As many plan administrators wrap up their 2023-year 401(k) plan audit, reviewing the key pain points of your last audit and preparing for next year’s audit should be a top priority. A major way to improve your audit experience is to reimagine your document retention and control strategies. Automation tools have come a long way in recent years, making it easier to track and maintain the documents you’ll need for your audit, neatly organizing them for ease of access. Kim Moore, Director and 401(k) practice leader, and Karen Hill, audit and assurance manager welcomed AuditMiner Vice President of Business Development Chris Dahl on the show to discuss his company’s software application and how it can help simplify 401(k) audits.
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Narrator: Welcome to the 401k Audit CPA success show where we're 100 percent focused on helping companies across the United States prepare for their 401k audit. If you have 100 eligible participants in your 401k plan, then this podcast is for you.
Kim Moore: Welcome everyone to today's podcast of the 401k plan Audit CPA Success Show.
I'm Kim Moore. I'm the Audit Director here at Anders on the Remote 401k Plan Audit Team. And I have Karen Hill with me again this, this month. Karen's the Audit Manager here on the team. So welcome, Karen.
Karen Hill: Hello.
Kim Moore: And today we are, we're going to talk about wrapping up. Your 401k plan audit. As we're recording this, it's the beginning of June, and for most calendar year plans, their original due date for filing their audit report with their 5500 is the end of July.
So if you are one of those folks that have a calendar year plan, you are getting your 5500. pretty close to the deadline. I know it's a couple months yet, but still it is, that is going to be here before we know it. So we wanted to kind of talk through the steps as, as you are wrapping up the audit, because there are some key things that you as the plan sponsor need to do that will make sure that you're going to get your filing done on time, but also will make sure that you end up with a quality audit product, which is very important.
Ultimately, the quality of the audit, unfortunately, really rests with the plan sponsor from the DOL's perspective. So, if there's something wrong with the audit, they're going to come back to you, not the auditor, at least initially.
So we're not saying you need to be an auditor and you need to understand all the things that the auditor does, but you do need to double check some things as, as we're progressing through this. So we're going to start this podcast, we're going to assume in your audit that you've already started the audit since its filing is, is coming up here that you've progressed pretty much through the audit.
So the auditor has done the planning work, they've done what's called risk assessment, and they've done the majority of the testing. And we're going to kind of progress from that point forward. So what, what should happen and what do you need to do from that point forward in this process? One thing I will also mention, the original due date's the end of July, but as we've talked on other podcasts, there are one extension available to you.
So if you're, again, calendar year plan filer, It's due the end of July but your service provider can and usually will file an extension for you that will give you till around October 15th to get the filing completed and as long as you do it by that deadline you're fine, no penalties will accrue, you've met the requirements.
However, we do like to stress that end of July deadline because if you miss the October filing date then everything goes back from a penalty standpoint to the end of July. So that extension gets negated if you don't get the filing completed before October 15th. So this July date is important and to the extent you can file by that date, you're in really good shape because then you don't have to worry as, as time moves forward and it gets really stressful for everybody once you get past July.
So So, Karen, we're gonna, we're gonna start off. I'm, I'm the auditor. I've, I'm working through the testing. I'm just about done. So, from the plan sponsor's perspective, what, what should they be doing?
Karen Hill: Well, they need to be confirming with the auditor the status of the audit, because more than likely the auditor had some final questions about certain things on the testing.
And it seems no matter how complete you... you provide, have completely provide all of the support that the auditor will need. There's probably going to be some questions that they have, some clarification. Sometimes it's something as simple as somebody, there's a different date when they're doing some of the testing, the demographic testing, and that's because of somebody that was rehired, there might be name changes, those kinds of things.
So they'll ask some of those questions. So you just want to make sure that They're not waiting on you to give you some information. We all know with email, sometimes you get bombarded and things can get buried. So if they emailed you the final questions and they're sitting there waiting, they may not realize that you didn't see it. Or you may not realize that they send something to you because it's very easy for them for the email to get buried.
