Like the annual physical, an employee benefit audit may not be much anticipated, nor particularly welcome. Yet both are important and can be worthwhile. A recent blog entry offers some ideas on making the most of one.
In “Six Steps to a Smooth Employee Benefit Plan (EBP) Audit,” David Rich and Tiffany L. White, respectively Senior Manager and Shareholder at the firm Clark Schaefer Hackett suggest in the firm’s blog that plan audits are a necessary evil, observing that they can be helpful in staying in compliance with the wide range of regulations governing plans. Not only that, they argue, audits ultimately benefit the employer itself, since plans are “vital” in attracting and retaining employees, and audits help make sure a plan is effective and in compliance with rules and regulations.
Rich and White make six suggestions regarding how to make a benefits audit a smooth process.
Choose an Auditor Carefully
Auditors’ experience and expertise are key, Rich and White suggest, observing that they have the greatest influence on the audit process. The suggest that auditors should:
- understand benefit plan provisions;
- focus their time on employee benefit plans;
- have experienced people on their teams; and
- be adept at problem solving, so you get valuable recommendations for improvement and not merely identification of issues.
Rich and White argue that conducting the tests entailed in an audit can be complicated, and that experienced auditors can make that less complex.
Prepare
There is more to preparing for an audit than finding the right auditors, Rich and White say; they observe that preparing also entails gathering materials and reviewing them. They suggest the following.
- gather relevant documents;
- check with the plan committee and TPA to make sure records are up to date and complete, and that all documents are executed; and
- provide previous years’ nondiscrimination testing results, information that illustrates changes made to correct earlier compliance errors.
Plan Adequately
Many auditors will ask for information before the audit, Rich and White write, to better prepare. They add that auditors can obtain additional information from TPAs, and that it can be detailed if necessary.
Rich and White suggest taking the following actions when planning for the audit:
- meeting with the audit team to discuss details and documentation;
- discuss what additional information will be needed during the audit;
- establish points of contact within your organization and the auditing firm;
- agree on a timeline; and
- call the auditor in advance and ask any questions you may have in order to better ensure clarity and efficiency.
During the Audit
Rich and White argue that it’s a good idea to be as available as possible since audits can be complex and detailed, and because auditors often need additional information. They suggest keeping communication open during the audit and making sure relevant parties have updated information, and warn that an audit is more complicated if communication is not good.
Seek Feedback
Rich and White stress that it is useful to meet with auditors after the audit and discuss the findings of the audit, including recommendations for improvement based on the audit. They suggest obtaining a comprehensive report to help with future audits. They further suggest discussing a draft version of the organization’s Form 5500, in order to ensure that the form agrees with the amounts reported in the audited financial statements and that it is filed on time. Asking questions and seeking information is also important, they suggest.
Maintain Communication
Rich and White argue that maintaining regular communication with the auditor will have many benefits—such as staying in compliance and making corrections when mistakes are made in following rules and regulations. And keeping the auditor up to date on changes made to the business, what the goals of the plan are, and any complexities with internal controls “is the best way” to take positive action on behalf of the plan.
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