Does your transportation company’s retirement plan require an audit? An audit is required under federal law to ensure the plan functions, operations and processes are in compliance with established regulations. To help transportation companies streamline their employee retirement plan audit process, we have provided a Q&A summary below to help companies prepare for their employee retirement plan audit.
Q: WHO NEEDS AN EMPLOYEE RETIREMENT PLAN AUDIT?
A: According to the Department of Labor, if the number of qualified employees has changed in the last year, the rules governing the employee Retirement plan may require changes, too. An employee Retirement plan audit is generally required if your transportation company has more than 100 eligible participants on the first day of the plan year.
The plans that may require an audit include:
- Profit sharing plans
- Defined contribution plans
- Defined Retirement plans
Q: WHY DO YOU NEED AN AUDIT?
A: Large plans must complete Schedule H with the Form 5500 Annual Report and are required to have an audit. Small plans must complete Schedule I with the Form 5500 and are not required to have an audit.
There is an exception to this called the 80-120 Rule. This rule allows a plan with between 80 and 120 participants to be classified the same way it was classified in the prior year. For example, if a plan had 95 participants at the beginning of 2017, it would have been considered a small plan for 2017. If at the beginning of 2018, the same plan had 110 participants, the plan could elect to still be considered a small plan.
The participant count used to make these determinations includes all employees who are eligible to participate in the plan, regardless of participation. It also includes all participants who have separated employment, but still have a balance within the plan.
Your plan’s third party administrator (TPA) should inform you when an audit is required. However, if you believe you are close to being considered a large plan, you should review your plan activity and contact your TPA sooner rather than later.
Q: HOW DO YOU SELECT AN EMPLOYEE RETIREMENT PLAN AUDITOR?
A: Once it has been determined that your transportation company needs an audit, the first step is to select an independent CPA firm to perform the audit. It is important to select a firm with the necessary skills and retirement plan experience to provide the services your plan needs.
It may seem like an easy solution to use the CPA firm you use for your corporate accounting needs. However, that firm may not have the required skill or expertise to audit your retirement plan effectively and efficiently. It is worth the extra effort to find a firm that will provide the results your plan needs.
Q: HOW DO YOU PREPARE FOR AN EMPLOYEE RETIREMENT PLAN AUDIT?
A: The purpose of a retirement plan audit is to test financial information and compliance with plan documents and regulations. During the audit, your auditors will review your plan’s records and transactions, and may ask for additional documentation to support any of the transactions. Some of the areas tested during the audit include:
- Contributions – employee and employer, if applicable
- Participant data and accounts
- Loans, if applicable
One of the focal areas of any retirement plan audit is the review of personnel files. Before your audit, you should ensure these files are complete and accurate, including hire and termination dates, pay rates, loan and withdrawal support, and any other important Retirement elections. Files should also be clean, organized and consistent in order to ensure documentation is maintained to be in compliance with the plan document and that all participants are treated consistently.
Before your first audit, be sure to gather and read your plan documents and determine if your plan is following all the various provisions. If something is unclear, inquire of your TPA or other plan service provider.
Q: WHAT SHOULD YOU EXPECT AFTER THE AUDIT?
A: After the audit has been completed, your auditor will issue three documents related to the audit:
- A report expressing an opinion as to whether the financial statements fairly present the net assets of the plan.
- A letter commonly referred to as a “management letter.” This letter is an overall summary of the audit and discusses your plan’s accounting policies, any difficulties encountered in performing the audit, any disagreements with management, and any other audit findings or issues that need to be brought to management’s attention.
- A letter commonly referred to as an “internal control letter.” This letter is meant to identify and communicate areas of operations or procedures where your plan can strengthen or redesign internal controls.
If you would like more information or if you are seeking an experienced team that specializes in employee Retirement plan audits, Smith Schafer wants to help! Our firm has committed a substantial component of our staff to retirement plan audit services. Smith Schafer has provided audit, consulting, third party administrative and internal audit services for transportation company retirement plans since 1971. We can take a second look at your current plan and fees at any time. Click to contact our Employee Retirement Services Group for additional information.