So just you want to make sure you just keep in touch. And as we've said before, it is true that the squeaky wheel gets the grease. So if you're
Kim Moore: Absolutely, we see that a lot!
Karen Hill: Yes! Especially with our, from our auditors are often working on several audits at a time. And if you're really responsive and asking questions and they'll, they're more likely like, "okay, this person's responding to me and I can get what I need to, in order to move everything forward," and they will do so.
Kim Moore: Yeah. Yeah. I mean, it's really important. That communication part is really important and it's very easy to, we're all busy, but I've got a lot going on. And so it's easy to miss an email and, and then one parties waiting on the other one, when they don't realize that they don't they don't know that they need to be taking action.
So that follow up is really important. And we like to stress throughout the audit that's important. Not just at the end, but right, really following up all the time. Just keeps everybody on the same page and make sure nobody's waiting on somebody that doesn't even know they have a task to complete.
So, so so let's assume you did that and everything, either that everything's all wrapped up or maybe you get them the final things to wrap it up. The auditor then is going to move into reporting. That's going to be the next stage of the audit. And we're almost done at that point. So, Karen, you want to kind of walk through a little bit of the steps of preparing the audit report?
Karen Hill: Sure. The auditor, more than likely, is going to prepare the report. Out of, we have, what, 150 audits, we have one that prepares the report themselves. So more than likely, the auditor is going to prepare the report, but in order to prepare the report, because there's additional schedules that are needed, they might need some information from you to prepare the report.
So, just be aware that if they're asking you for something, when you think you finished, like, "wait a minute, I thought we were done with, with the audit," they need the information to complete the report. It's not that there's still additional testing. Hopefully, there's not something that came up in the last minute.
Additional testing that needs to be done, but they just need the information. And it's for various different things and just too many variables to really go into, but just understand that that's might be why they're asking for some additional information. The auditor will determine the auditor's opinion based on the audit and the results of the testing that they did.
For most plans, it is an unmodified opinion. That is different. A few years ago, it used to, we used to talk about a disclaimer of opinion because of a limited scope. Well, they now have the way that the... they've changed all of that and you no longer have to file a disclaimer opinion because of the scope limitation that's caused by the certification of the investments and the investment income.
So it will be an unmodified opinion and then there will be a box that usually is checked if you have a what we used to call limited scope audit for a 401k plan for say that and I can't remember all the verbiage in there, but basically it's saying it's a 103A3C audit.
So we had for a couple of years when they changed the form 5500, there was a little bit of confusion on what kind of audit opinion it was because the disclaimer is still on there, but you know, you should have hopefully receive an unmodified unmodified opinion, which basically means that there were no material misstatements that were found in your financial statements.
There's additional supplemental schedules that's required by ERISA. Everyone should have a schedule of assets held. The only case in which you would not have that is if you didn't have any assets or didn't have any investments in your plan if your plan was terminated.
So you will have a schedule of assets held. It's just what it sounds like. It's just a listing of all the different investments. that are held by your plan, which might be mutual funds, separate accounts, common collective trust, maybe you have stock also if you have any loans to participants, those will be in there.
So that's just the listing of the assets. Then you might also have a schedule if you have late contributions and that's called Schedule of Delinquent participant contributions, and they'll just list out the, the amount. It'll be the total amount. It's not going to list it out by pay date. So if you have one pay date or every pay date, the contributions were considered late.
It'll just be one line for that. And those, that schedule will have to be attached to your report every year through the year that it's corrected and you have to we've discussed in other podcasts about correcting those errors where you have to basically give or submit earnings based on those late contributions. So until... oftentimes the contributions themselves have been submitted. But until you submit the earnings, that schedule is going to remain attached to your report.
If you have a plan that has non participant directed investments, you might have a schedule that will, that details out I'm assuming you- This says 5%, but that's, that's purchases, the reportable transactions that are greater than 5 percent of the net assets; that's at the beginning of the year.
