Jon Prescott

Vice President of CPI Qualified Plan Consultants Inc.

PA: What kind of audit should a plan sponsor be preparing for today?

Prescott: Of course, any company that’s got a hundred lives or greater has to conduct a plan audit. Find a certified public accountant (CPA) firm that specializes in retirement plan audits and conduct that audit. It can be either full scope or limited scope: Full scope is much more expensive; limited scope saves the client or the plan sponsor quite a bit of money.

Many plan sponsors, as well as advisers, really haven’t looked at their audits or audit fees to realize the importance of a quality audit—as well as the cost of an audit.

Several years ago, we started building a software system where the auditor could actually pull down everything he would need to conduct that year-end annual audit and deliver it in a limited scope fashion, thus saving the plan sponsor quite a bit of money.

We started programming and created a tool, trademarked and patented as the Auditor’s Toolbox, where a qualified CPA firm can go online and gather everything they need off of our website for that plan and actually conduct everything from certified statements to financial statements of a plan, to distribution information, to running the audit between the contribution records and account balances, to the payroll files and making sure those reconcile. They can do everything on the Auditor’s Toolbox.

PA: What can advisers do to help with this process?

Prescott: Plan advisers are starting to realize the importance of partnering with their clients. It’s important for them to come alongside their plan sponsor and help them find good quality CPA firms that specialize in Employee Retirement Income Security Act (ERISA) plan audits, because that will save that plan thousands of dollars in the long run, not just in fees but also in potential penalties. If those audits aren’t done correctly and the information isn’t uncovered, there might be errors. You don’t want the Internal Revenue Service (IRS) or the Department of Labor (DOL) to find those errors, you want to find those on your own. That’s the reason for the required plan audit each year, to uncover those things and get those corrected before any of the other governing agencies come in and find them. Then it becomes a penalty issue.

The financial adviser plays a vital role in the audit process to help that plan sponsor find a good auditing firm, but also partner with a service provider, third-party administration (TPA) company that helps in that process. For example, if the Department of Labor or the IRS wants to identify one of our clients as an audit candidate, then we will work directly with that agency to resolve any questions or issues that that random audit is targeting.

PA: Most plan sponsors and advisers are probably quite fearful of a potential audit, right? It sounds like you’ve got tools and techniques to take some of the fear out of the equation.

Prescott: Absolutely, we do. Our Auditor’s Toolbox is a great quality solution. It allows that auditor to get everything they need in the time they need it and in the level of accuracy they need. The last thing the plan sponsor wants is to hear from the IRS or Department of Labor, saying, “Because of your Form 5500, there was something in error on it, we’ve now targeted you for a random plan audit.”