How to Navigate the Audit Process

THE STANDARD ADVISOR COUNCIL AUSTIN, TEXAS - SEPTEMBER 10, 2015

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Assisting Your Clients – How to Navigate The Audit Process

39% of Plan audits in the most recent sample had major deficiencies that would lead to rejection of a Form 5500 filing. Putting 22.5 Million people at risk. ~2014 DOL AUDIT QUALITY STUDY

76% of Plan audits were deficient in firms that audit 1-2 plans annually~2014 DOL AUDIT QUALITY STUDY

EBSA also agreed to evaluate OIG's suggestion that it advise plan administrators of the potential for fiduciary breaches from selection of QPAs known to produce deficient audits and to consider the other suggestions in the report regarding enforcement tools~2012 DOL – Office of the Inspector General Report

Presentation Purpose

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Why is it important and how can it impact you?

Assisting clients with the audit firm selection process can be an opportunity to add value to your client relationship

Vetting plan audit firms and correspondence may lead to valuable referral relationships

Save clients from the possible risk of fines and penalties

Possible co-fiduciary responsibility in selecting other plan service providers How to develop a proactive approach for assisting clients with the audit process

Christopher

Original graphics are left of frame. Updated graphics are in frame.

What is the Worst Case ScenarioWhat is the worst that can happen if a Plan Sponsor does not perform necessary due diligence in selecting a Plan Auditor?

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• An unlicensed CPA formerly based in Arizona was completing employee benefit plan audits for over a decade.

• Affected a significant number of plans.

Presentation Overview

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(1) Background Information * Audit Requirement * DOL Audit Quality Study

Overview

(2) How to assist your client with the RFP Process

(4) Disaster Planning – What to do when your current plan audit is not going well

(3) Best Practices for navigating the plan audit process.

Christopher


• Basic Requirement – Employee Benefit Plans with over 100 participants at the beginning of the year are required to obtain an Independent Public Accountant (IPA) to provide an audit.

• Exceptions: 80/120 Rule Short Plan Year (Seven Months)

• Audit requirement for start up plans – If there are 100 participants (at Inception)

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Current Audit Regulations - General

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• Basic 403(b) Audit Requirement – The Department of Labor’s 2007 notice regarding the elimination of the exemption for 403(b) retirement plans becomes effective in 2009.

• Title I of ERISA does not however apply to Governmental Plans (Defined under ERISA 3(32) or Church Plans (Defined under ERISA 3(33)

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Current Audit Regulations – 403(b)

7AICPA EBPAQC Publication - Section 403(b) Retirement Plans Form 5500 Reporting and Independent Audit Requirement (2013)

Current ERISA Plan Audit Population

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83,000PLANS THAT

REQUIRE AN AUDIT

$6.7 TrillionIN PLAN ASSETS SUBJECT TO AUDIT

8,000CPA FIRMS

PERFORMING EBP AUDITS

AICPA EBPAQC Webinar - EBPAQC Designated Partner 2014 Audit Planning)

Current ERISA Plan Auditor Breakout

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1% of Plan Auditors:

• Audit 100 or more Plans

• Audit 42% of all Audited Plans• ~35,000 Plans

• Aggregate 91 Million Participants

50% of Plan Audit Firms

• Audit 1 or 2 Plans

• Audit 6% of all Audited Plans• ~5,000 Plans

• Aggregate 2 Million Participants

Both ends of the Audit Spectrum


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Organizations and Oversight Responsibilities

PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD• Responsibility for 11-K

filers • Determined if a Public

Company issuer has Company Stock in the Plan

• PCAOB Standards and Language Requirements differ from AICPA/DOL requirements

DEPARTMENT OF LABOR/EBSA• Responsible for the

enforcement of Title I of ERISA

• Performs reviews of Auditor workpapers to ensure compliance

• Refers noncompliant auditors to AICPA or State Boards

AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS• American Institute of

Certified Public Accountants

• Established in 1887

• Largest accounting association with 400,000 members in 145 countries..

AICPA - EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER

• Established to promote the quality of employee benefit plan audits

• Regulatory updates and continuing professional education

• Provide Guidance on Audit Best practices for Employee Benefit Plan audit personnel

Christopher


ERISA Advisory Coun-cil

STATE BOARDS OF ACCOUNTANCY

Public Company Accounting Oversight Board

• Both individual CPA certificates and firm licensure are through the various state’s board of accountancy

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Organizations and Oversight Responsibilities

ERISA ADVISORY COUNCIL

• Established by Section 512 of ERISA

• Fifteen member advisory council who’s duties are to submit recommendations to the Secretary of Labor

• Appointed by the Secretary of Labor

DEPARTMENT OF LABOR - OIG

Office of Inspector General • Conducts audits to review

the effectiveness and efficiency of all DOL Program

• Programs are in compliance with law and regulations

INTERNAL REVENUE SERVICE

• Enforcement of ERISA title II provisions including tax qualification requirements

• Employee Plan Examination

• Significantly less interaction with Independent Public Accounting Audit Firms than EBSA/DOL

Christopher


Historically audit quality has often been overlooked

Often viewed as a commodity and regulatory necessity

A skilled auditor can often assist with locating compliance issues, some that may jeopardize a plan’s qualified status and assist in remedying them prior to compounding into larger issues.

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Implications of a Substandard AuditMechanics of a Substandard Audit: Typically performed through the Department of Labor work paper reviews conducted at regular intervals and as part of the 2014 Audit Quality Study. If work is deemed to be substandard after conducting the review of the Auditor’s workpaper the following actions may occur depending on the nature of the issues:

1) The auditor is referred to the AICPA or Respective Board of Accountancy2) The Form 5500 and associated Substandard audit may be removed from EFAST. A letter is issued issued allowing for a 45 day cure period The plan sponsor must then have that year cured or reaudited If the plan sponsor does not cure the deficiency a notice of intent to assess penalty is sent

The plan sponsor may be subject to late penalties based upon the original filing deadline

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Interview – Marcus Aron, DOL SR. Investigator (2015))

Implications of a Substandard Audit Next steps: Department of Labor work paper reviews conducted at regular ongoing intervals. Large samples are conducted for quality studies less frequently.

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Possible Consequences (Plan Sponsor): The plan sponsor may be subject to the same penalties as if the Form 5500 was never filed. The Department of Labor can assess civil penalties up to $1,100 per day with no maximum.

Possible Consequences(Plan Auditor): Referral to the applicable state board of accountancy and or AICPA Professional Ethics Committee.

Interview – Marcus Aron, DOL SR. Investigator (2015)

The meaning of a Substandard Audit

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A substandard audit Does NOT equal A PLAN WITH COMPLIANCE ISSUES

A substandard audit Equals DEFICIENT WORKPAPERS/BAD AUDITOR

EBP Audit Quality Studies - History

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1997 & 2004

Of employee benefit plans failed to comply with one or more established professional standards

Of IQPA reports on employee benefit plans did not meet the reporting and disclosure requirements of ERISA and the regulations there under

19%

33%

2014

39%Deficiency rate

400Number of Audit firms included in the stratified Sample

Firms stratified by the number of EBP audits

1989

Of employee benefit plans failed to comply with one or more established professional standards

Of IQPA reports on employee benefit plans did not meet the reporting and disclosure requirements of ERISA and the regulations there under

23%

65%

2004“Employee Benefits Security Administration: EBSA Needs

Additional Authority to Improve Quality of Employee Benefit Plan

Audits(#09-04-005-12-12), September 2004”

Report highlights the need for EBSA to have direct authority over auditors who perform plan audits.

Can only work indirectly by referring problem firms and removing form 5500 filings with substandard audits

2012

The report has a series of findings - main recommendations (1) Use existing authority to clarify and strengthen limited scope audit regulation(2) Make better use of available enforcement tools over IQPAs (3) Improve procedures in audit quality reviews (4) Perform a reassessment of audit quality

RECOMMENDATIONS

Christopher


Prelude to the most recent Audit Quality StudyThe Department of Labor – Office of the Inspector General September 28, 2012 Report

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The Department of Labor - OIG Conducted a report to determine if EBSA’s oversight of ERISA audits had improved audit quality and increased participant protections.

Title: Changes are still needed in the ERISA audit process to Increase Protections for Employee Benefit Plan Participants.

Strong lead in with: “Despite EBSA’s significant efforts to improve oversight and audit quality, protections and assurances have decreased over time for participants and beneficiaries.”

EBSA’s efforts to improve oversight and audit quality through working with AICPA, to provide guidance and education, redesigning its targeting methods to correct substandard audits and auditor outreach and training. EBSA’s efforts have been offset by plan administrators’ increased use of the limited scope audit.

The percentage of plans electing limited scope audits has grown from 46 percent in 1987 to 70 percent through 2010.

Prelude to the most recent Audit Quality StudyThe Department of Labor – Office of the Inspector General September 28, 2012 Report (Continued)

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MAJOR REPORT POINTS AND FINDINGS:

• The use of limited Scope audits is a MAJOR obstacle in providing audit protections for participants and beneficiaries.

• EBSA Lacks Legal Authority in Monitoring and Enforcement against Independent Qualified Public Accountants

• EBSA can only refer IQPA’s to AICPA and state Boards

• EBSA can remove form 5500 filings with substandard audits attached

• EBSA’s IQPA workfile reviews did not always sufficiently documented that the file met professional standards (the auditors of the auditors of the auditors workpaper were not satisfied in all cases)

• EBSA needs to reassess overall employee benefit plan audit quality (has not been done since 2004)


Most Recent Audit Quality Study

Department of Labor Strata Determination

The Department of Labor, undertook a statistical study of IQPA audits for the 2011 filing period. The quality review was undertaken throughout the 2014 calendar year. Approximately 400 files were reviewed and firms were divided into 6 strata to provide more meaningful data extrapolation of audit results.

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FIRMS THAT AUDIT

750 + Plans.

100-749 Plans.

25-99 Plans.

6-24 Plans.

3-5 Plans.

1-2 Plans.


Most Recent Audit Quality Study - ResultsThe Department of Labor, Audit Review Findings

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• Direct Correlation between the Size of a Firms Employee Benefit Plan Practice and Deficiencies

• Nearly 76% of Audit firms in the first Strata (those that performed 1-2 audits annually) were deficient

• First strata firms were deficient in 5 or more areas and had overall uniformly higher levels of deficiency in all audit areas


Most Recent Audit Quality Study - ResultsThe Department of Labor, Audit Review Findings (Continued)

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• AICPA - EBAPAC member firms performed higher quality work

• NO Correlation between audit fee and audit quality!

• Problematic audit areas continue to be the same specified areas as previously identified


Common Audit Deficiencies - DOL

Deficiencies found in the 2014 Audit Quality Study were mostly the same ones noted in prior reviews and audit quality studies.

TESTING OF PAYROLL DATA WAS INSUFFICIENT

NO TESTING OF PARTICIPANT ELIGIBILITY OR FORFEITURES

INADEQUATE OR MISSING DISCLOSURES

FAILURE TO OBTAIN PROPER CERTIFICATION FOR LIMITED SCOPE AUDIT PROCEDURES

TIMELINESS OF PARTICIPANT CONTRIBUTIONS NOT TESTED

DOCUMENTATION OF TESTING INTERNAL CONTROLS FOR PAYROLL

Common Deficiencies Listed in the Study

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Most Recent Audit Quality Study - ResultsThe Department of Labor, 2014 Audit Review Results

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• 131 referrals to the AICPA

• 13 referrals to the State Board of Accountancy

• 90% of firms in the 6-99 strata’s who performed deficient EBP audits received clean opinions in there peer review reports


Most Recent Audit Quality Study – Follow UpThe Department of Labor, 2014 Audit Review Follow Up Interview with Marcus Aron, DOL senior auditor

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• March 2, 2015 Interview of Sr. Investigator Marcus Aron of the Department of Labor as a follow up to the 2014 quality study

• The study has lead to “enhanced targeting” by helping to identify the highest problem areas

• Furthering initiatives of educating plan auditors, working with NASBA to ensure auditors are properly licensed and directed enforcement efforts

• It will be challenging to improve quality until the strata of firms that audit 1-2 plans can be addressed

Future EBSA initiatives that impact plan audits

1,000 Plans

Filed Last Year Without the necessary audit attached to the filing..

