Salmon Sims Thomas explains how to select an auditor, review the audit work, and analyze the report.
Federal law states that you must have an audit if your employee benefit plan has 100 or more participants. A quality audit will help accomplish many things; it will protect the financial integrity of your plan, ensure that the necessary funds will be available to fulfill all benefits promised to your employees, and fulfill your legal responsibility to file an accurate report for your plan. Therefore, it is important to carefully choose an auditor that can help you successfully address all of these aspects.
Employee Benefit Plan Experience
It is strongly recommended that your plan auditor has expertise specifically with employee benefit plan audits. The more experience he or she has, the more familiar he or she will be with the auditing standards and rules that are specific to benefit plan practices and operations. While a junior auditor may be assigned to more routine audit procedures, a more experienced auditor should be called upon to review their work and perform more advanced audit procedures.
When interviewing potential auditors, it may be beneficial to ask for references and discuss previous work. In addition, you should verify the validity of his or her license with the appropriate state regulatory authority.
Before the Audit
Before the audit, the auditor will draft a contract, often known as the “engagement letter.” It will usually describe the auditor, as well as plan the administrator’s responsibilities, audit work, hours, and fees. Carefully review this document and answer any questions before the start of the audit.
After the Audit
After the audit is complete, the auditor will generate a report, give advice on the plan’s financial statements and required schedules, and identify any significant problems. This is a good time to ask your auditor questions about his or her work.
Questions to Ask Your Auditor
You want to make sure that the auditor conducted tests in areas unique to employee benefit plans. Be sure to ask if he or she covered the following areas:
- Whether plan assets covered by the audit were fairly valued;
- Whether plan obligations were properly stated and described;
- Whether contributions to the plan were timely received;
- Whether benefit payments were made in accordance with plan terms;
- If applicable, whether participant accounts were fairly stated;
- Whether issues were identified that may impact the plan’s tax status; and
- Whether any transactions prohibited under ERISA were properly identified.
For more information regarding how to select an auditor for your employee benefit plan, please contact Dalton Cox, CPA, Audit Manager, at Salmon Sims Thomas.
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