Five Ways to Promote ERISA Audit Efficiency
May 1, 2007
By Courtney Barrack, CPA
It is May and tax season is officially behind us. We are now at the heart of the busy season for employee benefit plan audits, also known as Employee Retirement Income Security Act of 1974 (ERISA) audits. December year-end plan audits are typically scheduled between April and July, with an extended deadline of October 15.
It's the perfect time to think about best practices for promoting ERISA audit efficiency.
Assign Specialized Staff
Often during the proposal process, a potential client will express frustration with their existing auditors because there's been no consistency of staff due to turnover, or because they've had to train the new hires or interns year after year on the particulars of an employee benefit plan. It is important for a firm to train the staff who will perform ERISA audits and maintain its knowledge base.
Membership in the American Institute of CPAs (AICPA) Employee Benefit Plan Audit Quality Center provides firms with access to comprehensive resources and regular updates throughout the year in live forums. To become a member of the Center, a firm's engagement partners and managers must have a minimum of eight hours of employee benefit plan-specific CPE every three years.
Aside from joining the Center, another good practice is for a firm to send at least one manager to the AICPA Annual Conference on Employee Benefit Plans each year (this year's is May 21–23, 2007, in New Orleans), and encourage the manager to share his or her new knowledge with the rest of the staff.
Firms should offer audit staff at least a half-day of internal training each year, preferably before the busy season begins. A firm's annual training should include all staff who could potentially be assigned to an engagement, including all interns, staff and seniors, plus any supervisors, managers and partners who specialize.
Use a Budget
Completing a time budget by audit area is a very basic procedure sometimes overlooked. Based on our firm's standard budget for a limited scope audit of a defined contribution plan, such as a 401(k) or profit-sharing plan, the hours allocated to an engagement should consist of roughly 20 percent preparation, 60 percent fieldwork and 20 percent wrap-up. (Each of these three phases is illustrated in the following best practices).
Before fieldwork begins, it is a good practice to hold a planning meeting and designate ownership of each budgeted area or task so there is no question what is expected and when. Budgets help communicate goals and expectations clearly.
As noted above, roughly 20 percent of an engagement should occur before fieldwork. In reality, we don't make enough time for the preparation phase, and inevitably, what isn't accomplished in preparation must be done during fieldwork.
Planning and organization are crucial to audit efficiency. Use a template specific to employee benefit plans to organize audit workpapers. Utilize audit programs and checklists specific to employee benefit plans, such as those available from Practitioners Publishing Company (PPC). These tools ensure adequacy of documentation and consistency among engagements.
Provide a request list to the client that tells them what you need and when you need it. It is best to provide the list several weeks in advance, along with any requests for confirmation letters, to ensure you get the information you need before you reach the client's office. The list could include a client-prepared schedule of remittances. Such a schedule allows the auditor to readily determine compliance with the U.S. Department of Labor's regulations on the timeliness of remittances, rather than forcing the auditor to prepare the schedule first.
Once the necessary information is obtained from the plan trustee or custodian, it is a good practice to select and w communicate sample selections for testing, such as participant data or benefit payments, in advance of fieldwork. This requires an auditor to know the plan he or she is auditing, e.g., whether participants may submit withdrawal request electronically. If there is no written record maintained, audit procedures will need to be altered. Understand that the definition of eligible compensation is unique for each plan. At a minimum, encourage all staff assigned to the engagement to read the prior year financial statements.
Review the Statement on Auditing Standards (SAS) 70 report (type II, or "Report on Controls Placed in Operation a ness") before fieldwork.
For a limited scope audit, the benefit of a SAS 70 report is to gain an understanding of the trustee's or administrator's controls over benefit payments, etc., and potentially reduce the amount of (although not eliminate the need for) testing. This benefit is lost if an auditor waits to review the report until after fieldwork.
Best practices are to centralize the review process and to utilize a review checklist, such as the resource available from the Audit Quality Center. These allow several engagements with the same trustee or administrator to benefit from a single SAS 70 review.
Bring Order to Fieldwork
As noted above, roughly 60 percent of an engagement should occur during fieldwork, and what isn't accomplished during fieldwork becomes backlog. As any auditor knows, it is much more efficient to complete an audit at the client's office, rather than attempt to wrap it up with countless other distractions upon return to your office. Here are several tips that could make fieldwork more efficient:
- Complete each area to the extent feasible before beginning another.
- Trace amounts to support only once.
- Handle each workpaper only once; don't set it aside to reference it again later.
- Maintain a list of open items and clear as many as possible before leaving the field.
Because an auditor tends to make the biggest impression upon a client during fieldwork, it is important to provide the best possible customer service. Two more good practices to enhance customer relationships are: disrupt clients' daily routines as little as possible and communicate problems as they arise. These hints will keep the client from thinking that they are training the auditor.
New for 2006, SAS No. 103, Audit Documentation, encourages quicker turnaround on engagements, as the financial statements will no longer be dated based on the last day of fieldwork. Follow-up procedures are required before report release. Timely completion limits your responsibility for subsequent events procedures, including update of the management representation letter, review of minutes and inquiries about subsequent events.
The wrap-up phase covers roughly the last 20 percent of an engagement. To minimize wrap-up time, it is helpful to list open items; communicate them to the clients before leaving (verbally) and upon return from the field (in writing via e-mail); and clear the open items in a timely manner to provide the best possible service to clients. This will speed along the review process and allow clearance of any review notes when the engagement is still current.
Finally, it is a good practice to provide staff with feedback on their performance either during fieldwork or shortly after report issuance so future engagements can become that much more efficient.
These are just a few best practices for promoting ERISA audit efficiency. Hopefully, every reader can benefit from at least one of them.
Best wishes for a most productive busy auditing season!
Courtney Barrack, CPA, is a business assurance & advisory services manager at Keiter, Stephens, Hurst, Gary & Shreaves in Richmond, where she specializes in employee benefit plan audits. She chairs the VSCPA Chapter Leadership Committee, is a past president of the VSCPA Richmond Chapter and serves on the VSCPA Membership Task Force.