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Asking for Fidelity Bond Copies and following up on Form 5500 filings with no coverage denoted

DOL is working with the National Association of State Boards of Accountancy to check EBP auditor licensing status

The Department performs word searches to locate filings with auditors who have not updated reports to the new clarified standards

The Department has in most instances contacted the plan sponsor or will do so in the near future…….

DOCUMENT RETENTIONPlan Sponsors required to retain documentation to substantiate compliance (Hardship distributions & participant loans


Future EBSA initiatives that impact plan audits

EBSAOutreach

Continue work with the AICPA EBPAQC and auditors to improve quality

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Placing enhanced focus on working with plan sponsors to educate and improve audit quality

DOL’s Peer Review Project

The Department has requested enrollment status of 4,918 Firms

Peer Review Information System Manager (PRISM) records were cross listed with Form 5500 filing information and other DOL recordsApproximately 500 firms failed to properly identify completion of EBP audit (145 Peer Review Reports Recalled)Approximately 1000 open investigations as of July, 2014 report by AICPA

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2014 AICPA Peer Review Conference -Employee Benefit Plan Segment

Aggregate DOL-EBSA Referrals

AICPA Ethics Division

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• Approximately 800 referrals from EBSA

• EBSA receives status updates on referrals

State Boards of Public Accountancy

• Over 100 referrals from EBSA to various state boards of accountancy

• Resources vary widely among states to handle referrals

2014 AICPA Peer Review Conference -Employee Benefit Plan Segment

Quality Audit Inputs

6. Quality EBP Audit

5. Experienced Partner & Staff

1. PROPERLY LICENSED

2. Seasoned Attest Practice

3. EBP Specific Knowledge4. Committed to Continuing Education

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Christopher


Starting the Due Diligence Process

IMPORTANT QUESTIONS THAT YOU NEED TO MAKE SURE YOUR CLIENT IS ASKING OF PROSPECTIVE PLAN AUDITORS

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ARE YOU LICENSED?

ARE YOU LICENSED IN OUR STATE?

ARE YOU AICPA EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER MEMBERS?

WHAT ARE THE NUMBER OF CPE HOURS RELATED TO EBP MATTERS THAT YOU TAKE IN A YEAR?

WHAT ARE THE NUMBER OF EBP AUDITS YOUR FIRM CONDUCTS A YEAR?

Due diligence process – Are you licensed?


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Both Firms and Individuals are licensed through the respective state board of accountancy

National Association of State Boards of Accountancy (NASBA)

http://nasba.org/stateboards/

• Navigate through an individual state board website to check both partner and firm licensure

Due diligence process – Are you licensed?


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www.cpaverify.org

Aggregates participating states CPA and firm licensure data

http://www.cpaverify.org/

Due diligence process – Are you an AICPA EBP Audit Quality Center Member?


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www.cpamobility.org

Review for applicability of out of state licensing on your home state

http://www.cpaverify.org/

Due diligence process – Is our state a mobility state for licensing?

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http://www.aicpa.org/InterestAreas/EmployeeBenefitPlanAuditQuality/Pages/EBPAQhomepage.aspx

Review for listing of firm with with EBPAQC


Due diligence process – Importance of EBP specific CPE

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Assists in the ascertaining the level of knowledge of key firm EBP personnel.