That's not usual in most 401k plans, because most 401k plans, the participants can, can say where their contributions are invested and which funds, but if you have a plan where the participants are not allowed to do that, then that report will be, that schedule will be required. There might be a prohibited transaction schedule which is different from the late contribution schedule.
I haven't seen this a whole lot because most plans are pretty good about not having other prohibited transactions. But if you do have a prohibited transaction, then that schedule will also be required. And there might be a few others but like I said, though, The ones, the schedule of asset sales, late contributions, the ones that we've mentioned are the ones that are most common.
Kim Moore: Right, right. Yeah, they're those schedules are dictated by the 5500 instructions. And so the auditor should be following those rules and applying that. And including the schedules that are needed for your plan based on the plan activity and the type of plan and, you know, what happened during the year.
We're going to come to this at the end of our podcast today, but if you have questions on those schedules, you know, by all means don't, don't just take it and say, "Oh, well, that's the auditor. They said that, so I have to file it." Ask questions because maybe the auditor misunderstood something.
And they should be able to explain to you why a particular schedule is needed. Things as Karen mentioned, scheduled assets is just required for everybody. If you have assets, which they all have, you'll have to have scheduled assets. So that's, that was pretty cut and dried. But some of these other ones... you may not really understand, like the prohibited transaction schedule. You may not understand why, what is that, why is that on there. So make sure that you're asking you know, questions about it, and they should be able to answer, and if they can't, then it's an open question, really, as to why is that on there. If they, they don't really understand why, why they put it there. So, so I, I would definitely be asking questions on those schedules, other than the scheduled assets.
Karen Hill: Well, yeah, and also if there's a prohibited transaction schedule, you need to understand why the transition transaction was prohibited and prevent that in the future.
Kim Moore: Right, right. And be prepared because there might be fallout from some of those schedules. The DOL looks at the late contribution schedule. For example You know, they may come back and want additional information.
Same thing with if you had a prohibited transaction, they might want to come back and say, "Hey, we need more information because it looks like you violated a regulation here." So again, it just makes sense for you to understand those schedules. Why are they there? You know, what detail was needed to make those up or make sure they're correct.
I also like to point out at this point, I mean, hopefully before this point, your auditor would have received a draft form 5500. So this, this should be a moot point, but if for any reason it, it was delayed, so your service provider hadn't prepared the 5500, the auditor will have to stop at this point because we're not allowed to give you a draft report without having a what's called substantially complete 5500 that changed a couple of years ago with an audit standard change.
So not only do we have to have the 5500 but for example if you have those late contributions those late contributions needed to show up need to show up on the form 5500. Usually on a draft, they won't because the service provider doesn't know about those. So, it'll have to go through a revision and we'll have to see the revised 5500.
Might take a couple of times too, it might not just be one revision, it might be a couple of revisions. So just, just a note that that can hold up your audit. So from everything we're going to talk about going forward, none of that really can happen until we have the substantially complete 5500. So, you know, again, this is a communication you'd want to have with your audit or what, you know, "I haven't heard from you, what's going on?"
The auditor may say, "Hey, I'm waiting on that revised 5500," and that is an opportunity for you to get in touch with your service provider and say, "Hey, I'm getting close to the deadline. I really need that 5500 updated. You know, what's the turnaround time on that?" So again, opportunity for you to get involved if, if that's the case.
From there, then- so we're going to assume at this point, all the work is done on the audit, testing is done, report is done. Audit standards require work papers to go through a review process just to make sure that everything has been completed that, that needs to be completed per audit- current audit standards.
And also just to protect the firm. Now, the review process is going to vary from firm to firm. Here at Anders, our staff are going to complete the work. Karen will do a detailed review of all the work papers. I mean, it's not just the report. It's everything. It comes to me then as the director on the team.
