February 28, 2023

My 401(k) Plan Needs an Audit – Where Do I Start?

It’s that time of year when Plan Sponsors of 401(k) plans find out that their plan has reached the point that requires an audit. In general, when plans have more than 100 eligible participants as of the first day of the Plan year, they require an audit. There are some exceptions to that general rule but if your recordkeeper and/or third-party administrator (TPA) has informed you that your plan will need an audit, it is time to start looking for an auditor. 

What should you consider? Most companies start with price. Of course, it is important to understand the auditor pricing schedule. We recommend you select a few audit firms and consult with them on their pricing schedule – especially how it will apply to your plan audit. However, price is not everything and pricing schedules are not all the same. Here are some other factors to consider. 

Does the Audit Firm’s Availability Match Your Own? 

Does the firm have available staff and time on their calendar to complete your audit by the deadline and to meet your availability? Audit firms have had staff shortages like most other firms.  Establish a timeframe for your audit and discuss that with the prospective audit firm. Make sure they have the staff available to complete your audit in the timeframe that you need. Ask them how long they anticipate the audit will take. What are the potential roadblocks to completion. This is an important factor in your decision as there can be hefty fines if your audit is not completed in time to file by the Form 5500 deadlines. 

What’s the Prospective Firm’s Experience with Employee Benefit Plan Audits? 

Not all firms are equal. It is part of your fiduciary responsibility to the plan to ensure that an accurate and complete audit is conducted on your plan. Although you are not an auditor and may not understand all the requirements for the audit, you can ask the prospective audit firm about their background and experience in this area.  

Make sure you specifically ask about their experience with benefit plan audits. You want to make sure you select a firm that specializes in benefit plan audits. These are very technical audits and a generalist auditor will not know the technical specifications that are needed to complete a thorough audit. Questions to consider are: 

  1. How many benefit plan audits do they conduct annually? 
  1. How many years has their firm conducted these types of audits? 
  1. Are they a member of the AICPA Employee Benefit Plan Audit Quality Center? 
  1. How much training does their staff receive specific to benefit plans each year? 
  1. Who will conduct the work on your audit?  What is their specific background? 

How Will the Audit be Conducted? 

It’s important to understand how the audit will be conducted. What are the processes that the firm will use to conduct your audit? Will the auditors be on-site with you or with they conduct the audit remotely? There are pros and cons to both approaches, but you need to make sure the approach will meet your needs and expectations. Learn more about how the audit process unfolds by exploring our 6-phase 401(k) audit process

In addition, the firm will need highly confidential information such as payroll data, human resources data, and 401(k) plan specific information related to employees/participants. This information needs to be secured via transmittal and then while held by the firm. How will they request information to complete the audit? What security protocols do they have in place to ensure the information remains secure? It’s important to ask about the methods and systems used by the firm to ensure the information will remain confidential throughout the process of the audit. 

We recommend that you begin your search for an auditor as soon as possible to allow time to review the prospective firms and gather all the information you need to make a decision about the upcoming audit. Then, begin the audit as soon as possible to allow for adequate time to complete the audit on time to meet the regulatory requirements. We wish you the best of luck for your first 401(k) plan audit! 

For more information on how our 401(k) audit team can help, request a free consultation below or contact Kim Moore at (260) 918-8824 to discuss your unique 401(k) audit needs. 

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