What is the rule for audits? If your plan has over 100 eligible Participants at the beginning of the Plan Year, you must attach an audit report prepared by a CPA to your Form 5500 filing. In certain circumstances you can avoid the audit requirement if you have up to 120 participants at the beginning of the year.
How is the participant count determined? A participant is an Employee who has met the Eligibility requirements for your plan, whether or not they choose to participate. It also includes former employees who still have an account balance in the plan at the beginning of the year.
What will the auditors do to prepare their reports? Discuss the scope of the audit with your auditor, but in general they will perform the following functions:
- Compare your payroll reports to our Census Verification reports;
- Check your internal accounting procedures and processes for offering eligibility to employees at open enrollment; and
- Confirm that the data on our financial statements ties to the investment company records.
When will the audit take place? We must complete our Annual Administrator’s report before the audit can begin. The auditors typically require 4-6 weeks before your Form 5500 is due to complete their work.
How much will the audit cost? Again, discuss costs with your audit firm. The cost will depend on the number of participants, the number of locations, and how the assets are held. First year audits are typically more expensive than subsequent years due to the set up process.
The following checklist is designed to help you prepare for a plan audit:
- Check the “notes” section of the cover letter included in last year’s Annual Administrator’s Report to see if an audit is required this year.
- Contact your CPA to inquire if they can perform the audit for you. If not, request a referral, or contact Benefit Resources, Inc. for a list of referrals.
- Engage the auditor at least 4-6 weeks prior to the filing deadline for your plan’s Form 5500.
- Provide Benefit Resources, Inc. with the following information about the auditor you have engaged:
- Firm name
- Contact name
- Phone number
- Provide all requested information to your administrator so that we can complete your Annual Administrator’s Report. We will provide a duplicate copy of the report to your auditors.
- Schedule a time for the auditor to perform the services for which they were engaged. Allow sufficient time for auditor to complete report prior to the Form 5500 filing deadline.
- Review the audit report once it is complete.
- File your Form 5500 by the filing deadline. Attach a copy of the auditor’s report with the filing. If for whatever reason the audit is not yet complete, file the Form 5500 without the audit, and file it as soon as possible after it is complete.
For more Retirement Plan Audit help, download the Guide below and give us a call. You will want to make sure that someone can speak on your behalf to the Auditor. Also, see our related blog post on Avoiding a Plan Audit (and cutting costs) for a possible solution so that you can avoid an audit altogether!