Beginning the 401(k) plan audit process can feel overwhelming, no matter if its your company’s first audit or just the latest in a long series. There’s a lot of decisions that need to be made early in the process to ensure the audit can be completed before the deadline to avoid costly penalties. Kim Moore, Director + 401(k) Audit, and Karen Hill, Manager+401(k) Audit detail the decisions, deadlines and details that 401(k) plan sponsors simply can’t do without in order to function in their role.
- Discuss the timeline of the 401(k) audit with your auditor ahead of time to ensure that they not only have room for you in their schedule, but to meet vital deadlines
- Ensure your 401(k) auditor is qualified through readily available online resources and asking specific questions during the initial meeting
- A red flag to look out for may be unusually low prices: this may indicate a lack of qualification, particularly if other auditors have quoted a much higher price
- An audit firm’s billing practices can result in wildly different prices, which is why it’s important to understand how a firm will bill you for their time
Setting an Audit Schedule
The first step to any successful 401(k) plan audit is finding a qualified auditor or audit firm. Generalized auditors are typically unequipped to handle the highly technical and regulated 401(k) audits. Because there’s only so much space in an auditor’s schedule in any given year, it’s vital to select a firm as early in the year as possible. This not only gives your company more time to perform due diligence on your auditor’s qualifications, but allows you more time to meet critical deadlines and avoid penalties.
Timing an audit can be difficult as any number of interruptions can occur. For instance, the point person for the auditor might go on maternity leave later in the year, so completing the audit before that time may be imperative. Finding an auditor early can also allow your company to find a replacement for important team members who may have scheduled absences.
Performing Due Diligence to Ensure Qualified Auditors
Due diligence is fundamental during the auditor search as the plan sponsor has a fiduciary responsibility to ensure the audit is completed by a qualified professional. To ensure an auditor fits the 401(k) audit criteria, ask questions like:
- What kind of experience an auditor has?
- What kind of audits do they do?
- Do they have experience with employee benefit plan audits?
- How many audits do they perform?
- What types of employee benefit plan audits do they do, since not all are the same?
- How many years’ experience do they have auditing plans?
- What percentage of their work is employee benefit plans?
In addition to asking questions, you can search the American Institute of Certified Public Accountants (AIPCA) website for a section called the Employee Benefit Plan Audit Quality Center. You don’t need to be a member of this organization or a CPA to access this resource, which allows you to search by state to find an auditing firm that fits your company’s needs.
Reaching out within your organization to the CFO or equivalent to see if they have an auditor contact who has worked with your company before. If they are qualified to complete your 401(k) audit, they may be the person you’re searching for. If not, perhaps they can recommend another individual or firm instead.
Beware Unnaturally Low Prices and Note the Billing Method
Once a firm is selected, a discussion of pricing and billing is certain to follow. While there may be a perfectly reasonable explanation for an auditor to offer bargain rate prices as compared to their peers, it could potentially be a red flag. An auditor who has experience but perhaps wants to establish themselves in a new area may lower their prices to bring in more clients, but that may not always be the case.
Instead, an auditor may be offering a low price to make up for the fact that they lack critical experience or qualifications. Knowing the going price for 401(k) audits in your area can help you to more easily identify such individuals, so be sure to look into several different auditors and firms.
Billing can also be tricky, as certain types of billing schedules can ultimately cost your company more money than you previously expected. While some firms may offer fixed fees, others may only offer progress billing. With fixed fees, the price agreed to in the engagement letter will be the price you pay once the audit is completed, even if it takes longer than expected. Progress billing, in comparison, can effect a heftier bill once the audit is completed, depending on the time it takes.
The engagement letter may also hold additional billing details, such as travel expenses your company is liable for. Read through the fine print to ensure you’ve chosen a firm that fits your needs, schedule and budget.
If you need an audit for your 401(k) plan, consider a specialized firm like Anders CPAs + Advisors. Explore our 6-phase 401(k) audit process to learn more. We can provide a quality benefit plan audit that is efficient and accurate.
To get started, request a free 401(k) audit consultation below or contact the team at (314)-886-7913 to schedule an appointment.
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