If you are the Plan Sponsor of a 401(k) Plan and you just discovered that your Plan needs to have an audit conducted, you may be wondering how to evaluate potential audit firms. For example:
- One of the areas that we recommend is to ask the audit firm how many audits do they conduct?
- What is the experience of the Partner and other staff that will work on your engagement specific to ERISA audits?
- Does the audit firm participate in the AICPA Employee Benefit Plan Audit Quality Center?
These firms are committed to quality audits, and they belong to a professional group that requires additional training and commitment to compliance audits beyond the standards general firms employ. Another area that is worth exploring with any new firm is the tools that they use to conduct the audit.
You may think this is the auditor’s problem. As long as they complete the audit in time for you to file by the 401(k) audit deadline, what difference does it make how they conduct the audit? However, you will find that the more organized the firm is, the easier the audit will go for you. Also, this will save your time gathering and submitting documents to the firm if they provide tools that are easy to use and understand. Let’s examine the areas that you should explore with them.
- How will the auditor request documentation?
Audits require a lot of documentation to complete the process. This documentation needs to be provided timely to the auditors to ensure the audit can proceed smoothly. Also, since there is so much documentation, it is critical that the tool provided allow for both the auditor and client to stay organized. It should be provided as a checklist, if possible, so both parties can see the progress made in completing the requests and the tool should highlight outstanding items. Providing due dates for items needed is important to ensure key milestone dates can be achieved. Lost time for either the auditor or client trying to figure out what has been requested, what has been submitted and what is still outstanding is truly wasted time. Lastly, the tool should provide detailed requests. Simply stating that a year-end payroll report is needed is not specific. Payroll systems provide many “year-end reports”. It is confusing for the client to know which report will provide the needed information. Having to provide multiple reports simply because the auditor did not specify the information needed and the time that the report should cover can be very frustrating.
- Will the documents provided to the auditor be secured?
Much of the documentation needed for a 401(k) audit will be highly confidential. Submitting the documentation via simple e-mail exposes the sender and the receiver to legal liability if the information is intercepted by a hacker, fraudster or identify thief. Ensure the tools utilized by the auditor contain provisions to encrypt the data. Also, ensure the firm uses security on a day-to-day basis to ensure the information while held by the firm is secured and that it is destroyed or fully deleted once it is no longer required. If the firm uses third party software, the security of that software must also be evaluated.
- Charges for use of the software.
The firm should provide access to all required tools as part of their audit fee. However, it is a good idea to ensure that there are no separate charges in this area that are hidden or may be charged after the audit is completed.
As 401(k) audits require significant confidential information to be successfully completed, investigating how a potential new audit firm will request, obtain, store and use this information is important to an on-time and accurate audit. It also will pay dividends to the Plan Sponsor as a well-planned audit with proper toolsets will avoid costly delays and wasted time in administrative tasks.
Do you need an audit for your 401(k) Plan? Consider a specialized firm like Summit CPA Group. We can provide a quality benefit plan audit that is efficient and accurate. If you would like to discuss our audit process in more detail contact our office at (866) 497-9761. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete.