Posted by Maria T. Hurd, CPA
Much like the African proverb that has been in existence for centuries: “It takes a village to raise a child”, the success of a retirement plan’s administration cannot be attributed to a single person or company. Often, third party administrators tell their clients that they will give the auditors “everything they will need” to complete the audit of their retirement plan, but in reality, it takes many people to provide the information we need. The administration of a retirement plan inevitably involves personnel at the plan sponsor, including payroll personnel and human resources personnel. The plan sponsor verifies the completeness or the accuracy of census information and eligible compensation. As auditors, we must verify the accuracy and completeness of eligible compensation, census information, and whether participant elections were processed in an accurate and timely manner. In most cases, the third party administrators do not have payroll detail, original source backup for dates of hire and/or dates of termination found in personnel files, or a record of participant elections. In fact, many participant elections initiated and authorized online, leave no paper trail. As a result, direct confirmation with the participant who initiated and authorized transactions in his/her own account is necessary. For these reasons, third party administrators are rarely able to give us “everything” we need to complete a retirement plan audit.
In an effort to educate service providers and first-time audit clients as to what the audit entails, we have published a template of an audit information request. The template follows the sample provided by the AICPA to audit firms that are members of the Employee Benefit Audit Quality Center, with some minor enhancements based on our experiences. Our retirement plan auditors tailor each request to meet the specifics of each plan design and plan sponsor’s demographics. However, the template provided below conveys the overall level of detailed verification required in an audit, and demonstrates how several parties must be involved in servicing the audit information request.
Our nonprofit and educational institution clients likely understood too well why our last blog entry, Who Audits the Auditors?, indicated that the audit documentation we sent the DOL filled four, large 3-ring binders. The bottom line is that the financial statement audit’s reach extends to all parties involved in any part of the plan operations, including the third party administrator, payroll companies, investment custodians, the participants, and internal personnel at the plan sponsor, including accounting, human resources, payroll personnel, and the company owner or plan committee, if any.
In other words….It takes a village to properly administer a retirement plan.