Would you leave the front door unlocked to your business? Of course not. That would give thieves easy access to your assets. Yet a surprising number of organizations do not have strong antifraud controls in place to protect against dishonest people inside their organizations. And theft from insiders — also referred to as “occupational fraud” — can be costly.
Fraud losses vary significantly, depending on the nature of the scam and how soon it is detected. Globally, the median loss is $130,000, according to the findings from the 2018 Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE). Here is a closer look at who was affected and how much was lost, as reported in the latest version of this biennial study.
Fraud can strike any organization regardless of the nature of its operations or its size. The latest ACFE study included 2,690 fraud cases occurring between January 2016 and July 2017.
While the news media focuses on high profile fraud incidents involving public companies, the median loss for those companies was only $117,000. Private companies suffered far greater losses — their median loss was a whopping $164,000. By comparison, the median losses for government and not-for-profit entities were approximately $118,000 and $75,000, respectively.
In addition, there are subtle distinctions between the types of fraud schemes that strike small and large organizations.
Top 5 Fraud Schemes by Size
Percent of Cases
|Rank||<100 Employees||100+ Employees|
|1||Corruption (32%)||Corruption (43%)|
|2||Billing (29%)||Non-cash schemes (22%) |
|3||Check tampering (22%)||Billing (18%)|
|4||Expense reimbursement (21%)||Cash on hand (14%)|
|5||Skimming and cash on hand (20%)||Expense reimbursment (11%)|
To Catch a Thief
Small and large organizations also differ in how they catch fraudsters. Tips were the detection method in 29% of the cases involving small entities, compared to 44% of the cases involving large ones. This could result from the prevalence of reporting hotlines, which are more common among larger companies than small ones with limited resources.
Overall, tips are the most common way fraud is initially detected. But it is important to remember outside stakeholders may also provide tips on unethical behavior. In the 2018 study, 21% of tips came from customers and 9% came from vendors. So, it is important to educate your supply chain partners about any reporting mechanisms you set up.
Beyond tips, a robust system of internal controls may help detect and prevent fraud. The latest study found that 15% of frauds were detected by internal audit procedures and 13% by management review.
What are the critical elements of an internal control system? In terms of lowering fraud losses, the most effective internal controls in the 2018 study were:
|Control||Percent Reduction in Fraud Loss|
|Code of conduct||50%|
|Proactive data monitoring and analysis||52%|
On the flip side, weak internal controls often provide dishonest people with the opportunity to steal assets or “cook the books.” In the 2018 study, a lack of internal controls and the ability to override internal controls were cited as the leading factors that contributed to fraud. Together, these factors were present in nearly half of the fraud cases in the latest study.
In addition, the 2018 ACFE study inquired about the types of antifraud controls fraud victims had implemented. The report revealed that 25% of frauds at larger organizations were caused by a lack of internal controls. In contrast, 42% of frauds at small organizations stemmed from weak controls. This finding helps explain why fraud seems to hit smaller organizations harder than larger ones.
Over the last two decades, the ACFE’s fraud report has taught important lessons including: No organization is immune to white collar crime. Driven by this report and recent high-profile public fraud cases, companies have increasingly implemented antifraud controls in recent years.
How do your internal controls measure up? Although strong internal controls do not guarantee fraud won’t occur at your organization, they can minimize your losses. Smith Schafer can help evaluate your internal controls and recommend areas of improvement. Click to contact us today!
Is your nonprofit organization required to have a financial statement audit in the current fiscal year? If so, the information below will help you gain an understanding of what to do before, during and after the audit.
Before the Audit – Selecting an Auditor
The first step is to select an independent CPA firm to perform your financial statement audit. It is important to select a firm with the necessary skills and nonprofit experience to provide the services your organization needs. Look for a CPA who is willing to help educate your staff on how to prepare for the audit, especially if it is the first audit for your nonprofit organization.
