If you have never undergone an employee benefit plan audit before, the information requests and involvement may seem difficult and intimidating. By understanding what information is required and working closely with your auditors, you can help alleviate some of the difficulties and intimidation. Almost all employee benefit plan audits require the same information be gathered from multiple parties. So, what are the basic documents needed by auditors to help ensure a smooth audit?
First, gather together copies of your plan documents. These documents include your plan’s underlying plan agreement, adoption agreement, determination or opinion letter, summary plan description, and amendments to your plan documents. Auditors will need these before they start the audit in order to understand the key provisions of your plan and to develop the audit tests that will be performed.
Once the plan documents have been provided to your auditors, contact your plan’s trustee/custodian and authorize them to provide the "audit package" and related Department of Labor (DOL) certification to your auditors. This package has most, if not all, of the information your auditor will need related to the investment account balances and other plan accounting information. We also suggest inquiring about granting your auditors access to your plan’s website. This access will allow the auditor to work directly with the trustee/custodian and record keeper. This direct contact often reduces the time needed to complete the audit.
Once the audit package and DOL certification has been requested, you will need to prepare an employee census. If you outsource your payroll processing, your payroll provider can easily provide this information to you. If you process your payroll internally, most software providers offer a reporting feature that can create this report. The census should include all employees that received compensation during the year and reflect each employee’s eligible compensation. The census should be reconciled to a payroll filing, such as a W-3 or quarterly payroll tax filings to verify that all employees are included. Auditors make selections from this census to test compensation and other employee data. Keep in mind, your auditors need time to make the testing selections and you will need time to gather the requested information. Therefore, providing the census as early as possible helps make for a smoother audit.
During the testing of employee data and compensation, auditors will need copies of select payroll reports to recalculate compensation and benefit plan contributions. To assist in recalculating these amounts, documents verifying hire dates, enrollment dates, birth dates, termination dates (if applicable), contribution percentages, investment options elected, loan requests, and benefit payment will be required. Always provide signed copies of these forms to your auditors to verify all information was approved by the employee. If this is the plan’s first audit, additional testing will need to be applied to previous years resulting in the need for historical information.
Many of the steps above are quick and easy to perform, but many require a time commitment and extra effort. Knowing what will be needed before the audit starts and with some advanced planning and communication with your auditors, you will help ensure the audit of your benefit plan will go smoothly and with little delay.
File Download: What to Expect For Your First Employee Benefit Plan Audit