I'm going to do a higher level review. It's then going to go through at least two more reviews past that and that's- the report is going to get a review by another manager or above individual, just to make sure that from an outsider standpoint we didn't miss anything. It- the report makes sense, it all fits together, you're not saying one thing in one part of the report and something else on that same topic later on. Just to make sure everything is there that needs to be there and it's clear and and doesn't- isn't confusing.
From there it goes to what's called a foot and proof and that's going to be a final check on the report just to make sure that the numbers all tie out. We're not seeing two and two or six. And make sure that you know all of the everything's in there. There aren't spelling mistakes, things like that.
Once that is completed then we're going to provide the draft over to you for review. And at this point, you could just say, "yep, it's good and let's go." We're not recommending you do that.
Karen Hill: No.
Kim Moore: Yeah, we are recommending that you review the report and make sure that you believe it's correct and that you understand everything.
So Karen, I put together a list of just some things I thought were good kind of best practices for the client. You want to run through those real quick?
Karen Hill: Sure. First, read through the entire report. Make notes of anything you think is incorrect or incomplete. You know, sometimes we get some of that information by reading the adoption agreement.
Some of the wording sometimes in the adoption agreements can be a little confusing. So it's possible that we may have misinterpreted something that was in there. So if something seems to be incorrect, go ahead and let us know. Question things you don't understand. Compare the financial information to your year end report from the trust company.
And we should have used the year end report from the trust company to prepare the financial information. But there might be some differences and you would want to note that and question that. Compare the financial information to the 5500. If there are differences between the 5500 And the financial statements in the report, there should be a reconciliation footnote.
And if there's not 1, then you need to ask why, because we are required to have that reconciliation in there. Ask about the auditor's opinion. You know, maybe you do have a disclaimer opinion, you can name. Or, you know, maybe there's a different opinion, you know, ask your auditor why you have that opinion and what does it mean.
There's unmodified opinion, as I said before, is the usual opinion that you hopefully will get. Review the supplemental schedules and ask questions if you don't understand why the schedule is there. As we've mentioned, the schedule of assets is going to be present in the vast majority, if not all. Unless you have a terminated plan with no assets, you're going to have a schedule of assets.
If you have a schedule of delinquent participant contributions, then you might want to question and find out which contributions were considered late. What are my next steps? The TPA can help you with those next steps, but the auditor can help you, well, can give you the information on which payroll dates the contributions were considered late.
And just understand that the financial statements are your financial statements. They do not belong to the auditor, they belong to you. So you can suggest changes if you think that the changes are warranted. Now there might be limits into what changes that the auditor can make because of require, ERISA, DOL, IRS requirements, but you know, you can certainly suggest changes.
Kim Moore: I think it's an important comment because we tend to use boilerplate language for a lot of the disclosures. Usually people don't have comments about the financial statements of the actual numbers in the report. If they do, they tend to be comments around are accrual entries that we're making because most of the trust reports 5500s are on the cash basis.
So they are preparing them as of 12/31 of the year end. So anything that happened through 12/31 will be included, but we may include, say, an employer match that is paid for that year, physically not paid until the next year. That needs to be on the financial statements because we're doing them on what's called an accrual basis.
So we're recording them as what's actually due to the plan by 12/31. That money is due to the plan, it just hasn't been received yet. So, so usually you'll, the kinds of questions on the numbers are pretty easy to explain because they're usually due to those kinds of things. But the disclosures, like I said, we use boilerplate language for a lot of things and maybe you feel like a little bit a different language would would make it clearer to the reader, whatever that disclosure is trying to present.
And that's fine. As Karen said, there's limits. I mean, we can't put things in that aren't correct or that are confusing, but you know, that there isn't a rule that says that the language has to be a certain way.
So that's fine. Don't be afraid to reach out if you think, and especially if you think something, you know, if it says that we match at 3 percent and you match at 4%, well, no, it shouldn't say 3%. That was a typo. So, you know, don't be afraid to reach out if you think something's wrong, or if you think something isn't in there that should be, or we like to get feedback on the reports.
