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What companies must know before the 401(k) audit deadline

Published by Summit Marketing Team on Mar 9, 2020 6:00:00 AM

The 401(k) Audit CPA Success Show: Episode 1

The 401(k) audit deadline is quickly approaching. If you’re a company with 100 or more employees, it’s time to kick your auditing into high gear to ensure you’ll make the deadline.

In this episode, Jamie Nau chats with Kim Moore, director of auditing, and CEO Jody Grunden to discuss the audit process at Summit CPA and what companies can do to prepare for the upcoming audit deadline.

Jamie Nau: Welcome to Episode 1 of the 401(k) Audit CPA Success Show. I'm your host Jamie Nau. I'm  the Director of Accounting here at Summit CPA. Today I'm joined by Jody Grunden, the CEO and founder of Summit CPA, and a very busy, Kim Moore, who is the Director of Auditing, right in the middle of audit season right now. Today we're going to learn about the audit department at Summit CPA and talk about what you can do before the upcoming deadline.

Jamie Nau: So we are going to a start off with some introductions. Kim thanks for joining us in your busy schedule. You want to introduce yourself to the listeners?

Kim Moore: Sure, thanks Jamie. Yeah. We are in the middle of our busy time here in audit world. Our upcoming deadline here is October 15th. So busy, busy time for us. My name's Kim Moore. I'm the audit director here at Summit CPA group, and my primary focus is on for when 401(k) audits. I've been here since January of 2014, so it's almost six years, believe it or not. In that time we've gone from, it was around, 10 audits when I started. Up now pretty close to one hundred and thirty 401(k) audits that we do during a calendar year. So it's been a tremendous time of growth and we've learned a lot and I've built up a really good team. So I'm very, very pleased with where we are right now.

Jamie Nau: So the first obvious question is how have you lasted working six years with Jody?

Kim Moore: I know, I know it's, it's been it's been difficult. You know we all have our challenges right? You have to overcome. But no seriously it's both Jody and Adam Hill the other executive partner here have been very supportive of the audit process here. It's been a very growing part of the firm. As I mentioned it started very small when I first started here. I came here, one of my objectives was to just figure out what we had, were we doing the right kinds of things, make sure that we had good processes policies etc.. in place. But also to grow the business and they've been very supportive of that, making sure that we've got good staff we've got good systems and then also helping with training CPE but just being overall supportive. I mean they've been very helpful with that and that it makes a huge difference in being able to grow and have the whole team succeed. And I know we're not only myself the whole team is appreciative of that. So thank you to them.

Jamie Nau: So Summit CPA has a couple of other podcasts out there that will be linked in the show notes, talking about our background and kind of how Summit was started. But in addition to that, Jody if you want to do a quick introduction of yourself and kind of your background so the listeners know more about you. 

Jody Gruden: Yeah, so I'm the CEO and co-founder of Summit, we started the firm back in 2002 as a traditional accounting firms. We kind of gravitated towards a lot of different things. The flat fee billing, which we implement all across the board with all of our different service lines. We focused on virtual CFO services for a big part of our thing, and then it was 2012, we introduced audits. We thought, hey can we do something a little different we thought audit should be the way to go? We jumped into the hunt audit arena right away and really start building that up. And then of course it then got deregulated. And so what we built up within just minutes of Congress making their decision, you know basically took that down to zero audits. And so we thought, well what we're going to do to replace this? And we thought, well let's add 401(k) audits we can we can definitely do that. And both of us had well I had some audit experience working for a couple regional accounting firms and I thought this would be great I can teach Adam how to do it. He could then, you know, run those and that could be something that you could really kind of buildup, and then it was quickly into the audit process where he picked up probably about, I'd say between five to 10 audits you know, fairly quickly, Adam realized that this wasn't something he had a passion for. And I definitely didn't have a passion for it. And so that was one of those things. Now what do we do? We've got 10 audits and so we thought you know, do we really want to build this thing? Do we really want to be successful with that? And so we started looking for someone to actually oversee it and that's where we really lucked in and found Kim. It was awesome. You know it was one of those things that, you know, how do you find somebody that knows what you know? Something as specific as 401(k) audits and somebody with her experience. It was it was great. We interview Kim. Brought her on and from day one she's been what we call an a-plus hire. You know, somebody that you can't get any better. And that was something that has been really a great thing, and Kim's basically done everything. She oversees the processes, the tools, the people, and she's grown it, like she said, from 10 audits to over a hundred and thirty audits. I think last year we did like, hundred twenty something, twenty three, twenty five, and twenty six and then this year we'll probably do about one hundred and sixtyish somewhere in that ballpark. So it's really grown dramatically. And if I'm not mistaken I think we're in the top 1 percent or top 5 percent of all firms doing 401(k) audits. So that's a big testament to Kim. And her team has done a great job which is a huge success.

