Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Selecting a 401k Auditor

As noted in April 6, 2010 post, “Do You Still Need a 401K Audit?” there are several factors to consider in determining whether or not your 401K Plan needs an audit.  After the decision has been determined that an audit will be required for your 401K Plan, the next big question for the Plan administrator is, “how do I select a 401K Auditor”.  The United States Department of Labor (DOL) provides guidance for interested parties on how to select an auditor, and what to expect from that relationship.   The following article is a recap and analysis of the DOL’s article found at (http://www.dol.gov/ebsa/publications/selectinganauditor.html#)
There are two main reasons why a Plan Administrator should be concerned with obtaining an auditor for their 401K plan, and in obtaining one quickly. 

First – It is a legal requirement that Large Plans file a complete and accurate annual return/report for each plan year. The annual report should include the auditor’s opinion on the financial statements. 

Second – A quality audit can provide a level of assurance to the Plan Administrator that the Plan has the adequate amount of funds to pay retirement, health or other promised benefits to employees.

In considering the selection of a qualified 401K auditor, the Plan administrator should consider the following factors (but not limited to):

• The auditor signing the audit report should be licensed or certified as a public accountant by the appropriate State regulatory authority.

• The auditor should be independent of your 401K Plan or the Plan Sponsor (the Employer that sponsors the Plan). The definition of independence can be vague, however, in general, the auditor should not have a direct or indirect investment in the Plan or Plan Sponsor that would prevent the auditor from providing an objective, unbiased audit opinion. 

• Request the auditor’s license or certification to practice public accounting with the applicable State regulatory agency.

• Discuss with the auditor, their experience with and background auditing other benefit plans of similar type and structure.

• Research the audit firms website and other resources (blogs, facebook, etc), to identify their experience with auditing 401k plans.

• Compare auditor bids and discuss with each auditor, why their rates vary.  Most audit firms of similar size, within the same region, should have rates that are relatively comparable.  Be sure to question any rates that are significantly lower or greater than the average rate. 

• Ask the auditor how they keep current with the regulatory agencies laws and codes, such as the Department of Labor or the Internal Revenue Service.

When you have selected the auditor that best meets your Plan’s requirements, the auditor will most likely begin the following discussions:  Defining the type of audit – Full Scope vs. Limited Scope, the terms of the Engagement Letter, the documents required to be provided by the Plan Administrator, and the expectations of each Party in preparing and reviewing the financial statements.

If you are in the selection process of obtaining a qualified certified public accountant to audit your 401K Plan, Henry and Horne , would be pleased to answer any questions you may have.

Victor Fuentes