A lot of the times it is just not understanding the accrual versus cash basis or not understanding we need to put certain disclosures in. It may be very clear to you, you have no intention to terminate the plan. So why do I need to put anything in here? Well, that is a required disclosure.
So we can help explain things like that. But we like to get feedback on the reports because sometimes we make, you know, we make mistakes too. We're humans. So we might, we might have missed something or we might have, you know, mistyped something or so, definitely give us comments and as Karen said, they're your financial statements.
So, you know, within limits things can be changed. So. The other thing and we're going to talk a little bit more about this here in just a minute. Some of the things in the report, most of it, no, most of it is just your financial statements, your disclosures are describing the financial statements. So, most of it, there's no implications.
The, the areas where there are implications, the auditor opinion, and some of those supplemental schedules. So there are implications if you have late contributions, there are implications if you have prohibited transactions, there's implications if it's anything other than an unmodified opinion, and you need to make sure that you understand those implications.
So you're prepared to take action going forward based on whatever that is, implication is. So very important that that you understand that. From there, then there's a couple things that have to happen to get the process completed. First of all, you have to approve the financial statement. So you're going to have to come back to us and say, "yep, I've read them.
I've looked through everything. I'm good with the verbiage or, you know, You know, or it, you know, it was changed and I'm happy with those changes." So, at the end of the day, you're going to approve the financial statements. As I mentioned, there may have been some adjustments to the financial statements.
They're called adjusting entries in accounting language. And so, your auditor, just depending on the firm, they may need for you to approve those adjusting entries. Usually those are either that cash accrual that I mentioned, or it can be a classification change. So your service provider may have put fees inside distributions and included it in the distribution number, and we may feel it needs to be separated out.
So we would do an adjusting entry to move that money. Those are the two most typical. There could be all kinds of reasons for adjusting entries. Again, it's If your auditor gives you entries to approve and you don't understand them, obviously ask questions. But, but some firms require you to approve those adjusting entries.
So they may ask you to do that. There's something called a management representation letter that they're going to ask you to sign. They will give you a draft and then they will ask you to put it on company letterhead and to sign it and return it. The management representation letter. It's just that.
It's your representations back to the auditor. And it's basically, there's a, it's about a three page document, so it's pretty long, has a whole lot of stuff on it. But it's basically you saying, "I provided everything to you that you asked for. I was truthful in my statements that I made to you. I didn't manipulate any of the documents that I gave you.
I provided access to anyone that you needed to talk to. I didn't, I didn't restrict anything. And I didn't mislead you. I didn't provide information that, you know, was fraudulent or, you know, not correct." The auditor may put items on that representation letter to just to cover themselves. So it's going to say you had late contributions if you in fact did.
It's going to say you didn't have a fidelity bond in place if that's the case. It's going to describe those prohibited transactions. So all that stuff is going to come back up again in the management representation letter. So again, I wouldn't- don't just sign it and send it back. I would encourage you to read it because if anything ever goes wrong in your plan, that could become a very important document because the auditor can say, "look, you, you signed this, you asserted that this was all correct, and now you're saying it's not."
So it's going to put you in a bad place if, if that were to ever come up. So just make sure that you're careful and you read through that. Ask questions if you have any, if you have questions about what it's saying. Lastly, the auditor is going to be going through the file, making sure that any of the points that came out of the review get, are getting answered, that we've got everything in the file.
And so there may be at this point, even though we're just about done, there could be a last question or two or some missing documents. So don't be surprised if at that very late stage there's an ask for one or two more things. Shouldn't be much, and it may be nothing, but that that will be needed to finish it out.
So, assuming we've gotten through all of that and everything's all good, then we are going to issue you a packet. That's what I call it. In our case, it's a PDF and it includes the financial statements, all the disclosures, all those supplemental schedules that we talked about that are required for your plan.
