Chicago businesses that offer an employer sponsored 401k, or other retirement plan, must comply with a variety of regulations. The rules apply to various aspects of plan operations, including the misuse of funds, participation, vesting schedules, benefit accrual, and plan funding. Under the oversight of the U.S. Department of Labor (DOL), the Employee Retirement Income Security Act (ERISA) sets standards, requires an appeal process, establishes fiduciary responsibilities, and ensures the right to sue in the event of a breach of that responsibility of the administrators of retirement plans. Beyond this, ERISA also outlines the reporting requirements of different plans including those classified as a small or large plan. One of the most significant requirements is the need for a large plan to undergo an annual financial statement audit.
Whether it is a first-time audit, or a company is looking to change auditors, an important consideration is the quality of the plan auditor. One determinant of quality is experience. According to the DOL’s Audit Quality Study, it found those audit firms performing the fewest plan audits had a 76% deficiency rate compared to 12% for those performing the greatest number of audits. Not surprisingly, the more plans a firm audits the less likely there will be issues. However, there are other factors that should also be considered when evaluating a new plan auditor such as hours of training and peer review performance. To help clients, prospects, and others, Selden Fox has provided a summary of the key points below.
Evaluating Auditor Quality
- Annual Number of Plans Audited – As mentioned above, those firms that have significant experience auditing retirement plans generally commit fewer mistakes. When selecting a new plan auditor, it is not only important to ask about the number of plan audits, but also about the types of plans audited. There are several types of defined benefit and defined contribution plans. If a firm does not have significant experience with a certain plan type, then they may not be the best fit for your audit. Ensuring the auditor has the right type of experience helps to ensure a quality audit.
- Annual Training – Another important factor to consider is the amount of annual training auditors undergo to stay current with new regulations, audit techniques, and updated guidance from the IRS and the DOL. In addition, it is important to determine if the firm is a member of the AICPA’s Employee Benefit Audit Quality Control Center (EBPAQC). As a center of excellence, it provides auditors with access to training and other resources needed to stay current. Ensuring the auditor focuses on regular training helps to ensure a quality audit.
- Prior DOL Referrals – Ensuring there have been no prior violations or investigations of past work is also important. It is important to ensure the auditor has not been subjected to an investigation by a state board of accountancy or the AICPA. Ensuring the absence of referrals and investigations helps to ensure a quality audit.
- Peer Review – This is an external review of an auditors work to evaluate the quality control system used in accounting and auditing practices. The purpose is to provide additional insights into how to further enhance the quality of plan audits performed. Once completed, there will be a score assigned that reflects the quality of processes and work performed. When evaluating a potential auditor, it is important to inquire about peer review frequency and whether any negative findings were uncovered.
When looking to hire a plan auditor there are several variables to consider. If you have questions about the information outlined above or need assistance with your next 401k, or other benefit plan audit, Selden Fox can help. We audit more than 50 benefit plans of different types and meet the standards outlined above. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.