A qualified benefit plan is designed to help guard and protect an employee’s retirement benefits, whether that be a defined contribution, benefit, or health and welfare plan. Generally, most employee benefit plans with more than 100 eligible participants are required to submit an audited financial statement with their Form 5500. One of the employer or plan sponsor’s most important fiduciary duties is to hire a qualified independent certified public accountant to perform the audit.
Why is selecting a qualified auditor so important?
The auditor’s job is to test the plan’s activity at the plan level and at the participant account level to determine if there are any issues with the administration of the plan. The auditor performs various tests to find these issues and helps the plan sponsor correct them. The auditor also issues an audit opinion attached to the Form 5500 and will assist the plan sponsor in reviewing the Form 5500 prior to submittal to the Department of Labor. A qualified auditor will help submit a sufficient Form 5500, audit report, and financial statement, providing the plan sponsor with an established process – not to mention peace of mind.
What happens if the auditor doesn’t conduct a sufficient audit?
If the plan sponsor chooses an auditor who is not complying with professional standards and does not perform a quality audit, it can leave the plan open to scrutiny from the Department of Labor (DOL). Further, errors within the plan can go undetected, causing costly corrective actions to be taken by the plan sponsor, fines or penalties from the Department of Labor, or even loss of the plan’s tax-exempt status. That’s why it’s critical to research and interview your auditor regularly and ensure that DOL standards are being met.
What should you look for in a qualified auditor?
- How much experience does the auditor have?The Department of Labor’s Audit Quality Study Report concluded that auditors who perform the fewest audits annually had a 76% deficiency rate, whereas those firms performing the most audits (over 100 annually) had a deficiency rate of only 12%.
- Is cost an important factor?It is crucial the plan sponsor look at value, not cost. The complexity and size of the plan are significant factors in determining the cost of the audit. However, not identifying issues and providing value to the plan sponsor could result in unforeseen costs that far exceed the cost of the audit, such as late contributions, errors in deferral or match calculations, and errors in vesting. Additionally, many plans allow for the cost of the audit to be paid by plan forfeitures, alleviating the cost burden to the plan sponsor while also providing value to the plan.
- Are plan audits and important area of the firm’s practice?The American Institute of Certified Public Accountants has established the Employee Benefit Audit Quality Center, a firm-based voluntary membership center for firms that audit employee benefit plans. Firms that join this group and comply with its requirements have taken steps to put a focus on audit quality. Also, a firm’s internal training focus is a key area of driving quality audits.
Where should I start my search for a qualified plan auditor?
A reliable benefit plan auditor helps the plan sponsor and management team sleep at night, knowing that the auditor has sufficient experience auditing benefit plans, is focused on helping the plan stay compliant with rules and regulations, and has the necessary resources and training to perform a quality audit. The DOL’s Employee Benefits Security Administration (EBSA) has developed a booklet titled Selecting an Auditor for Your Employee Benefit Plan to assist plan administrators in selecting an auditor.
Our dedicated team of Employee Benefit Plan auditors performs more than 130 plan audits each year, and as independent benefit plan auditors and a Top 100 firm in the country providing this work, we focus on providing timely service, hitting your deadlines, and ensuring compliance. Talk to a Barnes Dennig team member today about your audit needs and find out why our team will provide a quality audit that meets the requirements of all regulatory agencies and lets your employees know their assets are secure. We’re here to help.