And the auditor opinion letter. That should be consistent from firm to firm, but the the individual specifics will look a little different. So how they put it together might look a little different. They may have a cover page, or one firm may not, or an index from another firm may not, but the basics will all be the same.
And you're going to get one PDF of all of that and you may get one or more additional separate communications that are going to come back to you. So from that standpoint once you've got that you are going to take that packet, not the other documents, be very careful. You only want to include the packet with the form 5500. And you're going to file that on the Efast system, which is an electronic system provided by the DOL, usually through your service provider.
Usually the service provider is going to provide a portal or some link that you're going to use to do that. Usually you're not going directly to the Efast system. You can, it will allow you to do that, but usually you're going to go through service provider. And then you're going to file with the Audit report and the 5500.
So I don't know, Karen, I again put some, some ideas out here as you're planning to get ready to do this because we're approaching the deadline. What are some of the things that we should, we should remember to do?
Karen Hill: Well, first off, don't forget to file. I, it seems every year. We, we have at least one client that'll come back and ask, you know, it'll be a month after we've issued their report, the packet to them, and they'll ask about the filing and we don't do the filing for you.
You have to do it. Your, your service provider will do it for you. So don't forget to actually file.
Kim Moore: Very important.
Karen Hill: Has the audit been completed? Does it really help you if you don't file? That's what- that's what needs to be done. That's the most important step. Make sure you leave enough time to work through the filing, especially if you're close to a deadline, sometimes the site gets bogged down a bit and it might take a little while to get everything to go through.
So if you are lucky enough and you get your audit completed by the end of June. You have your packet, go ahead and file. Don't wait till July 31st. Just go ahead and file so you go much smoother if you try to get leave yourself a little bit of time beforehand. And not trying to do it the last minute. You probably will have to go through your provider's website to complete the filing.
If it's a new system, Or even if it's an old system, some things can change. So make sure you have, Like again, Try to start a little early. Make sure, That if you need to access a new system, you know how to access it. If you need to reset your password or need a new password, you have time to get that or get your credentials onto the site.
If it's a new system, maybe the provider has some training materials that you can work through. So, and those probably wouldn't take very long to work through. It's not like it's going to take you all day to learn how to train on a new system. It's probably just a few minutes, but maybe they have like a video or, or a PDF that kind of shows you the steps that you need to go through and just go ahead and give yourself some time to go through that and review it.
Sometimes the service provider will have, if you have a specific rep or even if you don't, some of the service providers will set you up with a rep to help you work through the process. So if, if your service provider provides that and you have any questions, that might be a good thing to do. Go ahead and set that up with them.
And again, to reiterate, like Kim said, only include the financial statement packet. You may receive an internal control letter. You should also receive what we call a governance letter. Those are not to be included in the filing. Those are only for you if you do receive them. So only attach the financial statement packet with the opinion and the financial statements, supplemental schedules, footnotes, all that.
Just attach that to your 5500. Make sure that you don't include anything in the filing that might have social security numbers or any other confidential information. The DOL will reject it if it does. That's it, hopefully.
Kim Moore: Relax! Yeah, that social security comment is really important. Now, the audit packet shouldn't have any confidential information in it. I mean, ours would never have anything. It's not that specific. It's talking at the plan level anyways. But sometimes people will file other things that they don't need to include.
And, and sometimes those things will have personally identifiable information. And so just be very careful because the DOL is getting real concerned about that for obvious reasons for cyber security and other fraudulent activity going on with people using people's social security numbers. So just be very careful with that.
Make sure when you're doing it. And a lot of this comes down to if you get the report in June. And you've got a month to file, you've got time to review. Do I have my, is my updated ID and password? Do I know how to get in to do this? Do I make sure I got the right stuff to file? It, a lot of this comes into play when it's July 30th or 29th, or you're down to the wire and you're in a hurry and it's Friday and you want to get out of the office and you got to hurry up and get this done.