• No national database• Will need to ask regarding amounts and types of EBP Specific

Continuing Professional Education (CPE) taken• Base CPE needed by type for CPA renewals with the State Board of

Accountancy • No EBP Specific CPE is required by the state boards • AICPA Employee Benefit Plan Audit Quality Center only requires 8

credits only for partners


Due diligence process – Number of EBP audits that your firm performs

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Full RFP Evaluation

Annual firm questionnaire (abbreviated for current auditor)

Outside review/reconciliation of CPA firm data

Larkspur (www.larkspurdata.com)• Planisphere• Datamaster Pro

Other services available for EFAST aggregate data


http://www.larkspurdata.com/

DOL Publication

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DOL Publication (Summary)

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Why is the choice of an auditor important?

• Legal responsibility to file a complete and accurate annual report each year

• An incomplete, inadequate or untimely audit report may result in penalties being assessed against you as the plan’s administrator

DOL Publication (Summary)

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Other topics

• The importance of a firm’s EBP experience

• Importance of requesting references and checking necessary licenses

• Questions to ask the auditor about their work

• Were contributions to the plan timely received? • Were benefit payments made in accordance with plan terms? • Were any issues identified that may impact the plan’s tax status? • Were transactions prohibited under ERISA properly identified?

AICPA – Employee Benefit Plan Audit Quality Center (EBPAQC)

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Center founded in 2003 to serve accounting professionals who specialize in employee benefit plan services including attest work

• EAlerts • Plan Advisories • Primers • Webinars • Member to member Forum • Resource Centers

Christopher


15,045AUDITS(18%)

2011 Plan Year - Filing Statistics - EBPAQC

2014 Designated Partner EBP Webinar

Audits Performed by EBPAQC Firms

Audits Performed by NON-EBPAQC Firms

67,533AUDITS(82%)

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2,310 Firms 5,048 Firms

AICPA – EBPAQC

42AICPA EBPAQC – Designated Partner Audit Planning Webinar 2-24-15

AICPA Publication

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AICPA Publication (Summary)

AICPA – The importance of hiring a Quality Auditor 44

If your employee benefit plan is required to have an audit, one of your most important duties is to hire an independent qualified public accountant, and to ensure that the plan has obtained a quality audit in accordance with ERISA and U.S. Department of Labor (DOL) requirements.

The Importance of hiring a Quality Auditor to perform your Employee Benefit Plan Audit - AICPA


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The Advisory provides guidance on:

• Describes why a financial statement audit is important

• Risks to plan sponsors if a quality audit is not performed

• Evaluating auditor qualifications

• The proposal process, including the request for proposals

• Proposal evaluation and auditor selection

• Documenting the agreement

AICPA – The importance of hiring a Quality Auditor


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According to the AICPA why is a quality audit so important?

• Because an incomplete, inadequate or untimely audit report may result in a rejection of your filing and penalties being assessed against you as the plan administrator, selection of an experienced and reliable auditor is very important.

• While ERISA requires plan fiduciaries to ensure that only “reasonable”compensation is paid for services when selecting an auditor, thereasonableness of fees must be analyzed in comparison with the quality ofthe required services to be provided.

PUT COST ASIDE IN THE PROPOSAL PROCESS UNTIL YOU HAVE ENSURED THAT ALL CANDIDATES ARE QUALIFIED.

AICPA – The importance of hiring a Quality Auditor

Perceptual map – Possible Opposing Goals

Fiduciary Responsibility 408(b)2 / Price – ERISA’s intent to protect plan participants with a quality audit engagement.

Possible Opposing Goals

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Plan fiduciaries responsibility to ensure that service providers

are paid only “reasonable” compensation

Hiring a firm that lacks the knowledge necessary to properly

perform plan audits conflicts with ERISA’s stated intent to

protect plan participants

Christopher

Was a graphic intended to fill the square on the right?

