Under federal law, most organizations with an employee benefit plan (EBP) that has 100 or more participants are required to submit audited plan financial statements when they file their annual tax return or report. This audit is required to ensure that the organization is in compliance with the Employee Retirement Income Security Act of 1974 (ERISA) and adhering to the Department of Labor (DOL) and IRS standards. If your organization has 80 or more employee benefit plan participants, it is time to start thinking about hiring an auditor.
Navigating the complexities of employee benefit plan compliance and regulation is challenging. It is vital for your organization to select a qualified and experienced, professional auditor that focuses on comprehensive, quality audits. Below, we’ll dive into why choosing the right auditor is important and which questions you can ask to make sure an auditing firm is a good fit for your company.
Why You Need to Carefully Select an Auditor
To protect your organization, it’s essential that you work with an experienced employee benefit plan auditor who can accurately perform a detailed audit for your business. A high-quality audit helps protect the organization’s assets as well as the financial integrity of its employee benefit plan.
A quality audit helps the plan administrator improve and streamline plan operations while carrying out their legal responsibility to file a complete and accurate Form 5500 annual return. The audit will also give the plan administrator the information they need to make sure that the necessary funds will be available to pay for health, retirement, and other promised benefits laid out in the plan.
An inexperienced auditor may overlook or exclude an element from your audit, exposing your organization to potential civil penalties that can result from incomplete, inadequate, or untimely audit reports. That’s why it is critical to work with an experienced and reliable auditor that specializes in employee benefit plan audits, ensuring plan administrators can get the most out of their audit while avoiding penalties.
What Questions Should I Ask Before Choosing an Employee Benefit Plan Auditor?
As you start searching for auditing services, it’s important that you know what to look for in a competent and experienced employee benefit plan auditor. Before you choose an individual or firm to audit your employee benefit plan, ask these questions to get a better understanding of their knowledge and experience:
Is the firm licensed or certified as a public accountant by a state regulatory authority?
Any auditor that engages in audits for employee benefit plans needs to be licensed or certified as a public accountant by a state regulatory authority. States have different requirements for what this certification or licensing requires. For instance, some states require a peer review report from other licensed auditors.
Before you begin working with an auditor, verify with the state regulatory authority that the individual holds a valid and updated license or certificate to perform auditing services. The auditor must also be independent, with no financial, or other conflicts of interest to the plan or plan sponsor, that might affect their ability to provide their objective and unbiased opinion on the financial condition of the plan.
Does the auditor or firm have experience with employee benefit plan audits?
One of the most common reasons that audits are performed inadequately is because the auditor has failed to test areas that are unique to employee benefit plans. That’s why organizations need to choose an auditor that has a clear understanding of the unique nature of audits for employee benefit plans and the nuances specific to each type of benefit plan.
While some organizations make the mistake of relying entirely on pricing to decide about which auditor to hire, businesses should focus on hiring an auditor with specific experience and expertise in employee benefit plan audits.
Does the firm have credible references that are specific to employee benefit plan audits?
Credible references are one of the best ways to determine the experience of your auditor and the quality of their auditing services. When evaluating auditors, ask for references that speak to the quality of the auditor’s work, especially those that relate to employee benefit plans that are similar to your organization’s plan.
If your state requires auditors to have their work independently reviewed by other licensed auditors, you should also ask for the results of these peer reviews and the firm’s response to the peer review. The peer review results will give you a better understanding of the firm’s process and the quality of its auditing services.
What type of training or continuing education does the firm offer its auditors as it pertains to employee benefit plan audits?
As you evaluate auditors, ask for proof of recent training specific to employee benefit plan audits. You may also want to ask for records of continuing professional education.
Recent training and education provide evidence that the firm is committed to quality audits by ensuring that its auditing team is up to date with the latest best practices in these types of audits.
Are they a member of the AICPA Employee Benefit Plan Audit Quality Center?
The American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center provides a wealth of information, tools, and resources to help benefit plan sponsors and administrators understand the importance of audit quality. Firms that voluntarily adhere to the Center membership requirements show that they are committed to providing quality auditing services to their clients and stay up to date with the latest standards and regulations. In addition, for the sake of transparency, Center members also make their external peer review reports of their audit practice available to the public.
When considering selecting an employee benefit plan auditor, there are numerous factors to consider and verify before initiating your engagement. For more information and to see how HM&M can assist with your employee benefit plan audit, please contact Steve Gohn or submit an EBP Enquiry Form.
On June 9, the IRS released Announcement 2022-13, which modifies Notice 2022-3, by revising the optional standard mileage ...
At the tail end of 2021, the Internal Revenue Service (IRS) released new Schedules K-2 and K-3 effective ...
This information is current as of Sunday, November 21, 2021. On Friday, November 19, 2021, after the Congressional ...
Last month, Senior Manager, Pearl Balsara was invited to speak at the 2023 FPA DFW Annual Conference in ...
We are pleased to announce the winners of the 2022 HM&M Excellence Awards. Ronna Beemer, Keith Phillips, and ...
Huselton, Morgan and Maultsby is composed of a spectacular team of individuals. During our annual What’s Happening Meeting, ...