In Minnesota, audit firms are required to be audited themselves by a third party. This is called a “peer review” and the results should be shared with potential audit clients. Ask for these results and references from other nonprofit clients.
It is important to note, auditors need to be independent of your organization. There cannot be any real or perceived conflicts of interest between the CPA firm and your nonprofit organization. This means the CPA who is the treasurer of your Board of Directors, cannot perform your audit.
During the Audit – Preparing Documentation
After you have selected an auditor, the most important preparation for the audit is to ensure your accounting records are updated, organized and as accurate as possible. During the audit, your auditors will review your financial records and transactions, and may ask for documentation to support any of the transactions.
Pro Tip: Place all the documents the auditors request in a single folder on your computer. Then next year, you will have a record of what the auditors reviewed and it will be easier to prepare.
Some common items reviewed by auditors include:
- Bank and investment statements
- Grant funds received and expected
- Listing of year end accounts payable
- Payroll reports, W-2s and 1099s
- Minutes of board of directors meetings
- Financial policies
Your auditor is required to gain an understanding of the internal controls in place at your nonprofit organization and determine whether they are being followed properly.
After the Audit- Review with the Auditor
After the audit fieldwork has been completed, your auditor will issue a report to the board of directors, expressing an opinion as to whether the financial statements fairly present the financial position of your nonprofit organization.
Your auditor is required to send two additional letters to the board of directors. The first letter is an overall summary of the audit discussing your nonprofit organization’s accounting practices, any difficulties encountered in performing the audit, any disagreements with management, and any other audit findings or issues. The second letter, sometimes referred to as a “management letter” or “internal control letter,” is meant to identify areas of operations or procedures where your nonprofit can strengthen or redesign internal controls. The insights shared by the auditor in these letters should be discussed with management PRIOR to discussion with the audit committee and/or full board of directors.
Smith Schafer has helped local nonprofits throughout Minnesota grow and thrive in their communities for the past 45 years. Our Nonprofit Service Group is committed to serving over 250 Minnesota nonprofits. We have the experience and the resources you need to manage your organization and achieve your mission. If you have questions or concerns about your situation, ask a Smith Schafer professional for help. Click to schedule a FREE 30 minute consultation. We look forward to speaking with you soon.
Searching for an audit firm can be a time consuming and stressful task. However, it can be maneuvered easier if you know what to look for, have realistic expectations and ask the right questions.
BELOW ARE 5 ITEMS TO ASK YOURSELF DURING THE SELECTION PROCESS:
We have a CPA who prepares our taxes; can they do our audit?
Perhaps, and this is often a good place to start, but, not all CPAs are auditors and not all CPA firms audit all industries. Auditors and audit firms are held to different standards for continuing education, independence and oversight. This works both ways, the CPA you find to do your audit is probably not the same CPA you want completing your taxes. If part of your goal is to have a single CPA firm complete both your audit and tax work, be sure this is clear from the start of your search.
“An audit is an audit, find the best price!” Is there a benefit to paying more?
As with most purchases, “you get what you pay for,” is true for audits. Audit standards need to be followed, but a low cost auditor could drastically change how your organization works with an auditor. A better question to ask is, “do we want our audit to be a commodity or do we want it to provide a service?” If expectations are for your auditor to assist throughout the year with questions, attend board meetings, or give internal monthly financial statements a quick review, you have to determine if these services are included in the quote or at what rate you will be charged. Countless CPA firms can do an audit, but if you are looking for more than a once a year visit, the low cost provider may not be in your best interest.
Does our industry really matter?
Different industries can make a huge difference for an audit. Within the nonprofit sector, for example, organizations who receive federal funding maybe subject to a yellow book or single audit and Generally Accepted Government Auditing Standards, while others receive their funds through donors or user fees and are subject to Generally Accepted Auditing Standards. Within for-profit organizations, manufactures with inventory, equipment and cost of goods sold have different risks, accounting needs and audit approach than a service based organization. Accordingly, requesting references within your industry is an important part of your search. Inquiries of references should include questions related to the auditor’s industry knowledge and expertise.