AICPA base categories of evaluating audit firms

48AICPA – The importance of hiring a Quality Auditor

EXPERIENCE AND PROFESSIONAL DEVELOPMENT

IDENTIFYING QUALITY AUDIT FIRMS

LICENSING

INDEPENDENCE

AICPA – BASIS FOR EVALUATION OF AUDIT FIRMS

Steps to help Locate a Quality Plan Auditor

Provide DOL and AICPA Publications

OPTION ONE

Maintain a list of Qualified Plan Auditors you have

already vetted and worked with

OPTION TWO

Attend Meetings with Plan Sponsor Personnel to help

vet Audit Firms

OPTION FOUR

OPTION THREEProvide templates for Plan

Sponsors to send out Requests for Proposal

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(1) Transmitting DOL and AICPA publications

POSITIVES POSSIBLE DOWNSIDE

Provides detailed guidance

Does not take a significant time commitment to supply

Drafted by key stakeholders and provides expert unbiased guidance

Some clients may need additional guidance or interpretation of the guides

Clients may not effectively apply guidance and may end up with an unqualified auditor

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Shows a high level of service and care to the client

(2) Maintaining a list of qualified audit firms

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(A) Building a list of qualified audit firms

• Firms that you already work with and know may be a good place to start building the list

• Research firms you will be recommending as you want to ensure to the greatest degree possible that you are recommending a quality firm

• Compile listing for when clients become audit eligible or are looking to go out for the RFP process


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(B) Vetting Prospective Additions to the List

Gathering additional data that has a

proven correlation with quality and

possible deficiency rates



A more significant time commitmentMost influential of strategies

Highest probability to ensure working with a quality auditor

More responsibility for the outcome of the audit and the client’s satisfaction with the audit firm

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May help reduce multiple points of contacts and deal with a smaller number of firms with quality EBP practices

(3) Providing a RFP Template

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(3) Providing a RFP Template


Help ensure that you are working with competent professionals

Helping your client to ensure they are asking the correct information to make an educated decision

You may have to field additional questions about the document or help interpret the incoming proposals

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Can be used in conjunction with other methods of assistance

(4) Attend meetings with plan sponsor and perspective audit firms


Help to drive the audit selection process and get comfortable with who you will be working with

Helping your client to ensure they are asking the correct information to make an educated decision

TIME

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Can be used in conjunction with other methods of assistance

Firm Quality MapHIGH PRICE, HIGH QUALITYHIGH PRICE, LOW QUALITY

LOW PRICE, HIGH QUALITY LOW PRICE, LOW QUALITY

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No meaningful correlation

between audit fees and

the quality of audit work

IAN DINGWALLChief

Accountant DOL

REGIONAL FIRMS WITHOUT EBP AUDIT SPECIALTY

HIGH PRICED LOCAL FIRM WITH OUT SIGNIFICANT EBP

EXPERIENCE

SOLE PROPRIETOR WITH LIMITED EBP EXP

LOCAL FIRM WITHOUT SIGNIFICANT EBP AUDIT

EXPERIENCE

SELECT REGIONAL FIRMS

NATIONAL FIRMS

SOLE PROPRIETOR WITH A TOTAL EBP FOCUS

LOCAL FIRM WITH SIGNIFICANT EBP AUDIT

EXPERIENCE

Audit Quality Defined – Depends on stakeholder

PEER REVIEW

GENERALLY ACCEPTED AUDIT

STANDARDS

AUDIT FIRM

EASY TO WORK WITH

DOES NOT GENERATE ABOVE

AVERAGE COMPLIANCE TIME

CREATES A QUALITY PRODUCT THAT

MEETS COMPLIANCE OBJECTIVES

PLAN SVC. PROVIDERS

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PLAN SPONSOR

CONVENIENCE

PRICE

EASE OF USE

DOES NOT CREATE A FUTURE ISSUE

REVIEWS PLAN OPERATIONS

PROPER ALLOCATION OF

INVESTMENT INCOME AND PLAN

EXPENSES TO PARTICIPANT ACCOUNTS

MEET ANNUAL COMPLIANCE

REQUIREMENTS TO CONTINUE

OPERATION OF PLAN

PLAN PARTICIPANT EBSA

FULL PARTICIPANT PROTECTIONS AS

ENVISIONED BY ERISA’S INTENT TO HAVE LARGE PLANS

SUBJECT TO A QUALITY AUDIT.

Audit Quality Defined

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Why is a quality audit so important:

• At the base level audit quality is representative of a set of work papers, report and a defined process and work product free of deficiencies that will stand up to regulatory scrutiny.

