Finding an audit firm that meets the necessary quality standards, client service standards and budget constraints can be a challenging task. There are literally hundreds of firms that can conduct an audit, but not all of them are right for every company. Each company must find the best one to match their specific needs. The same is true for benefit plan audits as well. Traditionally, these audits have been treated as “throw ins” as part of the financial statement audit with little attention given to the auditors’ qualifications. If your company has grown into a plan audit or is considering making a change, there are best practices to follow that should guide the company to a “best fit”. To help clients, prospects and others understand the most effective means to select a new plan auditor; Wilson Lewis has provided a list of best practices to follow below.
Key Best Practices
- Publish an RFP – It’s common for some companies to skip developing a formal request for proposal (RFP) and reach out a few contacts to gather fee quotes. Although reaching out to known contacts is never a bad idea, it benefits the company to have a formal request created because it provides a framework through which auditor qualification can be established. Ensure that the RFP requests essential information from the audit firm, including audit methodology, timeframe, staff training and qualification and experience in plan audits. An RFP should be used to collect as much information as needed on a potential vendor to facilitate a decision, so don’t be afraid to ask all the pertinent questions.
- Assess Independence – It’s important to know that 401k plan auditors have an independence requirement that must be met. An audit firm may not audit a plan if they have a financial interest in either the plan or the plan sponsor. Because the firm is being called upon to render an objective opinion, such connections are not permitted. Ensure that potential plan auditors don’t have any conflict with the company’s plan.
- Review Fees for Competitiveness – Each plan sponsor has a fiduciary responsibility to ensure the fees being paid by plan participants are considered reasonable. By leveraging the RFP process, it’s more likely there will be a competitive bidding process. Although fees are an important selection criteria, remember not to just select the firm with the lowest fees. Our team has seen what happens when the cheapest firm gets the work for that sole reason, and it often means additional costs to the plan sponsor for corrections down the road.
- Identify Specialized Training – It’s important to review and understand the candidate firm’s training program around 401k and other benefit plans. Most fail to realize that just because a firm can audit a financial statement, it doesn’t necessarily mean they are qualified to audit a benefit plan. This is because there are different testing and reporting requirements, and if the auditor is unfamiliar with them, it’s likely an issue will arise.
- Involvement in Associations – Determining whether a candidate firm is involved in related professional associations is important. This tells the potential client that the firm is involved in the industry and more likely than not has key professionals staying up to date. If a firm is not involved in any benefit plan audit associations, then what message does that communicate about their dedication to the service niche?
- Selection Criteria – There are a number of criteria that must be reviewed when selecting a new audit firm, depending on the specifics of the plan and the company’s needs. Traditionally, price has been the driving factor, but over the last few years we have seen a shift to seek quality first. Whatever selection criteria is used, be sure that it is defined PRIOR to sending out the RFP so there is a basis against which a fair and equitable comparison can be made.
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A quality benefit plan audit can provide value far beyond compliance and penalty avoidance. An audit report can also provide important financial insight needed to make decisions about future investments and retirement decisions. If your company is considering changing plan auditors, then Wilson Lewis wants to help. For additional information, please call us at 770-476-1004, or click here for our contact form. We look forward to speaking with you soon.