The importance of hiring a qualified and effective plan audit firm cannot be understated. This was made clear in a recent Department of Labor study on the quality of plan audits over the past 4 years. The result is that the level of audit quality has declined. The study found a high number of errors in audit reports submitted by firm’s with minimal experience in employee benefit plan (EBP) audits. This seems to support the assertion made by many that an effective retirement plan audit does require specialized knowledge and training. While it can be difficult to know exactly what makes a firm qualified it’s clear that working with a firm that doesn’t have experience creates additional risk for the company and plan management. To help companies ensure they have the best plan auditor for their needs, Sikich has provided a list of best practices a company can follow when selecting a new plan auditor.
KEY BEST PRACTICES
- Publish a RFP – In some companies its common practices to simply have the Controller/Director of HR reach out to a few contacts and receive a quote for the audit. While there is nothing wrong with leveraging your network it’s important to ensure they are really able to meet your needs. By publishing a RFP plan sponsors are able to easily and quickly make a determination about the qualification level of responding firms. Remember, a RFP should communicate the key facts about the engagement, state objectives, requirements and provide details about what specific information is needed about the firm’s, it’s audit methodology, staff to be assigned to the work and overall experience in the field. Often times companies will want to know if a firm has relevant experience with other companies in the same industry or area. Use the RFP as an opportunity to collect as much comparative information as possible on prospective audit firms.
- Verify Licensing & Independence – Most are aware that only certified public accounting firms are permitted to conduct audit/assurance work in the U.S. Be sure that any firm you are considering retaining is properly licensed and the credentials are active. In addition, remember there are independence requirements that must be met. A company may not retain an auditor that has financial interest in a retirement plan that they are being asked to render an opinion on about the quality of the financial information. It’s important to remember that the Department of Labor (DOL) will not consider an auditor to be independent if the audit firm (or its employees) maintains plan financial records.
- Review EBP Specific Experience/Training – One of the most common reasons for issues in plan audit reports uncovered by the DOL is failure by the auditor to perform testing in areas unique to benefit plans. It turns out audits are different and to receive the most valuable audit product requires someone familiar with the nuances of plan audits. Naturally, those with more experience and training will be aware of key risk areas to test in a plan audit. For this reason, it’s essential to inquire about training and experience to ensure the firm has an appropriate level of each. There are numerous organizations that offer plan audit specific training to accountants and it’s worthwhile to uncover whether the proposing firm takes part in these training sessions to sharpen their knowledge and skills.
- References – These are critical in the evaluation process and provide insight into what it would be like working with a certain firm. Not only does it give you access to someone who has already retained the firm, but can give you insights into how the firm operates and what you can expect before, during and after the audit engagement. This is a good time to get specific information about the level of service offered. The biggest compliant we hear from new clients is that the prior auditor did not focus enough on communication, respond timely to service concerns or provide access to senior level professionals. When speaking with references develop a list of questions about the firm that includes not only their service levels, but the overall “feel” of the engagement from the clients’ viewpoint. This information will go a long way in determining whether or not this is a provider the company can work with.
- Select Finalists – Most companies are going to evaluate firms on a number of criteria including price. While price is no doubt an important factor in the decision making process it should never be the only one! Many times companies believe they can get the same audit whether than pay $5,000 or $50,000 and this is simply not true. Whatever the evaluation process remember to look at experience and familiarity with plan audits as a primary criteria and not secondary. The last thing a company wants to experience is a poor audit process that leads to more problems than solutions simply because they hired a firm on price alone.
- Interviews – Once finalists have been identified invite them in for a brief interview. Use this time to ask specific questions about their plan audit process, engagement management, EBP experience and to assess how well they would work with others in the company. A lot of information can be obtained and clarified making the final decision easier to arrive at.
- Engagement Letter – Once a firm has been selected an engagement letter will be sent to your company. This is a formal contract outlining what the audit firm will do, the terms and conditions of the work and what you can expect. If you don’t have prior experience with such documents that it makes sense to submit to counsel to review.
Finding a qualified benefit plan auditor is essential for the long term health of your plan. If you have questions on benefit plan audits or would like additional guidance, Sikich wants to help!