The employee benefit plan audit season is upon us, and it’s important for businesses and nonprofit entities to ensure they are fulfilling their annual filing requirements. Employee benefit plans with 100 or more participants typically are required to have an audit performed as part of their obligation to file an annual Form 5500. Employee benefit plans potentially requiring an audit include 401(k) defined contribution plans, defined benefit plans, and employee stock ownership plans.

For 2009 filings, many 403(b) plans with 100 or more participants also will be required to file audited financial statements. If your organization’s employee benefit plan has reached the 100 eligible participant mark, you may need to begin preparing for a plan audit. You will want to prepare early as it is difficult to gather plan documents, participant records, account detail and other financial information required for the initial audit of a plan’s financial statements.    

If you are preparing for your plan’s first audit, you should start by designating an individual responsible for ensuring that the plan meets its financial reporting requirements. This individual should have knowledge and expertise in generally accepted accounting principals for financial reporting of employee benefit plans and typically would be an individual in the organization’s accounting or finance department. You also should consult with experienced legal counsel to ensure your plan is in compliance with Employee Retirement Income Security Act (ERISA) and Department of Labor (DOL) requirements.

Next, communicate with your plan service provider and determine if they can provide you with the information needed for your plan’s financial statement audit and Form 5500 filing. Your service provider should be able to identify and match all individual participant contracts and account balances to your plan and may provide a SAS 70 report on internal controls established to process your plan’s transactions.

Make sure your plan maintains a proper set of financial records to support the plan’s financial statements. Also, verify that all plan-level and participant-level records are complete and accurate.These records should include contribution and disbursement records, individual participant account balance records, investment schedules, a general ledger or transaction detail report, and a trial balance. Identify all participant mutual fund and custodial accounts that hold plan assets and determine which assets need to be included for Form 5500 and financial statement reporting purposes.

For organizations with 403(b) plans, the new Form 5500 reporting and independent financial statement audit requirements are not effective until the 2009 Form 5500 filing. However, 403(b) plans that meet the requirements to have an independent audit for the plan year December 31, 2009, will need to include certain comparative financial information as of the 2008 plan year end.

Comparative year information is required by the DOL to be included in the plan’s financial statements for beginning of the year net assets in the initial reporting year. Required information includes the current value of plan investments and the amount of employer’s contributions owed to the plan, accounts payable, and accrued expense as of the beginning and end of the plan year.

Audit preparation should also include establishing adequate internal controls over the plan’s financial reporting process. Policies and procedures should be adopted to ensure proper authorization and recordkeeping of all plan transactions. The plan should have a current written plan document and investment policy. The plan document and investment policy should include basic provisions relating to eligibility, benefits and distributions; information pertaining to custodial agreements used by the plan; information about what types of investments the plan can make and the appropriate authorizations for investment transactions.

For the audit itself, the plan administrator, along with the organization’s audit committee, should consider hiring an independent certified public accountant with experience auditing employee benefit plans. Recognizing a plan’s filing requirements, timely audit preparation and securing the services of an experienced CPA firm are the keys to a quality employee benefit plan audit.

For more information about employee benefit plan audits or to find CPA firms that are members of the American Institute of Certified Public Accountants’ Employee Benefit Plan Audit Quality Center, visit www.aicpa.org/EBPAQC.

		James Hunsanger, staff accountant with Andrews Hooper & Pavlik PLC, focuses on audits of employee benefit plans, financial statements, information security and compliance. Visit AHP’s website at www.ahpplc.com.