Employee benefit plan (EBP) audits play a critical role in ensuring that retirement plans comply with the guidelines set forth by the federal law known as the Employee Retirement Income Security Act (ERISA). This law sets policies for various employee benefit plans, including retirement and health plans, and is intended to protect the interests of plan participants and employers. Each year, these plans must submit financial information to the Internal Revenue Service (IRS) on Form 5500 and comply with the Department of Labor (DOL) reporting requirements.
Why Plans Change Auditors
According to a report from the DOL, 7.7% of benefit plans change audit firms every year. Companies may change EBP auditors to improve the quality of the audit, obtain more competitive pricing, or address other concerns not addressed by the previous auditor. New auditors may also provide fresh insights, specialized expertise, and better pricing for auditing services.
Below are some of the reasons that plan sponsors change auditors.
1. Number of benefit plans audited
One of the compelling reasons for companies to change their EBP auditor is the need for more expertise. Only the top 2% of firms in the nation audit 100 or more plans annually. This suggests these firms have a unique focus or specialty in the benefit plan market. Many companies are more likely to change auditors if they conduct fewer than six employee benefit plan audits annually. The 2018 Report found that plans consistently changed to auditors that performed more EBP audits.
2. Satisfaction with service
Plan sponsors seek employee benefit plan audit services from other providers because of poor service. When your current auditor fails to offer reliable and high-quality solutions, is unresponsive to your inquiries or feedback, fails to meet deadlines, or neglects to provide helpful advice to enhance plan management, you are more inclined to search for a different audit firm that can meet your expectations.
3. Cost concerns
Some organizations undergo a competitive bidding process for their employee benefit plan audit due to concerns about costs or other factors. During this process, plan sponsors may discover audit fees that are more aligned with their expectations for the employee benefit plan audit, or they may find a provider that offers an excellent value for the price point of the audit.
4. Staff changes
Companies may face disruption due to staffing turnover, such as when an accountant retires or resigns from the firm. Introducing new staff can typically cause a learning curve, which may lead to delays or inefficiencies in the audit process. Additionally, staffing changes may result in a personality mismatch between the plan auditor and the organization, causing further complications.
Qualities to Look for When Evaluating Auditors
A high-quality benefit plan audit can safeguard the assets and financial integrity of your employee benefit plan and furnish the plan administrator with valuable insights to guarantee the availability of sufficient funds to fulfill retirement, health, and other promised benefits. Below are some factors to consider when deciding on your next EBP auditor.
Auditors must be licensed or certified as public accountants by a state regulatory authority to audit employee benefit plans. However, the specific requirements for certification or licensing vary among states. All states mandate a peer review report from other licensed auditors. Employee benefit plans are “must select” audits. If a firm issues employee benefit plan audits, at least one will be selected. In the last few years, the AICPA has made employee benefit plan training mandatory and has stressed to peer reviewers the importance of employee benefit plan audit quality. Before engaging an auditor, it is crucial to confirm with the state regulatory authority that the individual holds a current and valid license or certificate to perform auditing services.
Independence is a requirement for auditors of employee benefit plans. In other words, they cannot have any financial connections or conflicts of interest with the program or its sponsor that could influence their ability to present an impartial and unbiased assessment of the plan’s financial situation.
As previously stated, companies look for auditors who complete more benefit plan audits when evaluating a new auditor. To ensure an accurate and high-quality audit for your organization, please ask about the number of annual EBP audits the firm conducts and whether they have a specialized team dedicated to performing such audits.
Seeking references from past EBP audit clients can be valuable in assessing the auditor’s suitability for your organization’s specific needs and requirements. It is recommended to contact the references provided by the auditor and ask relevant questions about their experience working with the auditor to make an informed decision. In conclusion, an experienced and qualified audit firm must evaluate and reviews a company’s employee benefit plan’s financials and regulatory filings for compliance.
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