How to Ease the Audit Process with These Simple Steps

How to ease the audit process 1

When you can hear the frustrated moans of HR professionals over the sound of their fingers clicking through email after email looking for year old information or their sighs when shuffling through papers in the filing cabinet, you know that 401(k) audit season is in full swing. For qualified plans with over 100 participants in the 401(k) plan, audit season can be an aggravating time marked by constant calls and emails between the plan’s auditor, record-keeper, and third party administrator. However, I know a few simple tips that can help you ace your next 401(k) audit.

1.) Organize Your Fiduciary File

That old saying “an ounce of prevention is worth a pound of cure” is very true when it comes to organizing your plan documents.  Whether you utilize your record-keeper’s website, digitally image all pertinent documents, or print and file everything the old fashion way, it is important to make sure that you have a documented process for how you and your team store information. In addition, working with a retirement plan professional who understands the importance of having all of your plan documents in order can assist you in making sure that the right documents are saved.

2.) Hire a Proven Professional

In November 2015, the Department of Labor (DOL) sent out a somewhat unprecedented email to 401(k) plan sponsors stressing the importance of hiring a qualified CPA to audit company 401(k) plans. The DOL certainly did not mince words in the email; here is a direct excerpt, “Substandard audit work can be costly to plan administrators and sponsors. It both jeopardizes plan assets and can result in significant civil penalties being imposed on the plan administrator by the DOL.  A recent study conducted by the Department of Labor found serious problems with nearly 40% of employee benefit plan audits.  (You may read this study on our website at: www.dol.gov/ebsa).” Heeding the words of the DOL, I would recommend several best practices when selecting your plan auditor. Ask for referrals from other audit clients, review the CPA’s qualifications, and educate yourself about what to expect during an audit.

3.) Go Through a Test Run

It is important to understand that the Department of Labor and the Internal Revenue Service (IRS) look for different things when performing an audit. The DOL may focus more closely on the employee driven aspects of the plan.  Areas may include potential participant discrimination issues, prohibited transactions, management of service providers, up-to-date plan documents, accurate participant records (beneficiary designations, required notices sent, accurate deferral information, etc), and whether a prudent process was followed. On the other hand, the IRS is typically looking for plan qualification issues; ones that may result in penalties and interest. IRS points of interest may include a signed plan document with all amendments, IRS Letter of Determination, coverage tests, 402(g) limits followed, all participant distribution paperwork in order, and whether plan provisions were followed. Understanding what DOL and/or IRS auditors are looking for can help you save the appropriate information in your fiduciary file.

There are several key players when it comes to your 401(k) audit; the plan sponsor, the auditor, the record-keeper, the third-party administrator (TPA) and your financial advisor. If any one of these is weak, then the audit has the potential to take a frustrating turn for the worse. If you are worried that you don’t have all of the right people playing the parts for your audit, please let me know and we can work through additional ways to ease your audit experience.

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.

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