Jamie Nau: So Kim as you mentioned and Jody mentioned you've been with Summit for six years. Tell us a little bit about your experience prior to coming to Summit.

Kim Moore: Well if you go back in time, because I've been working for quite a while since I graduated. I wasn't an accounting major. I was a business student, but I wasn't an accounting major. Believe it or not I was a finance major. That kind of sets me apart from a lot of the other folks here at the firm. But I got out of school as a typical graduate. You don't really know what you want to do. You just want to get a job. And the very first job I had out of college was an audit job working with the state of Indiana. But I was a tax auditor. believe it or not. And I really enjoyed the job, it was a great first job. I learned a lot but quickly figured out I really did not like tax at all, and did not like working for the government. But I really liked audit. I liked the variety. I liked going from company to company. Because you never stayed in one place very long and you never did the same thing. You were doing the same kinds of ideas, but you got to see different aspects of different companies. I got to work with all different kinds of people, and I really liked that. So I decided that audit was kind of my thing. I signed up for the CPA exam, passed the first time. The figured out, OK, so I am really going to stick with this audit thing. I Interviewed with a lot of different places, but I ended up going to work for what is now, Lincoln Financial Group. They kind of have  changed their name a couple of different times, but it was a  fortune 250 company. At that time it was a multi-line insurance company.

They offered a lot of the typical insurance products that we would all buy. So health insurance, life insurance, they insured cars and boats and houses, and that kind of thing. They gradually in the time I was there, which was almost twenty five years, they morphed. So they changed away from a lot of those different kinds of insurance products and into more investments; bigger and retirement type products. They had a huge 401(k) division and at the time that I left there, they were one of my clients. So I was the audit manager and had managed multiple teams. One of the teams that I had actually audited in that particular division. It's funny, I was just talking to somebody right before this podcast telling them I've seen 401(k) from almost every aspect so I've been a participant in a plan. I've been a plan administrator for a plan. I've worked at a record keeper custodian for a plan, now I'm the external auditor for a plan. We rely on something called a, SOC Report, which is a report of the controls at these large entities that manage 401(k) plans. So I've seen both sides of that. I've been a SOC auditor. I've also supported the SOC audit from the record keeper custodian site. So I've kind of seen the 401(k) process from every angle and every side which has been very helpful. So anyways. I left Lincoln after all of that time, and did some contract work. I actually did some I.T. audit work for a while, and then ended up here at Summit in January. So a real variety of work. And the thing I always like to tell people, because you know Jody will tell you, audits you know, nobody wants to work on audit that's not the place to be, but I always tell people that if you're somebody who likes puzzles and you like variety, audit is the place to be, because you very rarely are going to do the same thing. You're going to work with all different kinds of people, all different kinds of personalities. So you have to like talking to people, working with different people. That's very important part of this job. But you also have to be able to solve puzzles. I always tell people, an audit is like somebody gave you a puzzle and it's a 500 piece puzzle, but you only get 450 pieces, and you don't get the picture on the box so you don't know what it's supposed to look like at the end, but you've got to put it all together anyways. So as long as you like doing that then you're going to like audit because that's really what it's all about. So that's kind of my background.

