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Employee Benefit Plan Audit Guide: An Overview of the Process

Written by Dana Canterbury and Missy Herbert on December 16, 2020

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An employee benefit plan is considered a high-value benefit for many employees, and it’s an asset for attracting in-demand candidates. While some small- and medium-sized companies choose not to offer a retirement plan as part of their benefits package, those that do enjoy certain benefits over their competitors that don’t offer such a plan.

The other side of the story, however, is that the employee benefit plan (EBP) must be actively managed and audited, in some cases. Generally, for organizations with more than 100 plan eligible participants, a third-party Certified Public Accountant must perform an audit of your plan, including preparing audited financial statements that are submitted along with your Form 5500 filing.

An EBP audit is conducted to ensure that employee retirement funds are being appropriately handled by the plan’s service providers. To do that, the CPA auditing a company’s benefits plan must have access to all the relevant information to conduct the audit.

As a result, the largest and most administratively intensive piece of the employee benefit plan audit process is the preparation of the audit documentation requests. That’s why, for companies that haven’t maintained the proper documentation, prepared the proper schedules or met key disbursement and disclosure deadlines, the audit process can be challenging.

The good news is that it doesn’t have to be. You can use this Employee Benefit Plan Audit Guide to ensure you are prepared, making it a mostly painless process.

The Three Phases of an EBP Audit

This comprehensive review from the third-party auditor occurs in three phases.

  • The first, and most administratively heavy phase, requires the collection and delivery of a wide array of plan documents, investment statements and transaction support.
  • Next, the auditor completes the fieldwork, travels to a company’s location, if requested, and meets with the personnel responsible for oversight and administration of the plan.
  • After the fieldwork is completed, the auditor delivers the report and any findings.

Here’s what you can expect from each phase of an employee benefit plan audit.

Phase One: Preparation of Your EBP Audit Requirements

Proper preparation of the support that is required for your EBP audit will make the audit itself go more smoothly and streamline both the fieldwork and completion phases.

Below, we’ve provided a checklist of important documentation and statements needed to effectively complete the audit. Many of these items can be provided by the third-party administrator and/or the plan’s investment custodian.

In addition, the company itself must provide copies of reports from both payroll and human resources that relate to the plan participants, such as those showing employer contributions, process narratives and participant loan details and support.

EBP Audit Requirements Checklist

  1. Plan documents and all amendments, including trust documents and summary plan description
  2. Summary annual reports for the period under audit
  3. Fiduciary insurance and bond documentation
  4. Internal income and disbursement statements
  5. IRS determination letter
  6. Meeting minutes from committee or subcommittee meetings
  7. Plan financial records, including account statements and ledgers
  8. Service provider contracts
  9. Support for a sample of participant benefit payments
  10. Process narratives for hiring and paying plan professionals
  11. A draft of Form 5500
  12. All documents related to service provider fees, including fee schedules and compensation paid to professionals by the plan
  13. Contracts with fiduciaries and other service providers, including details and dates for services provided as agreed upon
  14. Any ERISA compliance policies or procedures adopted by the plan or sponsor
  15. All documents related to plan investment performance (which includes an investment policy statement)
  16. All documents related to administrative expenses (direct or indirect) related to the plan
  17. Documents showing the names and service times of board members and officers of the plan sponsor
  18. Documents showing timeliness of employer contributions and support for authorization and payment of participant loans
  19. Documentation showing the procedures for handling participant loans, if applicable (because loan administration and repayment of loans is a frequent issue in audits)
  20. Various participant-related documentation to support a participant sample selected by the auditor

EBP Audit Requirements: Special Focus

All of the above-mentioned documentation and support are needed to effectively perform the EBP audit. Companies should pay particular attention to the completeness and detail of the information provided to the auditors to avoid issues and to minimize potential further investigation by the Department of Labor (DOL).

One of the greatest areas of focus among the EBP audit requirements relates to the plan administrator and their performance of their fiduciary duties on behalf of the plan participants. This goes beyond monitoring and reviewing fees and investment options to include the minutes from committee meetings where the benefit plan is reviewed. This provides evidence that the plan administrators are performing their fiduciary duties to the fullest extent.

Distributions are another area of particular attention during an EBP audit. Errors are known to frequently occur with both hardship distributions and the required minimum distributions made annually to participants after they turn 70 ½ years of age.

Much like distributions, contributions are of note during an audit. Plan eligibility, compensation, deferral elections and deposits must all be accurately reported, must follow the plan’s documented processes and must be deposited into the plan in a timely manner.

The most important filing, and the one that is the most frequently missed, is the submission of Form 5500, which must be filed by July 31. Extensions can be requested, which prolongs the filing deadline to October 15.

Phase Two: Fieldwork

Once the auditor has all of the EBP audit requirements and proper documentation, the fieldwork phase will be conducted. While on-site or remotely, the auditor will meet with company personnel responsible for the EBP plan and gain an understanding of the internal controls, accounting processes and risks.

The auditor will also review a sampling of distributions, loans and employees and request the supporting files and documentation for the samples selected. In all, the fieldwork phase can take between a few days and one week.

Phase Three: Audit Results, Reports and Financial Statements

Finally, once the fieldwork review of the EBP audit requirements is completed, the auditor will provide a draft of the financial statements, report and correspondence related to any internal control deficiencies uncovered during the review. Once approved, the auditor will provide the company with a finalized report and audited financial statements to be attached to the Form 5500 that is submitted to the DOL.

Getting Help with Your EBP Audit

To ensure your company doesn’t have any surprises during an EBP audit, it helps to seek the expertise of professionals.

As one of the largest accounting firms in the Southeast, Warren Averett has extensive experience in the Employee Benefit Plan Audit space. Our certified public accountants conduct over 300 plan audits annually for companies of all sizes.

When planning for your 2020 audit, let us help you simplify the process and reduce your risk. We can walk you through our Employee Benefit Plan Audit Guide to equip you with the knowledge and assurance you need to get through the audit process. Learn more about our Employee Benefit Plan Audit services.
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