Finding the right 401(k) auditor
Generally, if your company has over one hundred employees eligible for admission into your 401(k) plan, you will need a 401(k) audit. These audits follow guidelines served by a regulatory environment that encompasses the Internal Revenue Service, the Department of Labor, ERISA Regulations and in some cases, state regulators. Regulators focus on ensuring the plan remains compliant and looks out for the best interest of plan participants. They want to ensure the plan fiduciaries are upholding all their responsibilities as defined by ERISA. So, if you are preparing for your 401(k) audit, it is imperative to get an auditor that understands all the risks and complexities involved.
401(k) audits are typically done by CPAs that specialize in these plans. To find one, you can start by looking for some leads around your locale. If you already have a CPA assisting your company with bookkeeping or tax work, you can reach out to them for a referral. Alternatively, you can fish out your smartphone, search “401(k) auditor" on Google, and see who is out there. At Summit CPA, a good number of our first-time clients find us through Google. The real work begins when you have identified a potential auditor.
So how do you know they are the one for the job? Below are 5 tips to keep in mind on how to find a 401(k) auditor.
Do not just chase a bargain.
When looking for an auditor, most companies understandably focus on price. After all, 401(k) audits typically cost thousands of dollars. Our audits can run anywhere from $8,000 to over $30,000, depending on the size and complexity of the plan. Most auditors also charge higher rates for first-time audits than subsequent ones.
Audit charges are an essential consideration when hunting for the right auditor. However, focusing exclusively on cost can be detrimental. A poorly done audit can bring regulators like the Department of Labor knocking on your door, and you will be held liable, even if though the CPA was licensed and engaged to actually complete the audit work.
Moreover, some auditors quote an attractive price initially, usually an estimate, and end up charging a lot higher than they originally quote.
So, even as you chase a bargain, keep competence, experience, and transparency as the first items on your checklist.
Ask the right questions.
Decades of accounting experience might be a colorful feature on an auditor’s portfolio. However, 401(k) audits are very technical and cover very different items from a traditional financial statement audit. The right 401(k) auditor is the one that understands the nature of this specific type of audit. These audits are uniquely compliance-oriented, and it is imperative that you find someone familiar with the specifics involved.
Asking the right questions can help you gauge a prospective auditor’s stance with 401(k) audits. “Do you do these kinds of audits?” “How many do you do in a year?” “How long have you been doing them?” “What is the background training and experience of the people you will assign to do the audit?”
It is also important to ask whether they are a member of the Employee Benefits Plan Audit Quality Center, the AICPA professional support group for benefit plan auditors. This is a voluntary membership group that provides valuable resources and training to members to assist in these unique audits.
Insist on transparent billing.
When it comes to billing, many auditors use one of two approaches:
- They ask a few questions about your plan and give you an estimate, or,
- They claim that because they do not know your organization, they can only charge by the hour.
More often than not, auditors that put the first option on the table end up charging more than they quoted. They rarely charge a smaller amount because your plan was simpler than they thought.
On the other hand, hourly billing hides the fact that the longer the auditor stays with you, the more they will charge. Because it is an incentive for them to take more time, your audit will drag, and you will pay more for it.
At Summit CPA, we attach fixed fees for all our services, including 401(k) audits. With a fixed rate, you can plan for your audit fees, knowing you will not get any additional charges in the future. You will also better understand the services on offer and why they cost the quoted amount.
Check your CPA’s peer reviews.
Every audit firm is required to take part in a peer review at least once every three years. This process entails inviting another CPA to assess them and give feedback. At the end of the exercise, the assigned CPA writes a report and assigns one of three ratings to the firm based on the audit’s outcome. This rating can be an excellent indicator of your CPA’s competence.
So, when vetting potential auditors, ask about their most current Peer Review. You can also visit the AICPA website and search for the firm if they are part of the Employee Benefit Plan Quality Center. Member firms are required to post their most current review report on the website.
Interacting with a CPA and perusing what they present is often not enough to make a decision. So, before you hand over confidential information required in benefit plan audit, request to speak with some contacts of the auditor’s current or previous clients. A competent, trust-worthy auditor will offer this information without flinching.
Look up the references online to judge their credibility and reach out to them. Ask about their experience working with the auditor, touching on both what went right and wrong.
If you run a company with a sizable employee base, a 401(k) audit is inescapable. 401(k) audits are complex and sensitive undertakings. They must be done by CPAs that understand them fully. Therefore, it is critical that you take your hunt for an auditor seriously. With the pointers above, you can give your company the best chance at acquiring the right auditor.
As an innovative firm, Summit CPA specializes in 401(k) audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.