Jody Grunden: Basically in January 2014 is when you came aboard. I think at that time we had just had you right? It was just you maybe someone helping out?

Kim Moore: We had one part time person and she was here before me. She's actually still here so one of my staff now. But yeah that was it. There was no other staff at that point. Both you and Adam had really been heavily involved on the CFO virtual, CFO side. So you really weren't spending much of any time on the audit side. So really I had to pick it up from almost nothing really. I mean there was a little here at the time. So yeah, it's been a real challenge. But I like that. I like challenges and I like where we're at. I think we've really come a long way and made a ton of progress.

Jody Gruden: So basically Lisa was our very first hire in the audit department and she'd worked, what? Two years prior I think before your coming aboard.

Kim Moore: I think so. It was something like that. It wasn't very long, and she wasn't full time she was a part time staff person, but she wasn't even, the time she was here full time on audit, she was doing some other things with the firm as well so. So very limited. But yes, Summit was lucky in getting her before I came here because she did have a lot of prior 401(k) audit experience at the firm she worked with before. So she brought some really strong background knowledge skill set. Obviously things change over time and she had been away from it. But what she brought was very strong. So that was a good hire as well.

Jody Grunden: And then from there it seems like you've added quite a few people, right?

Kim Moore: I believe we have four full time, not counting myself for full time staff, and then two part time staff. All of the hires that we brought in had audit experience before they came here. All of them have had 401(k) audit experience before they came here, differing levels of years of experience. We've got one that's twenty plus years of 401(k) audit experience. Lisa that was here when I came here again. Years of experience. But all the other folks have multiple years of audit experience before they came here. Obviously they've gained a lot of experience because they work here. They all told me when they first started, in their first 90 days, they learned more here than they had learned over a couple of years at their other firms just because we specialize in 401(k) audits. And we see everything in the number of audits that we do. We've got small clients, we've got very big clients that are much bigger in terms of employee base much bigger asset base in the plan. We've got very simple plans, all the way up to very complex. A couple of doctor groups that have very complex plans. We see it all here, and the staff gets to work through that which is a challenge, but they really do enjoy it because it helps them to learn, helps them to grow, and is also a challenge which auditors like. So it's been great.

Jody Grunden: And because of the growth we're looking to add one more person to the team this year.

Kim Moore: Right. We are in the process of hiring somebody right now. And we typically hire at least one a year just depending on the growth that we see in the previous year, and also what we're anticipating for the current year. So yeah, we're always on the lookout for good people with good audit background.

Jamie Nau: So if any of our listeners know anybody you can check out our website and apply there.

Kim Moore: Sign up! 

Jamie Nau: So one thing I don't want to skip over here, is a lot of people when I tell them I'm an accountant they either think I do one or two things: I do taxes where I work for the IRS as an auditor. So what Kim and Jody, are talking about in terms of I’m either a tax person or not a tax person, that is very true in the accounting world. You find pretty early on which area you fall into. And so a lot of people don't even really understand what an auditor does. I can’t explain out how many times I've explained to people that when I was in an auditor I didn't work for the IRS.

Kim Moore: Absolutely. It did come in handy though when I worked for the state because, you know,  those were the days where you had the paper checks and you'd go to pay with your check and they'd say, oh I need to know where you work. And I would say, Indiana Department and they would say, oh IRS. I never had problems cashing check. I even get it from family members who know that I've worked in audit for a long time and ask, can you do my taxes because you know that's what you do.

Jamie Nau: So you came to Summit and kind of started from scratch with the audit firm. I know we had a little bit of practice there. But what was important to you when starting the department? Like what were the key things you want to make sure you had when you built your department out?

