Top 5 Employee Benefit Plan Audit Issues, Episode 3

Today we're going to go on to the final two challenges of retirement plan audits. And quite honestly, one of the two is my favorite, so we'll save the best for last on that. Brenda, I know some of the issues that we've had on my end as an advisor tend to be on setting expectations and roles. So as an advisor, there are things I can do on behalf of the client. There's things we can do with the client, and there's things I just physically can't do because I'm not the plan sponsor. And whenever we decide to engage or take on a new client, we typically have that conversation first, to make sure they know what roles and responsibilities fall on our shoulders, and what reside with the plan sponsor. So I believe this also translates to your side as well. So can you let us know kind of a little bit about what a plan sponsor should know are their responsibilities, versus those of the auditors, and how that'll help define the relationship with the audit?
BD:Oh, definitely. I would say that, as a plan sponsor, you wear many hats, and there's a lot of different items that you need to be responsible for, but then also, it's almost like you're a project manager, that you're delegating to others to get the needed documentations. When we take on a new client, one of the first things we do is have a conversation of timeline, and what are their expectations, what date do they want to try to shoot for in order to complete the audit? And then let's roll it backwards, and add in some buffer so that we have time to get what we need. If there's any questions or issues, we can work through them, but still be able to make the deadline.

And for every client, it's different, because there might be other things on their calendar. Obviously they're not just sitting there waiting for the audit to start, and they have other tasks on their desks that they need to get accomplished. So I try to be very understanding of their timeline, and what maybe big projects are coming on that they need to prepare for and carve out that time, so that the audit isn't also running simultaneously with needing their attention, when they've got other big projects that's in line.
I know, in speaking with HR, a lot of times they have different enrollment periods, where it's going to be more intensive of their time that they're going to have to be available to get through that pocket. So if we can navigate our audit and our needs to get things done around that, it just makes it so much easier. And starting early is key. So again, I like to have those kickoff calls, in like your February-March timeframe, and get everybody on the same page of what do we want to do to get to the deadline date, and then who's involved to get us through to that process.
MD:Okay. So you mentioned twice now getting the audit process started earlier, whether somebody is doing a first-time audit, and they've never walked this path before, or if they've been through an audit but maybe not had the best experience, and they're coming to you, some other thoughts on what they can do to basically define roles a little bit better?
BD:I think being able to spell out what reports are needed, and who they need to go to get those reports is key, because then you've got the players identified, what is needed for the audit, be it the census that we talked about earlier, or the trust statements that come from your third-party provider, or it could be other documents that are needed in the course of the audit. And putting in time for being able to retool is key as well. So we might get a report, and we think it's the census, and then when we open it, it's not, it's sort of like a present on Christmas morning that you don't know what's in there, and you open up the box, and you're like, "Oh, it's my sweater from Aunt Julie or whatever." Versus something that you're really looking for.

So it's sort of like that with an audit of when we get different documents or reports, we don't know, until we open it up, if it's exactly what we need. And to put time in to recalibrate or retool if we need to modify that rapport is key as well. I think another thing is understanding the high points of the audit. So in the beginning, it's a bit intense because there's a lot of information we're working for, and then once the auditor gets it, we're going through, and we're getting that information, and so the client isn't as intense, but then if we have questions, we're circling back. And then when you're in the final stage of the audit, and we're getting ready to cross that line, then it's key to know those final dominoes that need to fall, and who needs to help you get there in order to file the 5500.

So one of the last few things that you do when you're closing out the audit is you have the financial statements that need to be approved, and that they're all in check. And then you need to make sure that the 5500 is substantially complete. That was new for SAS 136, that you see it's going to marry up against the financial statements, and they're going to support each other.

And then the last thing normally is getting the management rep letter and making sure, if there's any items that came to light in the audit, you're communicating goes with governance, and just generally going over governance, what items will be in that letter. So those final things happen rather quickly. And knowing who needs to find the rep letter and date it accordingly is very important, because it happens in a very small timeframe, but it's critical to then just complete the audit.
MD:Yeah, I think one of the things I've learned from you is that, with every answer I give towards an auditor, it can trigger five more questions. So I definitely allow quite a bit of extra time in our timeline. So that brings us to our last and final challenge of this year's audit season. And personally, my favorite is what really makes a strong client on my end, and the favorite characteristics?

And of course, I have some clients that are good in different ways, but I can say the one common theme between my best clients are going to be an open line of communication, and that's kind of a two-way street. Number one, they take my calls, and they know that, if I'm reaching out to them, it's because of some valuable information that I'm trying to convey, or information that we need to do our job better. And then likewise, when they have thoughts, questions, concerns, they're coming to us with those, and even to the point of oversharing to make sure that we know everything going on within the plan. So I believe we have this in common as well. Let me know a little bit about what information a plan sponsor should be sharing with you, and things that help you do your job a bit better.
BD:Definitely. I would say that, for plan sponsors, letting us know major changes early on is key. And some of those big changes would be, if the plan is changing provisions, if the plan allowed for employer contributions and because of part times, now management is deciding, "You know what? We're going to stop the employer match." And we did amendment accordingly. Letting us know that is key, a provision like that. Or if they're thinking of changing service providers, they might be going from one of the big vendors to another one. The timing of that is critical for us to know for audit planning, so that we can get the necessary transfer information of going from the one to the other.

This past year, I saw several plans that were merging. So they acquired another company and they're merging that plan into their own. So again, you want to get in front of that, to get the necessary transfer information and do the testing, and coordinate it with the other auditor, if it is involved for the other plan, to have everything line up.

And then the last thing that I saw is there was some plans that were doing a full termination, and shutting the plan down, or some because of retention and rather for laying people off, having rifts, they might have had a partial termination, where their numbers decreased, such that you needed to identify that. And there's audit steps that we need to take. So knowing in the beginning that we're going to be walking into that allows us to budget more time, to give to those specific areas, versus learning about it at the very end of the audit, and trying to scramble to fit all those necessary audit steps in.
MD:Okay. So once again, a step to cure that issue would be open line of communication, and then starting the audit process earlier so that we have time to go into this, as opposed to being on our heels at the end.
BD:Absolutely.
MD:Okay, great. Well, Brenda, thank you so much for giving your insight into what you saw this past auditing season. Thank you so much for joining us on this final episode. We've enjoyed the time we've spent together. If you have any questions on this material, please feel free to contact us. My name is Mark Deters. My email is mark.deters@creativeplanning.com, and my number is (212) 540-5563.
BD:Mine is Brenda Desaro, and that's a brenda.desaro@eisneramper.com. And my number is (732) 243-7613.

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