• Other important benefits of an audit:

• Helping the plan sponsor become IRS and DOL audit ready and minimize the likelihood of any possible penalties resulting from an audit by either agency.

• An additional resource and point of review for plan operations.• ACTUAL EXAMPLES (prevention of prohibited transactions, Form 5500 corrections,

miscalculation of forfeitures, VFCP assistance)

An inside look at the audit process

+Audit processes

can be highly variable,

even across quality firms.

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Sample Audit Process

Sample audit process and walk through

CONDUCTING THE AUDIT/

AUDIT TESTING

PLANNING REVIEW & ISSUANCE

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Audit ProcessPREAUDIT PLANNING

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• Engagement Letter, Online Access, Gathering plan background data, documenting internal controls.

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Best Practice in the Preaudit Planning Stages

(1) Help coordinate the communication process between the other plan service providers and clients(2) Setting up direct online auditor access where available (3) Clearly communicate issuance preferences and key date expectations

Audit ProcessINITIAL AUDIT STAGES

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• Gather initial audit data

• Reconcile transactional class detail to investment statements, participant statements and aggregate plan reporting

• Perform initial analytical procedures on account balance interrelations

Best Practices in the Audit Planning Stages

(1) Make sure necessary data is available and assist in removing obstacles when possible

Audit Process – Best Practices MAKE WORK VISIBLE WHEN POSSIBLE AND SET EXPECTATIONS

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Visual Audit Progression

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SELECTION

RECONCILIATION AND ALLOCATION TESTING

EMPLOYEE FILE, PAYROLL ENROLLMENT FORMS

TRUSTEE REPORTING PAYROLL DATA, W2 TOTALS

SCHEDULES, PROMISSORY NOTES, CHECKS

1099-R, REQUESTS, CHECKS

408(B)2 DISCLOSURES, 5500 SCHEDULE C

FORM 5500

TRIAL BALANCE

FINANCIAL STATEMENTS

ACCRUALS

INVESTMENT SCHEDULE

CONTRIBUTIONSCHEDULE

DISTRIBUTION SCHEDULE

LOANSCHEDULE

FEE SCHEDULE

PARTICIPANT DATA SAMPLE

CONTRIBUTION TEST SAMPLE

DISTRIBUTION SAMPLE

PARTICIPANT ACCOUNT STATEMENTS

LOAN TESTING SAMPLE

SERVICE PROVIDER CONTRACTS

Audit ProcessFIELDWORK TRANSACTIONAL TESTING

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PROCEDURES

• Plan Level: Reconcile cash basis reporting to accrual/payroll basis, review and test individual transaction classes

• Participant Level: Agree aggregate participant level reporting to plan reporting, select samples and test all major transaction classes

Best Practices in the Fieldwork Stages

(1) If possible transmit documentation on the request list that you have access to.

Audit ProcessTESTING – COMPLIANCE TESTING/ERISA SUPPLEMENT

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PROCEDURES

Plan Level:

• Agree and test completeness and accuracy of compliance/discrimination testing and the maintenance of proper bond coverage throughout the year.

• Fiduciary responsibilities revolving around investment selection, transmission of participant disclosures, and evaluation of plan service provider compensation are being satisfied.

• Parties-In-Interest procedures

• Additional fraud procedures are completed.

.

Audit ProcessREVIEW OF WORKPAPERS, REPORT AND FORM 5500

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PROCEDURES

• Review all audit work to ensure, it is properly documented and meets all professional standards (3+ levels of review)

• Review Draft Report (4 levels of review), technical accuracy, wording, financial statement notes

• Review Draft Form 5500 (Reconcile Schedule H, review for completeness and accuracy)

• Check for Schedule C, Part III completed for switching auditors (if applicable)

• Schedule H auditor information is correctly completed with proper report type

Audit ProcessPOST AUDIT

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PROCEDURES

• Communicate any deficiencies or areas of possible improvement to management and administrative committee members

• Review EFAST filing to ensure (1) it properly posted (2) it has all the proper schedules and attachments including the audit

Best Practices in the Wrap up Stages

* Review the submission of the Form 5500 and audit report were completed prior to the deadline and posted with all applicable attachments including the audit report.