Kim Moore: The main thing for me to start with, because we didn't have a whole lot of audits and it was really myself and this one other part time individual. So we didn't have a big staff. So the focus was really on process. What do we need to do? If I go back to the beginning, kind of whiteboard the process, just ignore what we have currently. But what do we really need to do if we're doing a 401(k) audit. What are the requirements? Because we do have regulatory requirements. Our audit can be subject to review from the Department of Labor, and we also have to follow Internal Revenue rules around the plan. All the plans are governed by a risk. The firm is subject to what's called a, peer review, which means every three years we have to have another CPA, come in from another firm that does other audits. And in our case they have to be a firm that does 401(k) audits. They have to have experience in that particular area otherwise they wouldn't be qualified to do our peer review. So they come in on a three year cycle. We actually bring them in more often than that to review some of our work and give us feedback on what we're doing well what we need to beef up on. It helps us make sure that we're staying current. So anyways we have all these regulatory requirements. We also have of course, audit standards we have to adhere to. There are AICPA requirements that we have to adhere to. So one of the very first things I did was take a look at what are we doing. What are all the things we're supposed to be doing. Are there areas maybe we're not doing things we should. Maybe areas we're doing too much, which I didn't actually see too much of that. So I needed to beef up a few areas. The big thing with audit is documentation. It doesn't really matter if you did something. If you don't document it the way all of those bodies look at our work. If they come in to review a file and they don't see evidence that you did something even though you actually did do it, and you can explain that you did do it, in their mind you actually did not do the work because you didn't document it. So documentations huge.  Supervision review is huge in the audit world. Auditors are held to probably the highest standard of all accountants just by the nature of the work. The reason you have auditors to begin with is to have confidence in the financial statements that are being issued. So where financial statements are really important. So in this case think of a 401(k). You know that's people's money, that's their retirement. They're counting on that money being there when they get ready to retire. And it may take them 30-40 years to build up enough money in a plan to be able to retire and they don't want to get ready to retire, and then come to find out the money is not really there.They were told it was, but in essence for whatever reason, it's not. So that's why they audits are there. They're very important. They serve a very important purpose. So we're held to a very high standard because of the importance of the nature of what we're doing. So I have to make sure our ethical standards are there. The review is there to make sure the work is of high quality. So that's where I started. It was really what do we need to do? What are we doing? Where do we need to beef up? Put in place very strict procedures in all of those areas, and then put together templates. So whenever an auditor is going to start a new audit they're not starting from, let me recreate the wheel here. They're using established templates that we've put together. We made sure that we're using industry standard audit materials. We currently are using a system from, Thompson Reuters, and our audit software that supports the process comes from, PPC, which again we purchased through Thomson Reuters. They are one of the industry leaders in that area. So that was really where I started, was just making sure the groundwork was there all the policies procedures are right. And then from there really focused on growing the business. So growing the number of audits we had, along with that, growing the team to make sure we could get the audits done. And then looking at how long is it taking us to do the audits. Where are our pain points? What's taking longer than it should? And how can we make sure we can grow this and make it a scalable business. So that's when we really started focusing on making sure we had audit software. Making sure we had audit software to request documentation. Software to retain the documentation. As I mentioned documentation is really important. So we started working on software and efficiencies then at that point. And we're still working on that. We’re not quite where we want to be efficiency wise. But we've made great strides on that. So that's kind of what it's what I've been doing.

Jody Grunden: How does all that translate to the customer experience. I mean that's a lot of process.

