Best Practices for Hiring a Plan Auditor
See also 401(K) Plan Audits
The importance of hiring a qualified and effective plan audit firm cannot be understated. This was made clear in a recent Department of Labor study on the quality of plan audits over the past 4 years. In a recent article, DOL Study Uncovers Plan Audit Issues, we offered insights into the declining plan audit quality and the factors impacting it. Not surprisingly, the audit reports with the most errors and issues were provided by firm’s with the least amount of employee benefit plan (EBP) audit experience. This is a significant concern to many companies because of the risk it creates in plan management. To help companies ensure they have a qualified and high value provider, Hanson & Co. has provided a list of best practices companies can follow when selecting a new benefit plan auditor.
Key Best Practices
- Publish a RFP – These are important tools that allow plan sponsors to assess a firm’s benefit plan audit qualifications. An RFP should communicate the key facts about the engagement, state objectives, requirements, and provide details about what specific information is needed about the firm, its audit methodology, staff to be assigned to the work, and overall experience in the field. Oftentimes, companies will want to know if a firm has relevant experience with other companies in the same industry or area. Use the RFP as an opportunity to collect as much comparative information as possible on prospective audit firms.
- Verify Licensing & Independence – Most are aware that only certified public accounting firms are permitted to conduct audit/assurance work in the U.S. Be sure that any firm you are considering retaining is properly licensed and the credentials are active. In addition, remember there are independence requirements that must be met. A company may not retain an auditor that has financial interest in a retirement plan that they are being asked to render an opinion on about the quality of the financial information. It is important to remember that the Department of Labor (DOL) will not consider an auditor to be independent if the audit firm (or its employees) maintains plan financial records.
- Review EBP Specific Experience/Training – One of the most common reasons for issues in plan audit reports uncovered by the DOL is failure by the auditor to perform testing in areas unique to benefit plans. It turns out audits are different and to receive the most valuable audit product requires someone very familiar with the nuances of plan audits. Naturally, those with more experience and training will be aware of key risk areas to test in a plan audit. For this reason, it is essential to inquire about training and experience to ensure the firm has an appropriate level of each.
- References – These are critical in the evaluation process and provide insight into what it would be like working with a certain firm. Not only does it give you access to someone who has already retained the firm, but it can also give insight into how the firm operates and what you can expect before, during, and after the audit engagement. Be sure the references relate to benefit plan audits and not just general audit experience. Feel free to inquire directly with references about specifics that are important to the evaluation process.
- Select Finalist – Most companies are going to evaluate firms on a number of criteria including price. While price is no doubt an important factor in the decision making process, it should never be the only one! Many times companies believe they can get the same audit whether they pay $5,000 or $50,000 and this is simply not true. Whatever the evaluation process, remember to look at experience and familiarity with plan audits as a primary criteria and not secondary.
- Interviews – Once finalists have been identified, invite them in for a brief interview. Use this time to ask specific questions about their plan audit process, engagement management, EBP experience, and assess how well they would work with others in the company. A lot of information can be obtained and clarified making the final decision easier to arrive at.
- Engagement Letter – Once a firm has been selected, an engagement letter will be sent to your company. This is a formal contract outlining what the audit firm will do, the terms and conditions of the work, and what you can expect. Common sense dictates that if you don’t have prior experience with such documents that it makes sense to submit to counsel to review.
Finding a qualified benefit plan auditor is essential for the long term health of your plan. If you have questions on benefit plan audits or would like additional guidance, Hanson & Co. wants to help! For additional information on employee benefit plan audits, please contact us at (303) 388-1010 or click here to email us. We look forward to speaking with you soon.