Article

Top tips to prepare for an employee benefit plan audit

Aug. 27, 2020

Knowing what to expect prior to the start of an employee benefit plan audit can help make the process quick and efficient. Whether your employee benefit plan is about to be audited for the first time or you are looking to improve upon the audit process from the prior year, consider these tips to prepare for an audit of your plan and maximize efficiencies. Achieving audit efficiencies means reducing your time and keeping your costs down, a goal easily attained with proper planning.

Planning

• Be prepared to discuss with the audit team key policies and procedures that impact operation of the plan, any changes to such policies and procedures, any changes to the plan document, and any known or potential compliance issues. An understanding of these items early in the audit allows the audit team to easily identify and focus on risks pertinent to your plan.
• Make the audit team aware of key plan resources available during the audit. Successful planning requires a solid understanding of the plan and good communication with the primary contact responsible for the overall audit process, including overseeing preparation of the plan’s financial statements and Form 5500, Annual Return/Report of Employee Benefit Plan.
• Establish a single point of contact for the audit team. Designating a single person with whom the audit team communicates helps create a smooth and efficient process. This is often a member of the plan sponsor’s benefits or accounting department, generally whoever has primary responsibility for the administration of the plan. The designated contact can direct auditor requests internally, to the third party administrator (TPA) and other involved parties, as appropriate. This prevents overlapping or duplicate efforts and keeps the primary contact involved with all communications related to the plan audit.
• Be familiar with the plan’s investments. The arrangement in which investments are held determines the scope of the audit (limited scope or full scope). The type and complexity of investments determines the extent of audit procedures and financial statement disclosures required. The planning stage is the time to gather required disclosure information about the plan’s investments from the plan’s custodian or investment advisors. This is especially important if the plan invests in alternative or hard-to-value investments.
• Provide ready access to documents requested on the auditor’s request list, along with a draft of the plan’s financial statements, prior to the start of fieldwork. The auditor’s request list will typically include items such as updated plan documents or amendments, an employee census report, the annual auditor package from your TPA, activity-level internal control narratives, spreadsheet templates to summarize certain plan activity and completed confirmation templates. Confirmations can be a relatively easy way to obtain audit evidence over certain demographic data and plan activity. The confirmation process can be done via email or paper requests. Participant confirmations tend to be most effective when sent early in the audit process and when the recipients are aware of the timing and importance of the document they will receive.