Many benefit plans subject to ERISA that have a December 31 year-end file an extension, and delay issuing financial statements and filing the Form 5500 from July 31 until October 15. Even with current circumstances surrounding the pandemic, this could be your organization’s year to issue by July 31. With a little key planning and sound communication, the audit can be performed efficiently. Here are some tips on how you can better prepare:
If you’re aware of a certain week when plan management will be busy or when key employees will be on vacation, let your audit team know. And keep in mind any other busy times your organization might face that could prevent your plan administrator and human resources department from being available. The time the auditors have dedicated to the engagement is most effective and productive if management is available during the same period.
Get Your Auditor’s Access
We understand it can be tedious to pull all the support that’s requested for an audit. A great way to cut back on this workload is to have your plan’s record-keeper provide your auditor with access to the record-keeper’s site. Most large record-keepers like ADP, Vanguard and Fidelity provide such access, which allows auditors to look up participant information, run reports and even request sample support. Management should plan to get this access as soon as possible; it’s especially key when the auditors are working from a remote environment.
Alert Your Auditor of Plan Changes
If there’s been an amendment to the plan, changes to your record-keeper/trustee/custodian or any other significant change, tell your auditor. Information is power, and info like this can save everyone time. If the audit team knows about changes, they can plan accordingly. But if instead they’re surprised during fieldwork, additional testing may be needed.
Be sure to have all samples ready on day one of the dedicated timeframe. If you think you might not have time to pull samples the week before the audit, ask if your auditors can send you the samples earlier. In many instances, records are more difficult to find than you think, and some might be in storage. This way you’ve given yourself enough time to find all the requested information, and both you and the engagement team can be more efficient.
All 401(k) plans are required to undergo nondiscrimination testing each year, typically performed by your third-party record-keeper. Be sure to talk to your record-keeper to verify status of the process. Your auditors are required to look at this testing and ensure that if the plan has failed any tests management has made appropriate corrections. Delays in compliance testing could cause delays in issuing financial statements.
Form 5500 Preparation
Touch base with whoever prepares your Form 5500 to see if they plan to wait for the audit to be completed, or if they’ll be preparing a draft based on figures provided by the recordkeeper. If the former, have them provide the Form 5500 to your auditor before or during fieldwork. This way your audit team can provide the preparer with any necessary edits. Otherwise, just let your audit team know the preparer is waiting for a draft of the audited numbers so they can send the information as soon as possible.
Understand the Processes and Procedures
Your audit team is required to gain an understanding of the internal control environment. They’ll look at processes at both your organization and any of those outsourced to third parties, such as payroll services, custodians and record-keepers. Provide your audit team with updated internal control process memos or take time to explain the changes. It’s also important you review SSAE 18 reports, which explain what controls are in place at third-parties, if those controls are operating effectively, and the complementary user controls that should be implemented at your organization.
If you have any questions on how to prepare for your ERISA audit, feel free to contact your engagement team or a member of the ERISA group at Schneider Downs.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.