If your employee benefit plan requires an audit, one of your most important actions is to hire an independent and qualified public accountant. The choice of an auditor should be made with the same attention and care you give to selecting any other individual or entity that provides services to your company. Keep in mind that hiring the auditor is considered a fiduciary function, meaning there is a potential liability in play. When a fiduciary doesn’t follow basic standards of conduct, that person is personally liable to restore losses to the plan. Here are some questions you might want to ask in your auditor selection process:
- Is the auditor certified and licensed?
- Is the auditor highly specialized in employee benefit plan audits?
- Does the auditor have experience in:
- 401(k) plans – 403(b) plans
- Health and welfare plans
- Defined benefit plans
- Defined contribution plans
- Employee Stock Ownership Plans (ESOP)
- Is the auditor fully independent with no financial interests in the plan or the plan sponsor?
You should also ask if the potential auditing firm belongs to the American Institute of Certified Public Accountants. The AICPA has an audit quality center specifically for employee benefit plans — Employee Benefit Plan Audit Quality Center (EBPAQC). The EBPAQC helps CPAs meet the challenges of performing quality employee plan benefit plan audits. Accounting firms receive benchmarking information, industry information and other assistance from the EBPAQC. Also, there are various webinars and training sessions for accounting firm members relating directly to the benefit plan arena.
If your company plans to issue a request for proposal (RFP), it’s very important that you, as plan administrator, ask a variety of questions to check the qualifications of the firm and the value they have to offer.
At the same time, you will need to make available all the information about the nature of the plan and engagement so they can review and produce a meaningful proposal.
Once the auditor is selected, ask for a planning letter that specifies exactly what information they will need for the audit. If possible, you’ll want to gather this information prior to the arrival of the auditor for the first meeting.
Before the audit begins, your auditor will prepare an engagement letter describing the work to be done, the timing of the audit and fees. This letter should clearly spell out the responsibilities of both the audit team and the plan administrator. The plan administrator is most often responsible for maintaining the financial records that will need to be made available to the auditor; however, if a third-party service provider maintains that responsibility, you will need to provide the auditor access to those records.
If your company has a benefit plan, such as a 401(k) with 100 or more eligible participants, you are required to have an audit performed on that plan annually. Learn more about more about Employee Benefit Plan Audits in Skoda Minotti’s free e-book: What to Expect from Your First Employee Benefit Plan Audit.