Kim Moore: Yeah. From the customer's standpoint, I mean they don't see our work papers. So part of the what I talked about making sure we're adhering to all the regulatory standards and that, they don't see that per-say. They're not seeing the work papers. They're going to see it in the requests that we do. But I'd say two things that they're going to see. One, when they get done with an audit from Summit, compared to maybe what they might see at another firm. Obviously it varies, but when they get done with an audit from Summit, their plan is going to have had a very good audit. We are focused on the compliance aspects of the plan. So if you think of maybe yourself as a 401(k) participant, and you walk through your life cycle with a 401(k) plan, you're initially available to get into the plan all the way through to your retiring where you're taking your money out of the plan. There's a lot of things that happen along that lifecycle when you get an audit from Summit. We're going to hit all of those areas and we're going to even hit some areas that you as a participant don't know are happening in the plan. But what they are and they're required to. So we're going to cover all those areas. So from the user client experience, unfortunately that means a lot of documentation they have to provide us. A lot of interaction with us. A lot of questions that we may be asking. We may find things that they're not doing and should be. Areas where maybe they could improve. We look at it as, they're responsible for this plan. They are, in most cases, the fiduciary over the plan. So they have legal responsibility to the plan. So we feel like we're helping them out by maybe finding areas that they can beef up, or areas that aren't quite up to the standards that they should be. So that's part of the experience that they're going to get. The other thing is that, you know we do, as we mentioned, hundred and thirtyish of these audits a year,  That a lot of audits and we have to get them done in a pretty short timeframe. So we have a really well-established process. So in terms of all that documentation I mentioned, we have a released, what we call a streamlined process to gather that information. We're not going to be wandering around asking for hundreds of different things trying to find the right piece of documentation. We know what we need. We have experienced people with a very structured approach so they're going to ask for what they need. They're going to dig into it. They may need some additional information to answer questions but it's not going to be—I'm going to ask for hundreds of things trying to find that one piece of documentation that I need.

So I think that's one of maybe the big differences between us and other firms, is that literally we know what we're doing. This is what we do. We're not trying to be the auditor to audit every kind of audit out there that a client might need. We're here to do your 401(k) audit so we know 401(k)s and we know this auditing really well which is going to save the client time. It's going to give them a good audit, good quality look at their 401(k) plan. So when they're done they can feel comfortable that the plan is doing all the things that it’s supposed to be doing. Or at least they've been given a list of things they need to work on to get them to that point.

Jody Grunden: You know one thing you didn't mention which is kind of unique to our firm is that you never really go out to their office.

Kim Moore: Right. Yeah we're virtual. Which is. It's not that we're the only firms doing it. There are a few other firms out there but the majority of them are not. They're going to set up a time to come to your office. They're going to plant themselves in your conference room, or maybe in a table next to your office, and they're going to be there for a day, or a couple of days, or maybe a week. One auditor might be five auditors. It depends. And they're going to come to your office and they're going to dig through your files and ask you a bunch questions. Hard to say if audits the same. Obviously depends on the audit firm and their process. But yeah they're physically going to come to your office. We don't do that. We do the audits virtually and we find it works extremely well for a couple of reasons. A lot of the documentation that we need is not in their office. I mean I can go physically sit in your office, and I'm going to be looking online at information with your provider or with your payroll company. That information is not physically in your office anyways. The other reason that we're able to do the audits virtually is because of the software we have. I can obviously talk to the people. I can do virtual sessions so I can be looking at them talking to them. They can see me. We even have software where they can see my screen if I want to show them something, some particular issue we're trying to work through. The final report they can see it online. They can see me as I'm changing it. And same thing, I can see their system. So if they want to show me something that's in their system that they're working through, I can see that online. I don't physically need to be in their office. I've done 401(k) audits where we traveled to the location. We did it the old fashioned way where we sat in the office. We did the very same things we do virtually. It's just by doing it virtually we can do it quicker. But the big thing is we can work to the client's schedule. So if I physically have to be in your office we've got a set date and you've got to have all the documentation ready on that date because I'm coming on that day, and I know for me to move that means a whole lot of juggling, and it's probably not really going to work. But from the client perspective, what if they have a big project that comes up right before then, and so now they're really busy, and they don't have time to pull the documentation. It's hard to move that around if I physically come into your office. If I'm doing it virtually it's easier for me to work around. So I know a lot of the people that we've signed as clients, if you had them here, they would be telling you one of the big things that they really like is that we can work to their schedule. We have a tool we use to request documentation, it’s an online, available 24/7 tool. So I tell all the folks when we're starting off with them, if it works better for you to take 15 minutes every so often, and load stuff onto that too, that's fine—we can work with that. If you'd much rather do a block a day, to go gather all the documentation for the audit. We can work with that. Our systems are set up to accommodate that. So you know, it's 2:00 in the morning where you are, and you've got some time, and you want to pull some stuff for the 401(k) audit, you can do that. It's available, it's ready for you.  Now I don't know many other firms can say that. So technology really helps out with the virtual side.

