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Generally, Federal law requires employee benefit plans
with 100 or more participants to have an audit as part of their obligation
to file an annual return/report (Form 5500 Series).(1)
If your employee benefit plan is required to have an audit, one of the most
important duties of the plan administrator is to hire an independent
qualified public accountant. The sponsor of the plan is the plan
administrator under the law unless another individual or entity is
specifically designated to assume this responsibility. The following
material will assist you, as plan administrator, in selecting an auditor and
reviewing the audit work and report.
Why is the choice of an auditor important?
A quality audit will help protect the assets and the
financial integrity of your employee benefit plan and ensure that the
necessary funds will be available to pay retirement, health, and other
promised benefits to your employees. A quality audit also will help you
carry out your legal responsibility to file a complete and accurate annual
return/report for your plan each year. Because an incomplete, inadequate, or
untimely audit report may result in penalties being assessed against you as
the plan’s administrator, selection of an experienced and reliable auditor
is very important.
Is a plan auditor required to be licensed or
certified?
Federal law requires that an auditor engaged for an
employee benefit plan audit be licensed or certified as a public accountant
by a State regulatory authority.
Is a plan auditor required to be independent?
Auditors of employee benefit plans should not have any
financial interests in the plan or the plan sponsor that would affect their
ability to render an objective, unbiased opinion about the financial
condition of the plan.
Should a plan auditor have experience in auditing
employee benefit plans?
One of the most common reasons for deficient accountants’
reports is the failure of the auditor to perform tests in areas unique to
employee benefit plan audits. The more training and experience that an
auditor has with employee benefit plan audits, the more familiar the auditor
will be with benefit plan practices and operations, as well as the special
auditing standards and rules that apply to such plans.
In some instances, a less experienced auditor may be
assigned to perform routine audit procedures in order to reduce audit costs.
When this happens, you should confirm that an experienced employee benefit
plan auditor will review his/her work, as well as perform the more
complicated audit procedures.
Should I request references and check licenses?
When engaging an auditor, you may wish to obtain
references and discuss the auditor’s work for other employee benefit plan
clients. If you have additional questions, you may also wish to verify with
the appropriate State regulatory authority that the provider holds a valid,
up-to-date license or certificate to perform auditing services.
What is an engagement letter?
In preparation for the audit, the auditor will prepare a
contract, referred to as an “engagement letter,” describing the audit
work to be performed, the timing of the audit, and fees. This letter also
should describe the responsibilities of the auditor and the plan
administrator. You should review this letter carefully and resolve any
questions with the auditor prior to engagement.
Can I limit what the auditor reviews?
Federal law permits the administrator of an employee
benefit plan to limit an audit when plan assets are held by banks or
insurance companies and written certifications are provided by the
institutions holding those assets. You should consult with your accountant,
attorney, or plan advisor to determine whether limiting the scope of an
audit is appropriate for your plan.
Will I have to furnish or prepare documents for the
auditor?
It is generally the responsibility of the administrator
to maintain plan financial and other records. Many of these records will
need to be made available to the auditor for review in the course of the
plan audit. If a third-party service provider maintains plan records, you
will need to arrange for auditor access to these records.
What happens when the audit is complete?
At the conclusion of the audit, the auditor will issue a
report and state an opinion on the plan’s financial statements as well as
any schedules required to be included as a part of the plan’s annual
report filing. Auditors will also report on significant problems, if any
were found. The auditor may also suggest ways for you to improve internal
controls and plan operations. This is a good time for you to ask questions
about the auditor’s work.
What questions should I ask the auditor about his/her
work?
Frequently audits are found to be deficient because of
the failure of the auditor to conduct tests in areas unique to employee
benefit plans. Accordingly, you should make sure that your auditor
considered the following areas:
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Whether plan assets covered by the
audit have been fairly valued;
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Whether plan obligations are properly
stated and described;
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Whether contributions to the plan were
timely received;
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Whether benefit payments were made in
accordance with plan terms;
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If applicable, whether participant
accounts are fairly stated;
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Whether issues were identified that
may impact the plan’s tax status; and
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Whether any transactions prohibited
under ERISA were properly identified.
A well performed audit is a vital protection for your
employee benefit plan. It is in your best interest and that of your plan’s
participants to maximize the results of the audit process.
For a complete list of EBSA publications, call
toll-free: 1.866.444.EBSA (3272). This material will be made
available to sensory impaired individuals upon request, Voice phone: 202.693.8664, Text telephone: 202.501.3911
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Some pension plans with fewer than 100
participants also may be required to have an audit if they fail to meet
certain conditions relating to their plan investments, bonding, and
disclosure requirements. For more information you should consult with
your attorney, plan advisor, or accountant. See FAQs On The Small Pension Plan Audit Waiver Regulation.
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