How to streamline your 401(k) plan audit

As a plan sponsor of a 401(k) plan that requires an annual audit, you’ve probably wondered in frustration, “Why does it take so long?” Here’s how to streamline your 401(k) plan audit. 

Spoiler alert: audits can be time-consuming… but they don’t have to be! Here are the top industry reasons why your audit takes so long—and how you and your auditing team can speed up the process.

 

Papers, please! Missing documentation will slow down your audit.

We know. 401(k) plan audits require a LOT of documentation, especially if it’s your first time being audited.

Providing needed documentation to your auditor is unavoidable. Here’s how you can make sure there isn’t anything missing, to help speed up the process:

1. Know exactly what you need to provide each year. Your auditor will give you this list. And here’s a handy checklist we created to help you get organized ahead of time. 
2. As a plan sponsor, you may not have all of the required documents. Enlist the help of the appropriate service provider: recordkeeper, third-party administrator (TPA), and/or custodian, for example.  
3. Even better, work with an auditing firm that liaises directly with your service provider team, saving you valuable time. (At Cassell Plan Audits, we pride ourselves on being the missing puzzle piece connecting your 401(k) plan team). 
4. If your auditor asks for an item that you cannot provide, ask them what you can supply instead for the audit test step they are working on.

 

Issues noted during the audit may cause delays.

One of the main points of the audit is to verify that specific compliance requirements are met. The auditor will run tests on those requirements, with an expectation that they flow in a particular way. 

For example, if an employee’s 401(k) plan contribution is withheld from their paycheck, then the auditor will expect to see a corresponding deposit of the same amount to that participant’s account in the Plan. If something is awry, this will raise more questions. (Say, one of the amounts is missing, or one is different from the other). This requires… you guessed it. More documentation.

So, how to streamline your 401(k) plan audit in this respect?

1. Document everything within your plan. (Here’s a comprehensive list.) The more documentation that you maintain for your Plan, then the easier it will be to field these types of questions from your auditor. 
2. Be aware of the most common 401(k) plan mistakes or discrepancies, so you can troubleshoot before the audit. 
3. Work with the same auditor each year, or more specifically the same auditing team each year, so they are familiar with your processes. (Some firms are so big that you may work with them year after year, but have to train a fresh batch of auditors each year on your processes.)

 

The audit started late, too close to the 401(k) plan audit deadline.

What we can tell you from experience is that no auditor wants to start an audit right before the deadline. There are simply too many moving parts. It becomes impossible to meet important timelines—with costly consequences. Late filing leads to very real penalties and fees.

This is where you come in. You can streamline this step, too: 

1. Know the deadlines, and engage your auditing firm well in advance. The audit report must be submitted with Form 5500, due by the last day of the 7th month following the end of your 401(k) plan’s year. So, if your fiscal year ends on December 31, the deadline is July 31. Companies may file for an extension to October 15. 
2. Respond timely to your auditor’s requests. This ties back to one of the biggest errors we saw on this past year’s 401(k) plan audits: unresponsive, or slow-to-respond clients. The sooner you reply with the needed information and documentation, the quicker your audit can be completed. 
3. Consider that if you submit your documentation at the last minute, your auditor may have their hands full completing multiple audits and will not be able to get to yours in time. (And trust us, you want to work with a firm that performs many audits each year, not just one or two.)

 

As a 401(k) plan auditing firm that focuses on 401(k) plan audits, and 401(k) plan audits only, we are experts at saving you time and resources. 

If you’re doing your part to streamline the audit and your current accounting firm is still making you wait, we can help. We are dedicated to making this annual task as brief and painless as possible for our clients. Contact Cassell Plan Audits today.