Planning for An Employee Benefit Plan Audit For the Auditor

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Johnathan Gilmore
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1 Planning for An Employee Benefit Plan Audit For the Auditor Phone: (410) Toll Free: (800) Fax: (410) Web: Agenda Audit Requirements Types of Audits Planning Meetings Initial Audits SAS70 Reports Substantive Testing Change in Service Providers SAS 114/SAS 115 Communications Audit Issues Questions 2 1

com Agenda Audit Requirements Types of Audits Planning Meetings Initial Audits SAS70

2 AUDIT REQUIREMENTS Who Needs An Audit? Audit Requirements What to Expect Audit Issues Questions Taken from the AICPA Accounting and Auditing Guide for Employee Benefit Plans 4 2

3 Plan Players Plan Sponsor Plan administrator Custodian Recordkeeper/TPA (third party administrator) Trustee internal or institutional Participants 5 Plan Players cont d. Active participants Any individuals who are currently in employment covered by a plan and who are earning or retaining credited service under a plan; Any individuals who are currently below the integration level in a plan that is integrated with social security, and/or eligible to have the employer make payments to a 401(k) or Section 125 arrangements (participants only have to be eligible for the plan, not necessarily participating in a 401(k) or Section 125 arrangement); Any non-vested individuals who are earning or retaining credited service under a plan. Active participants does not include non-vested former employees who have incurred the break in service period specified in the plan. Inactive participants Any individuals who are retired or separated from employment covered by a plan and who are receiving or entitled to receive benefits. The term inactive participants does not include any individual to whom an insurance company has made an irrevocable commitment to pay all the benefits to which the individual is entitled under the plan. Deceased participants Any deceased individuals who have beneficiaries who are receiving or are entitled to receive benefits under the plan. The term deceased participants does not include any individual to whom an insurance company has made an irrevocable commitment to pay all the benefits to which the beneficiaries of the individual are entitled under the plan 6 3

integration level in a plan that is integrated with social security, and/or eligible to have the employer make payments to a 401(k) or Section 125 arrangements (participants only have to be eligible

4 TYPES OF AUDITS Types of Audits Limited Scope Full Scope 8 4

5 Types of Audits cont d. Taken from the AICPA Accounting and Auditing Guide for Employee Benefit Plans 9 PLANNING MEETINGS 5

6 Planning Meeting What to Discuss? Scope of Work to be Performed Current year events industry related (EBSA, DOL, IRS) Current year events plan related Plan amendments Plan merger/divestiture Change in service provider Fraud Discussion Brainstorming (discussion - examples of fraud) Who to interview? What journal entries should we look at? Audit Risks linking to audit procedures Testing procedures sampling techniques Reliance on SAS70 report 11 INITIAL AUDITS 6

related Plan amendments Plan merger/divestiture Change in service provider Fraud Discussion Brainstorming

7 Initial Audits new auditees What to Do? Client Acceptance Process Independence DOL vs. AICPA standards Planning Understanding of Internal Control Unique Issues Opening balance considerations Investments Participant data Compile vs. audit of prior year balances 403(b) Plans - no governance in prior years 13 Initial Audits new clients What to Do? Client Acceptance Process Independence DOL vs. AICPA standards AU Section 315 Communications Between Predecessor and Successor Auditors Planning Educating the client on your firm s audit approach and procedures Review of permanent file documentation Understanding of internal control Determining the extent of reliance on predecessor auditors 14 7

audit of prior year balances 403(b) Plans - no governance in prior years 13 Initial Audits new clients What to Do? Client Acceptance Process Independence DOL vs.

8 SAS 70 REPORTS What are they? SAS 70 Reports What they are not? Why is such a report needed for an EBP audit? Which vendors need to provide such reports? 16 8

9 SAS 70 Reports cont d SAS 70 Reports REDUCE but do not ELIMINATE testing!! SUBSTANTIVE TESTING 9

10 Compliance Testing Review of Plan Documents Eligibility Employee Contributions Employer Contributions Investment Allocations Investment Income Participant Loans Distributions 19 Compliance Testing cont d. Participant testing in the electronic age: Type of paperless transactions Personnel files Election forms Allocation/deferral change request Loan requests Distributions requests How do we test? 20 10

11 CHANGE IN SERVICE PROVIDER Change in Service Providers How does the change affect the audit? Transfers in/out plan and participant level testing Fund to fund conversion or re-election by participants? Is the prior service provider responsive? Does the new service provider have a Type II SAS70 report? TEST AS EARLY AS POSSIBLE 22 11

Transfers in/out plan and participant level testing Fund to fund conversion or

12 AU SECTION 380 COMMUNICATIONS AU Section 380 Communications AU Section 380 (SAS 114), The Auditor s Communication with Those Charged with Governance, establishes standards and provides guidance on the auditors communications with those charged with governance in a financial statement audit. Who are charged with governance in an EBP? When do we need to communicate? What do we need to communicate? How do we need to communicate? 24 12

auditors communications with those charged with governance in a financial statement audit.

13 AU Section Communications cont d. What do we need to communicate? Pre-audit Our Responsibility under U.S. Generally Accepted Auditing Standards Independence Materiality in Planning and Conducting and Audit Planning Scope and Timing of the Audit Post-audit Qualitative Aspects of Accounting Practices Difficulties Encountered in Performing the Audit Corrected and Uncorrected Misstatements Disagreements with Management Management Representations Management Consultations with Other Independent Accountants Other Audit Findings or Issues 25 AUDIT ISSUES 13

Aspects of Accounting Practices Difficulties Encountered in Performing the Audit Corrected and Uncorrected Misstatements Disagreements

14 Examples of Common Audit Issues Plan document discrepancies Definition of compensation Matching contributions Breaches in fiduciary duty Discrepancies/issues noted during compliance testing portion of audit Loan and distribution documentation Employee contributions submitted late Plan assets do not roll forward 27 QUESTIONS 14

Discrepancies/issues noted during compliance testing portion of audit Loan and

15 SC&H Contact Information Jennifer Amato, CPA Jim Jenkins, CPA SC&H Group SC&H Group Audit Principal Audit Director

Internal Controls Best Practices By Jennifer Downs, CPA Benefit Audit Group, LLC

Internal Controls Best Practices By Jennifer Downs, CPA Benefit Audit Group, LLC Internal control consists of: Entity level controls these controls relate to the overall control environment and can potentially