What are You Getting for Your Audit Dollar?
June 7, 2012
In this environment, the value of a quality employee benefit plan (EBP) audit is more important than ever for assisting a fiduciary in fulfilling their responsibilities - and thus minimizing the potential risk for the fiduciary liabilities - of plan administrators and trustees. A high quality audit provides some assurance to the plan fiduciaries that their auditor has tested the actual operations of the plan against its plan document.
Elements of a High Quality Audit
But what exactly is a high quality audit and how can plan sponsors have confidence they’re getting one? At its simplest, the quality of your EBP audit will be a function of the reputation of your auditor for performing quality work and the quality of their audit design. There are some basic things to look for in your auditor and the methodology and scope of the audit plan.
Auditor: Credentials, Standards & Experience
In judging an auditor, you should look at three factors: credentials, standards and experience.
Credentials: Check to see if your auditor is a member of the voluntary Employee Benefit Plan Audit Quality Center (EBPAQC). Established by the American Institute of CPAs, the center promotes best practices and provides training in auditing EBPs and identifies common deficiencies found by the Department of Labor in EBP audits. Members of the center have significantly lower numbers of audit deficiencies than non-members.
Standards: The firm you’re considering hiring should require that its auditors stay current on the latest audit requirements and standards by providing and mandating continuous education training for its staff members, including on employee benefit plans.
Experience: EBP audits are unique and present very different challenges than audits of other entities. In this area, experience counts. You should ask how many audits your auditor is conducting and what specific training they obtain.
Beyond getting to know your auditor, it’s important to understand that audit pricing can vary dramatically. Cost differences are often a function of the design of the audit being provided. Before accepting the lowest bid, make sure you understand what is included in the audit in terms of scope, comprehensiveness and the rigorousness of the testing involved. An audit should address the most common deficiencies identified by the DOL. Otherwise, the audit will not be helpful in identifying and correcting problems with plan operations and internal controls, and ultimately cannot be counted on to assist the fiduciary in exercising its responsibility to monitor plan operations.
As a rule of thumb, an EBP audit should be sufficiently comprehensive that it tests all information that would appear on an employee’s benefit statement. At a minimum, audit plans should test:
- Employee eligibility: Are employees actually entitled to participate in the benefit plan based on their date of employment and other requirements specified in the plan document?
- Eligible compensation: Plan sponsors need to understand the definition of eligible compensation, and specifically how to treat bonuses, overtime and shift differentials for purposes of determining employee contributions and company matches.
- Timeliness of contributions: Are employers remitting participant contributions to the plan on a timely basis? Delays in remittances are a major problem from the perspective of the DOL and are likely to invite additional scrutiny of a plan.
In testing these aspects of an EBP, the auditor should be using a sufficiently large and diverse sample size to provide a high level of confidence that the tests are statistically significant and are capturing any problems with controls or procedures.
The audit should also carefully analyze the SSAE No.16 provided by vendors to plan administrators. This report details the procedures and controls in place at outside service providers. This information is critical for properly monitoring the performance of outside vendors (which directly manage the daily operations of many EBP plans) and making sure that these vendors are properly accounting for your employees’ contributions, investment elections and investment earnings.
Plan trustees and administrators need to be cognizant of the changed environment for employee benefit plans. The EBP audit should no longer be seen as just another expense for meeting a regulatory obligation. Instead, today the EBP audit is a valuable resource to plan fiduciaries by providing them some additional assurance that their plan has been operating in compliance with their plan documents.
For more information about this topic please contact Anthony T. Carideo, Jr., CPA and Member of the Firm at 617-428-5405.
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