New audit standards go into effect this
year for companies that have employee
benefit plans subject to the Employee Retirement Income Security Act (ERISA),
and who have 100 or more eligible participants. For many CEOs, audit fee increases
will seem inevitable. But the audit tab doesn’t
have to be significantly higher, according to
Jennifer Cavender, audit manager for Audit
and Business Advisory Services Group at
Haskell & White LLP.
“Keeping your benefit plan audit fees down
can be done if you’re willing to plan ahead
and dedicate a little extra time to the
process,” she says. “Many times, companies
are billed additional audit fees above their
engaged fee because of delays in the process
or additional work that was not anticipated
at the front end.”
Smart Business spoke with Cavender
about the audit requirements for employee
benefit plans and what CEOs can do to manage the cost.
When is a benefit plan financial statement
audit required?
Generally, a plan is required to include
audited financial statements with its Form
5500 filing if it has more than 100 eligible participants at the beginning of a plan year. This
is an area where many companies have gotten into trouble in the past because they
assume that they only need to include plan
participants with account balances in the
employee calculation, when, in fact, the calculation includes those who could participate but choose not to. A company that is
moving in and out of the 100 eligible participant requirement should contact an accountant and legal adviser to analyze its status and
determine whether an audit is necessary for
their Dec. 31, 2007, plan year.
What are the audit changes effective for
plans with a fiscal year ending Dec. 31,
2007?
The new audit procedures require auditors
to really focus on the risks of the plan financial statements being misstated. In order to
understand the plan’s risks, we must understand the plan’s internal control environment
and the specific activity level controls in place. We must also consider the fraud risks
associated with the plan and its operations.
Once we understand the intimate details of
the plan and its internal control structure, we
can plan an audit that is tailored to the risks
for the plan. This should help auditors to
focus on what is key to the plan and its financial statements.
This is an opportunity for companies to
really get value out of the audit process.
These new standards will equip your auditors
with the necessary information to provide
you with valuable feedback on how you can
improve the operations and management of
your plan and reduce fraud risks.
How should companies prepare for the audit
in light of the new standards?
Planning for the audit is the most important
thing a company can do to keep audit fees at
bay. If you are a company that has just
reached the threshold and will need an audit
of your benefit plan for the first time, you will
need to engage an independent CPA that has
experience auditing benefit plans and obtain
a list of what that person will need well in
advance. Next, communicate with your asset custodian and third-party administrator
because these people will be furnishing most
of the information for the audit. Maintaining
a good relationship with them throughout the
course of the year is vital because if you’ve
forgotten something and need them to send
additional documentation once the auditor
arrives, they’ll be more responsive. Also, a
good third-party administrator will keep your
company informed about legal requirements
throughout the course of the year and will
help you meet the Form 5500 requirements
on an ongoing basis. Last, companies need to
have their internal controls well documented
for the auditor in the form of narratives, flow
charts or matrices.
What is the most important thing to remember when working with the auditor?
Start early. Benefit plan audits take a little
longer than business audits because there
are multiple parties involved and the asset
custodians can become overwhelmed during
peek times when everybody is making
requests for information. Also, assign a company point person to the auditor who can
answer questions and furnish documentation
quickly. This is key to keeping fees down. If
the auditor has to talk to multiple people in
order to obtain every requested item, delays
and frustration will result.
Are there any other benefits to employers for
having a benefit plan audited?
A benefit plan helps a company attract and
retain key employees because it positions the
company as an employer of choice in the
marketplace. While the audit may seem costly and cumbersome, it can provide assurance
to the employees that their money is being
handled correctly and responsibly. Consider
sending an e-mail or a letter to your employees each year, letting them know that the
audit has been completed by an independent
CPA firm and that no irregularities were
found; then thank them for their loyalty and
hard work. By taking this extra step, CEOs
can demonstrate good will toward their
employees through the audit process.
JENNIFER CAVENDER is an audit manager for the Audit and Business Advisory Services Group at Haskell & White LLP. Reach her at
[email protected] or (949) 450-6200.
