that should be considered in your discussions is the payment terms required. Will you need to pay the full amount up front, monthly progress billings, and full payment at the end or some other structure? Depending on your cash flow situation or just your accounts payable department preferences, this may factor into your decision.
We recommend as you work through your auditor selection process, you consider the fees that will be charged, the structure for the charges and the payment terms. However, it is just as important that you consider the qualifications, experience and processes used by the auditor as you make your selection.
At Summit CPA we specialize in retirement plan audits. If you would like to discuss our audit process in more detail or need an audit contact our office at (866) 497-9761 to schedule an appointment. We can help you navigate the world of the 401(k) audit as proficiently as possible. We also offer off-site assistance and flat-fee pricing so there are no surprises when the job is complete.