Jamie Nau: Yeah sounds like a lot has changed since my audit days. I would audit in a broom closet that's where the client would put me.

Kim Moore: Exactly.

Jamie Nau: So one final question. You mentioned the October 15th deadline. If I'm listening to this podcast, I may realize, oh boy I do need a 401(k) audit, and I'm about a month away from the deadline. What should I look for when hiring a CPA firm for audit?

Kim Moore: Yeah absolutely. If you need an audit and it's for 2018, which we're doing the 2018 right now. First thing you need to do is get on the phone and get an auditor. Get engaged with an auditor because you're running out of time and these audits do take time. I mean you cannot do an audit in a day.  It takes a lot of time to gather all the documentation that we need. So first things, hurry up and get online. Look around. The things that we encourage people to do, obviously price matters. We all know that, we're in business, and so you don't want to pay more for the audit than you have to. But you really shouldn't be selecting your auditor based on price alone. These are very complicated audits. They are regulatory audits. So there are a lot of firms out there that offer audits and they will tell you, sure I can do your 401(k) audit, but if they don't do a lot of these, if they haven't done one recently they're not going to be up on all of the current requirements. And it is, what's called the, plan sponsor, that's the company that's offering the plan. It is their responsibility to make sure that the audit not only is done and done on time, but that it's a quality audit. That is their responsibility. Most people don't know that. They don't understand it because they're not auditors, and obviously they're not going to be held to the same standard that an auditor would. But they need to make sure that the firm that they're hiring knows what they're doing in terms of producing a quality audit. So ask about how many audits does the firm do. How long the have you been doing this. What is the background and experience of the auditor. Not in general, but the auditor that's going to be assigned to my audit. Is it going to be, you know, maybe the firm has some people with great experience but I'm going to give you that newbie down the hall there who's never done a 401(k). So who specifically is going to do my audit. And lastly I'd ask them, there's something called the, Employee Benefit Plan Audit Quality Center. It's a part of the AICPA, which is the industry group that all accountants belong to. It's nationwide, and they have this group that it's a voluntary association, but you pay to belong to it, and you have specific requirements that you have to adhere to belong to it and we belong to that group. Those firms that really want to give you a quality audit experience. They also should belong. So I would always ask, do you belong to the Employee Benefit Plan Audit Quality Center? Also ask have they had a peer review. When was the last peer review? And to let you see the peer review results. What did your peer reviewer say? Did you get a good opinion? What kinds of findings did they have? So ask those kinds of questions. Don't just hire the first audit firm you find. Don't just hire the cheapest audit firm that you find. Ask them those questions around the quality of the audits that they're doing. That way you make sure you're getting a good quality audit, and that it's going to get done, but it's going to be done on time and it's going to be a good quality audit.

Jamie Nau: There’s definitely a lot of audit firms out there. Not all audit firms do 401(k). But not all the firms will necessarily tell you that. I know when I worked in audit. we were back and forth each year whether we were going to do 401(k) audits or not. So having that specialty I think really does help and gets you a quality auditor. 

Kim Moore: Absolutely. Yeah. All auditors are not the same.

Jamie Nau: So that's all the time we have for today's episode. I want to thank Jody and Kim again. It was a very successful episode. I think we talked about a lot of things. I know I learned quite a bit. Again it has been a while since I've been in audit. So you talked a lot about process and that's actually what we are ,going to talk about in our next episode. So next month we're going to have another podcast where we talk to that process and learn more about it. So thanks again, Jody and Kim and we'll talk to you soon.


What companies must know before the 401(k) audit deadline

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