And that's when a lot of these things can come up and you can make mistakes and file the wrong thing. Or you think you filed it, you really don't file it and... so just, just be very careful and we really try to encourage people, try to file as early as you can, whether that's before the July deadline or that's into your August, September, before the October deadline.
As you get closer to that October 15th deadline, it's going to get very chaotic and very difficult to get it filed on time. So be very, you know, be very careful with that and try to do it ahead of time. So a few things here. You filed. Everything's good. You're happy. You've had your little drink and you're all relaxed and, "I got that task and I'm done."
Not quite. There's a couple things that we suggest that you do. I would recommend you go back, leave it for a couple of days or maybe a week, then you can, you can actually go on to the E FAST system. Everybody in the world can get on there. And look it's, if you just Google 5500 search, it'll take you to the, To the website where you can search for a 5500. So put in the name of your plan or the EIN number, any of those things, and it will pull up the filings that the system has and just make sure that your current filing is out there.
Make sure that it, it took. Because sometimes, it doesn't happen very often, but sometimes there can be a glitch as you go to do the filing. So you're pressing the button and something happens and it doesn't actually go through. And so you just want to make sure, double check. You don't want to get a big huge fine just because there was a system problem.
You know, you did everything you were supposed to and for some reason it just didn't take. You know, you want to make sure that that that doesn't happen. So I'd go double check. Some systems will give you like a printout and say you, you filed and then it'll send you something back and say, yep, it was accepted.
It's all fine. I would keep those if your service provider system provides those to you. I would always keep those just to make sure you've got evidence that you filed. But a lot of systems don't give you that. So if you go back and just double check yourself, that's kind of doing the same thing.
If, if you have a problem for any reason, I'd definitely go to your service provider and they should be able to help you out. Same thing if you need to refile. If for some reason you filed and you didn't include the right things, or if your auditor would come back and say, "hey, we made a mistake, we need to reissue the report again," doesn't happen very often, but if it did, then, you know, you would need to refile that because you want to make sure you've got the correct audit report on file. Then I would go back to your service provider just to make sure that you're doing it correctly.
And again, that it, it actually goes through the system and you don't, you don't miss anything. Debrief on the audit process. I would do that internally. You might want to do it with your auditor if things didn't go the way you were hoping that they did. But I would definitely just talk it through internally and say, is there a way we could do this better?
Could we save reports earlier? Could we start earlier? You know, whatever it might be. I would just debrief. And then keep your notes for next year and take any action that you might need to, to take. Also make sure you keep a copy of the filed Form 5500, that final version, and the audit report. I don't know how many times I can tell you people come back to me two or three years later and say, "Hey, can I get a copy of my three year old audit report?"
And I'm always like, "You didn't save it?" You know, it's an important document and your form 5500 very important document as well. So you really should be saving those yourself. Now your auditor will keep them for a period of time, but all audit firms have document
retention policies. So, you know, if you're coming back a few years later, they may have already You know, discarded the items from that particular year's audit.
So I would recommend you keep them. The DOL might come back and do an audit or do an investigation or just a desk audit. They will always ask for the 5500 and the audit report. So very important that you keep them and you don't have to go back to your auditor to ask them. Last thing on the required thing list to do is to file the this, or not file, but distribute the summary annual report.
That's a usually one to one and a half page document. Again, your service provider will prepare it. It really is just a summary of the transaction activity that happened for the year. It is required that you provide that back to your participants. I call it kind of a nothing because I don't think anybody looks at it.
I don't think it really says a lot. I don't think it's very helpful. But it is a required regulatory compliance item. So it's very important that you do it. You make note that, you know, when you did it, so that if the DOL were to come back and question you on it, you could. you know, respond to them that yes, I did distribute it.
It was on such and such a date to all the participants. So once that's done, technically you're finished. You're done with the year and, you know, you can get ready for the, the upcoming next year. One other thing, though, I would add on to the list is if you had, go back to those documents we talked about that we said you want to make sure you don't file with the 5500.
