Planning before the audit can speed up the overall process and keep your costs to a minimum. Human Resources can play a big role in becoming actively involved since participant information such as hire dates, compensation and schedules for investments and contributions will be reviewed during the audit. As you prepare for your first audit, there are certain things you can do to make the process less cumbersome and costly. It’s a good idea to work closely with your auditor from the start to plan the audit.
You can help the audit team get off to a good start by being prepared to discuss in detail your company’s procedures, processes and policies, as well as any known compliance issues. Make sure you understand the provisions in your plan and be sure to highlight any recent changes to the plan document. By doing so, you can help the audit team zero in on any risks to your plan.
Establish a solid connection with the primary contact responsible for the overall audit process and identify a single point of contact at your company for the audit team. This will go a long way in speeding things up and making the process more efficient. This can be a member of your HR department, benefits team or accounting department.
The designated person can direct requests from the auditor to the appropriate sources either internally or with a third-party administrator (TPA). Before the audit begins, schedule a meeting with all your service providers, including your auditors, TPAs and internal staff who will be involved in the audit. Make sure everyone understands roles and responsibilities. Once the audit begins, request periodic updates and reports on open items so you can monitor the progress.
Know the Investments
Probably more than anything else, the level of knowledge you have about the investments made on behalf of your employees will determine the scope and length of the audit process. Are you familiar with how investments for your plan are held? Are they straightforward or complex? Make sure you have taken the time to gather any required disclosure information about the plan’s investment from the plan’s custodian or investment advisor.
Make Documents Accessible
Auditors typically request a range of documents as part of their fieldwork review. These can include:
- Participant loans
- Plan documents
- Personnel files
- Payroll records
- Completed confirmation templates
- Investment reports
- Draft of IRS Form 5500
You’ll also need to be transparent regarding any prohibited transactions that may have occurred, such as late remittance of participant contributions to the plan. If there are open questions prior to the conclusion of field work, the audit team will provide a complete list of these items and work with you on a timeline to complete them.
Finalizing the Audit
As the draft financial statements are being edited and reviewed, be sure all responsible parties are available for any questions and last edits. You should have the opportunity to review the final audit communications. It is also your responsibility to prepare and sign a management representation letter that you will deliver to the audit team. You’ll want to make sure the draft Form 5500 and the audited financial statements are consistent. If not, you’ll need to identify and resolve any discrepancies.
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.