Understanding the Importance of Your Employee Benefit Plan Audit

by | Nov 6, 2020

Have you arranged for your employee benefit plan audit yet this year?

If your organization provides more than 100 employees with employee benefits, the Department of Labor expects your plans to meet certain fiduciary responsibilities. Specifically, you are required to have your plans audited by an independent certified public accounting (CPA) firm every year.

Why Is Finding an Effective Auditor So Important?

Finding the right certified public accounting firm to audit your employee benefit plan (EBP) can be a challenge as they must comply by certain Revenue Code or IRC standards. Moreover, your employee benefit plan (EBP) audit needs to abide by specific ERISA (Employee Retirement Income Security Act) and GAAS (Generally Accepted Auditing Standards) requirements. Unfortunately, these rigorous standards are often unmet. The Department of Labor has found that almost 40% of EBP audits are deficient, meaning a vast number of organizations are non-compliant with federal requirements.

The Office of the Chief Accountant analyzed the work performed by plan auditors using the requirements contained in the AICPA’s Audit and Accounting Guide, Audits of Employee Benefit Plans (with conforming changes as of January 1, 2012) , issued by the AICPA. According to the study, the size of a CPA firm’s Employee Benefit Plan Audit practice correlates with the overall audit quality. The results found clearly indicate a link between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed. Analysis of the data indicates a wide disparity between those CPAs who perform the fewest plan audits and those firms that perform the largest number of plan audits. CPAs who performed only one or two employee benefit plan audits annually had a 76% deficiency rate. In contrast, the deficiency rate at the stratum of firms performing the most plan audits was only 12%.

Here’s everything you need to know about employee benefit plan audits and finding the best auditor for the job.

What Is an EBP Audit and What Is Required?

Employee benefit plan audits are required by the United States Department of Labor or the U.S. DOL. If your organization employs more than 100 participants in your employee benefit plans, you are required to have an audit completed on these plans once every year. The audit must be completed by an outside party — a certified public accounting or CPA firm.

If your organization fails to complete an annual audit or does not hire an independent party to perform the audit, penalties will result, many of which can be grave for your organization’s bottom line and long-term future.

How to Help Your Audit Go Smoothly

Finding the ideal CPA firm to complete your annual EBP audit requires some extra work. You don’t want to hire a CPA firm who may be deficient in these duties and could possibly cause additional complications for you and your staff.

Therefore, make sure to require the following when it comes to hiring a firm:

  • The appropriate certification and licensing required for providing public accounting services
  • Specific experience providing EBP audits for organizations that match your industry and number of employees/plan participants
  • Verification of independence (only hire a CPA firm who does not have any vested interest in your organization’s competition or your organization specifically)
  • American Institute of Certified Public Accountants’ Employee Benefit Plans Audit Quality Center membership

Ensuring Compliance Helps Your Organization Grow

In truth, your annual employee benefit audit was not designed to cause you stress and anxiety. The purpose is to improve the services you provide for your employees and to ensure the health and well-being of your organization as a whole.

By ensuring EBP compliance, you are investing in your firm’s success. A great auditor will ensure that no financial abuse or fraud enters your business. Their audit will even protect you against potential employee deception and internal errors. Many organizations have taken full advantage of their audits by using them to actually save money and improve benefits in the long run. The data that can later be analyzed through your audit can help you and your employees make improved decisions when it comes to employee benefits and future success.

Here’s a key signifier of a quality CPA firm that can perform EBP audits: Their goal is to not only ensure your organization’s compliance but to also improve your firm as a whole and better your ability to earn and provide for your employees.

Growing your Business Through Mergers and Acquisitions

The business world is consolidating rapidly and companies of all sizes are looking to increase their size, power, and efficiency through merger and acquisition (M&A) activity. Learn how a merger or acquisition may help your company grow quickly and efficiently.

Estate planning: Five ways to avoid probate

Estate planning enables you to specify what happens with your assets after death or incapacitation. While every situation is unique, individuals often create estate plans that minimize the need for probate. Probate is the legal process of validating a will and...

Is a Roth IRA Conversion Right for You?

Should I convert my retirement plan to a Roth IRA? It's an important question worth considering. Roth vs. Traditional: What's the Difference?  Taxes now or taxes later. Simply put, that is the main difference between a Roth and Traditional IRA.  Contributions to a...

Inflation and the middle market

The economic growth and emboldened labor market of the past year require a different policy response than the previous two business cycles.

Business Owners: IRS Issues Updated K-2 and K-3 Requirements

February 16, 2022 – The IRS has updated guidance on additional exceptions to the new K-2 and K-3 filing requirements. See FAQ #15 found here. In late 2021, the IRS added new schedules K-2 and K-3 for tax year 2021 for partnerships and S corporations (flow-through...

Family office dream team

An effective family office requires the right mix of internal and external capabilities to balance best-in-cost with best-in-class.