Will I be able to work alongside the auditor we select?
There needs to be a comfort level between you and the audit team so you can go to them with concerns and feel confident in the guidance they are providing. Reviewing their background and qualifications is an important first step. However, this trust can start being established during the interview process. The interview is an opportunity to discuss the audit process, what will happen if problems occur and who will actually be on site during the audit. If answers are too technical or vague, it may be a sign you will not be able to work successfully with this particular auditor.
We have checked references and interviewed our prospective auditor, what additional information should we look for?
Audit firms are required to have a peer review at least once every three years, conducted by an independent CPA firm reviews their policies and audit procedures. The peer review’s conclusions, which are provided in a letter, should be reviewed and discussed with a potential auditor.
Every situation is different, if you have questions or are interested in more information on our audit practice, please contact your Smith Schafer professional by clicking here.
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Each year many companies are required to undergo an employee benefit plan (EBP) audit. This audit is required under federal law to ensure the plan functions, operations and processes are in compliance with established regulations. Unfortunately these audits do not always go smoothly because the plan sponsor does not always understand what documentation, information and financials are required for the audit. To help clients, prospects and others streamline their EBP audit process, Smith Schafer has provided a list of steps below to help companies prepare for their EBP audit.
Who Needs an EBP Audit?
According to the Department of Labor, if the number of qualified employees has changed in the last year, the rules governing the employee benefit plan may require changes, too. An EBP audit is generally required if the company has more than 100 eligible EBP participants on the first day of the plan year. For certain “large plans,” audited financial statements must be submitted annually along with Form 5500.
The plans that may require an audit include:
- 401(k) plans
- 403(b) plans
- Defined contribution plans
- Defined benefit plans
Eligible participants include those who are:
- Currently employed by the plan sponsor (whether they participate or not)
- No longer employed by the plan sponsor (i.e. retired or separated from the company), but still have assets in the plan
- Deceased, but their beneficiaries have assets in the plan or are receiving/entitled to receive benefits
Preparing for an Audit
Below is a series of steps which can be taken to prepare for the audit.
- Become familiar with the details of the plan. Understanding all the provisions and adoption rules in the plan will help you ensure compliance throughout the year and worry less about the eventual examination.
- Keep meticulous records. Auditors will require detailed participant information, such as date of birth, hire and termination dates, compensation, and schedules for investments and contributions. Ideally, you will keep all applicable data in a software program that will allow you to pull records by various fields (by person, level, earnings, etc.) and even create custom reports. This will help you gather the necessary data that might be requested by an auditor when the time comes.
- Have a systematic and thorough filing system. Consider filing plan filing on a per-payroll basis and also on a fiscal-year basis. Place all plan committee minutes, memos, amendments, summary plan description and annual reports, investment policy statements, contribution details, and other pertinent documents into those files. This will help you locate items that are almost always requested (i.e. payroll registers) quickly and easily.
- Plan to supply the auditor online access to the plan record keeper. This will improve efficiency during the audit process and reduce the amount of requests made of your firm.
- Look for any potential errors in advance. Compare your financial statement to Form 5500 to catch and resolve any discrepancies prior to the audit.
- Know what will be asked of you during the audit. You can request a letter from the auditor to specify the data they will need and in what format. Along with ensuring compliance of the administration of the plan, audits typically examine investment results, payroll records, employer and employee contributions, distribution of benefits, participant loans, payment of expenses, prior 5500 filings, and other significant agreements or correspondence related to the plan.
The best way to ready your firm for an EBP audit is to prepare throughout the year by keeping detailed records and conducting self-audits at regular intervals. If you would like more information or if you are seeking an experienced team that specializes in EBP audits, Smith Schafer wants to help! We can take a second look at your current plan and fees at any time. Click here to contact our Employee Benefit Services Group for additional information.