* Does not count unless it is filed *

Audit ProcessBEING STUCK IN THE MIDDLE OF AN INEFFICIENT PLAN AUDIT CAN FEEL LIKE……

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Disaster PlanningTIPS FOR WHAT TO DO WHEN AN AUDIT IS GOING POORLY

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• Establish expected dates of completion early in the process and milestone dates to track progress throughout the audit process and see when the process is falling behind

• Be present at the preaudit planning meeting or if the firm does not usually have a preaudit planning meeting with the client ask for one or at lease a conference call

• Insist upon getting a copy of the full listing of all data requests as soon as possible in the audit process, ideally before the audit starts.

• Ask other plan auditors about potential issues regarding plan audits and guidance on quality issues.

Disaster Planning (Continued)TIPS FOR WHAT TO DO WHEN AN AUDIT IS GOING POORLY

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• Easier to invoke action when you have agreed upon target dates and have fallen behind milestone dates

• Document communications in an email, so you can forward reply's with anticipated completion dates and instill a greater sense of responsibility for meeting the dates

• Working with a quality firm will reduce or eliminate much of the need for an overly hands on approach at the financial advisor role

Audit outcomes

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Easier to predict end outcome when you have all the opportunity to assist in gathering the qualitative information to select a qualified audit firm

ResourcesCPA MOBILITY WWW.CPAMOBILITY.ORG

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CPA LICENSE VERIFICATION WWW.CPAVERIFY.ORG

NATIONAL ASSOCIATION OF STATE BOARDS OF ACCOUNTANCY WWW.NASBA.ORG

AICPA EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER www.http://www.aicpa.org/InterestAreas/EmployeeBenefitPlanAuditQuality/Pages/EBPAQhomepage.aspx.org

DownloadsDOL PUBLICATION: SELECTING AN AUDITOR FOR YOUR EMPLOYEE BENEFIT PLANwww.Metzcpa.com/files/DOLPublication.pdf

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AICPA PUBLICATION: IMPORTANCE OF HIRING A QUALITY AUDITORwww.metzcpa.com/files/AICPAimportanceofhiringaqualityauditor.pdf ANNUAL AUDITOR QUESTIONNAIRE www.metzcpa.com/files/AnnualAuditorQuestionnaire.docx

PLEASE NOTE: WEB DOWNLOADS ARE CASE SENSITIVE

DOL PUBLICATION: ASSESSING THE QUALITY OF EMPLOYEE BENEFIT PLAN AUDITS www.metzcpa.com/files/DepartmentofLaborAuditQualityStudy-May2015.pdf

SAMPLE AUDIT RFP DOCUMENTwww.metzcpa.com/files/Requestforproposal-AuditFirm.docx

http://www.metzcpa.com/files/DOLPublication.pdf

http://www.metzcpa.com/files/AICPAimportanceofhiringaqualityauditor.pdf

http://www.metzcpa.com/files/AnnualAuditorQuestionnaire.docx

http://www.metzcpa.com/files/DepartmentofLaborAuditQualityStudy-May2015.pdf

http://www.metzcpa.com/files/Requestforproposal-AuditFirm.docx

In summary: Help protect your clients

• Realizing the increasing importance of the often overlooked fiduciary aspects of hiring a plan auditor.

• Don’t let your valued clients risk the possibility of fines and penalties related to substandard work that is more prevalent than most outside the audit process would anticipate.

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Our contact Information

9201 25th Avenue, Suite 170Phoenix, Arizona 85021

METZ & ASSOCIATES PLLC

CALL US

TRAVIS P. JACK, CPA, QKA

480-878-7346E-MAIL

[email protected]

CALL US

REBECCA BRADAC, CPA

480-878-7347

[email protected]

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Christopher


QUESTION &

ANSWER

Business

How to Navigate the Audit Process