So, that final governance memo and your internal control memo if you received documents like that. Read through them. Again, if you have questions, go back to your auditor. If there are things in the governance memo called reportable findings, that means that the auditor either found things that were wrong, there were things that were missing, or they're making a suggestion to improve your processes and controls over the plan.
So you want to consider all those items and take action as you feel necessary and talk to them. Again, ask questions. You know, why did you think this? What could we do better? How could we fix this? Same thing, especially if you get an internal control memo. Those are items that the auditor believes are control issues and probably more significant, and they could lead to problems with the regulators, either the Department of Labor or the IRS.
They could lead to problems with your participants. Ultimately, maybe even a court case if it was serious enough. So definitely don't just, "Nope, there they are." File them and go, you know, go on your merry way. I would definitely look at those. Make sure you're taking action. Again, we've had a lot of people that they've, they have late contributions.
We've told them about it. It's been in those memos. They take no action. The DOL comes in and now they've got a big fine and they're like, "well, I didn't know about this." Well, you did and, and you were notified of it. You just didn't really pay attention. So make sure that you go through those memos. They are important. They're there for a reason.
Karen Hill: Yes. And that's one of my, I don't know if you call it a pet peeve or a trigger.Usually the earnings that you need to submit to correct those late contributions is minimal, especially compared to any fine you might receive. So it really is in your best interest to fix that those types of things because usually the earnings or it's usually just a few days and it's just it's not going to be high.
Just it's not worth the headache that might come if you don't correct it and the DOL sees that it has to be corrected and they end up coming in and looking because they will probably find other things or it just yeah… they're gonna end up with a fine for not correcting and it'll be a big head- just the audit itself will be a headache. Even if they don't really find anything else. Yeah, there's no reason to put yourself through the headache, right?
Kim Moore: Yeah, and the other thing is you need to remember that your audit report is public information, not those memos. Hopefully. Because hopefully you didn't put those on the on the website. But the 5500 and the audit report are public information. Anybody in the world can see them and that includes your participants. So, if you've got a report out there that's saying you had late contributions and had prohibited transactions, we've found that employees, they may be unhappy, and maybe it has nothing to do with the 401k plan.
They're unhappy because they feel like they should have got a raise, or they got passed for promotion, or, you know, their boss isn't treating them very well, or they're not getting the best projects, or whatever it might be. They're just unhappy, and They don't feel they can get very far complaining about that.
But they can go to the DOL or the IRS and say, "Hey, my employer is not handling this plan the way that they should." And if you've got evidence in the audit report of that, you're going to have a hard time defending yourself against those items. And that can trigger a DOL, especially DOL, investigations.
So, I would just be very careful. This whole process sounds like it's kind of a nothing, just sign the thing and, you know, you know, file it and be on your way. But really it is an important component and it's, it's more than a regulatory compliance item. It's, it's important. That plan is important.
It's important to your employees and your participants. So I would, I would pay attention to all of what we said because it will keep you out of trouble and it'll, it'll make sure that you're, you're out of process, you're filing, etc. goes fine and you don't have to deal with regulatory authorities. On that note, Karen, anything else you can think of?
Karen Hill: Not that I can think of, no.
Kim Moore: Okay. Well, we will wish everyone the best of luck as they're finishing up their audits and getting ready to do their filing. And I always like to throw out my email address. It's the letter K then M O O R E at anderscpa. com. Again, K M O O R E at Anders, A N D E R S C P A dot com. Feel free to reach out to me if you have any questions on today's podcast, if you have any ideas for a future podcast, if potentially you need a 401k plan audit or you just like to discuss something about your 401k plan we're here to help at Anders.
We, we like to provide as much information as we can as you move through your 401k plan audit process. So thank you today for listening and we'll catch you next month on next month's podcast.
Narrator: Enjoy this podcast? Visit our website at anderscpa.com/401k to get more tips and strategies for achieving 401k audit success. We're here to be a resource with ever changing rules and regulations.