By now, companies who have reached the 80-120 employee benchmark have learned that they will need a 401(k) plan audit this year, but they may not have a solid idea of what steps come next in the process. Director + 401(k) Audit Kim Moore and Manager + 401(k) Karen Hill detail what plan sponsors need to do and when, plus advice on how to make sure you find an auditor qualified to take on highly technical and regulated employee benefit plan audits.
Summit CPA Group has merged with Anders CPAs + Advisors! Visit our website to learn more about our 401(k) process and pricing: https://anderscpa.com/401k-audits/
“But I would caution you if an auditor is…half of all other ones… I would be a little bit suspicious of why are their costs so much less. Maybe they have a valid reason…but at the same time if they’re trying to get into something that they really don’t know what they’re doing, that’s one of the ways that’d be a red flag.”
Topics discussed in this episode include:
Episode resources
Narrator: Welcome to the 401K audit, C P A success show, where we are 100% focused on helping companies across the United States prepare for their 401k audit. If you have 100 eligible participants in your 401(k) plan, then this podcast is for you.
Kim Moore: Welcome, everyone. My name is Kim Moore. I'm the audit director here at Summit, which is a division of Anders CPAs and Advisors.
I have Karen Hill with me today. She's the audit manager on our team and I'm the audit director. Our team pretty much focuses almost exclusively on 401(k) plan audits. So hopefully you joined us today, maybe because you need a 401(k) plan audit. You just found out you need one. Or maybe you're looking to see if there are other auditor options out there.
If you've had a 401(k) plan audit before today's podcast we're gonna talk about what happens if you just found out you need a 401(k) plan audit. We thought this topic would be timely because usually folks that have not had an audit before they find out usually around between the February and April timeframe from their record keeper or TPA.
They're gonna get a notification that. You know, they've gone over the limit. We're gonna talk about that here in a minute. But that they qualify now for a 401(k) plan audit. So we thought this would be a good, timely topic given that a lot of folks may be running into this here over the next few months. So that's where we're gonna kind of spend our time today.
Some of this we've talked on previous podcasts and we've certainly done a blog posts about this as well. But we thought good, good, timely topic, given that this is gonna be coming up. Let me also throw out at the beginning here my email. It's a letter K, then Moore, m o o r e, anders cpa.com.
Feel free to email me and I'll, I'll throw that out at the end of the podcast too. But feel free to email me if you have any questions or you have interest in this area, or if you have a suggestion for a future podcast. We'd always like to hear from our listeners and discuss topics that would be of interest to you.
So, with that, we're gonna get started. So Karen, I'm a plan sponsor. I've just been running my audit or my, I'm running my 401(k) plan. Everything's fine, going along. And what, what might cause me to need an audit?
Karen Hill: Well, first you need to, it, it, it's based on the number of eligible participants. And that has to be as of the beginning of the plan year.
So for calendar plan years that end December 31st, you would look at January 1st data for that year.You need, it's a hundred more eligible participants. What eligible means in, it's not people who are just deferring. It's those that are, that are deferring, those that are terminated and are still in the plan, and those that are eligible but not participating in the plan.
So it encompasses all of those people. You might wanna check with your TPA to see if you have one, but generally also, I'm sorry, I'm gonna backtrack a little bit. On this 100 participants, there is an 80- 20 rule. Basically, the 80 part, you might need to help me with a little bit, Kim, but I know if you've never, if you filed a short form in the past and have continued to file a short form, you can continue to file that short form, which means you don't need an audit until you go over 120 participants.
And this is so, you're not bouncing between an audit and not an audit, you know, every single year. I believe what the 80, and you'll have to correct me if, if I'm wrong cause I haven't seen this quite as much, is if you have been, ha you did have an audit and you go under the 100, you should wait till you go get below 80 to stop.
Kim Moore: Right. That's, that's what the rules say. And, and I mean, you're absolutely right. It's, um, it's meant so that people aren't bouncing back and forth because you, you know, you could have, envision a business that has a lot of turnover and just because it's measured on that first day, you know, you could have a, a fluctuation of 20-30 employees between a, a couple of days, especially if you hire a lot.
A lot of companies like to hire people at the very beginning of the year. So I, it, I mean, it just, just the way it works, it could cause a lot of fluctuation. So yeah, that's the way it's supposed to work is that if you're between the 100 and 120, if you filed a short form last year and didn't need an audit, you can keep doing that until you go over the 120.
Conversely, if you did an audit last year, so you were over that limit in the prior year, and all of a sudden you dropped down, you're supposed to continue doing an audit until you get below the 80 participants. What we tend to see though is the, the first part is, is crucial. You know, you don't want someone doing an audit when they have 115 if they don't need to.
But typically once people drop below a hundred, then they just, they don't do the audits anymore. Yeah. But it's really meant so you don't bounce back and forth.
Karen Hill: Right. Right.
Kim Moore: So that if, if one year you had, you know, maybe you did a layoff and, but you're gonna bring 'em right back. You know, they don't want you like laying off people on January 1st, so you don't need an audit and you hire 'em all back January 2nd. That's, you know, I dunno why anybody would do that. That would be crazy. But that's, that's the intent of, of what the, the rule is for. So yeah, so it's it's all based on eligible people. It is based on January 1st or the first day of the plan year, as Karen mentioned.
So we get people that they say, well, you know, January 3rd, I didn't have that many people. You know, it doesn't matter. It doesn't matter what happens later in the year. Unfortunately it's all based on January 1st, cuz we have people all the time that will come back and maybe they're terminating the plan and they terminate the plan in February. Well, if you had over that hundred or 120 on January 1st.
Karen Hill: Yeah.
Kim Moore: You know, you, you still have to have the audit even though it's only gonna cover maybe a couple of months. And we mentioned that it's the first day of the plan year. So if your plan year is not a calendar year, isn't January to December, obviously you'd have to adjust for whatever your plan year is.
And the other thing I would just say is this isn't optional. It isn't, you know, we kind of talk about, oh, you get to have an audit now, but, I mean, you HAVE to have an audit now. The, the DOL does checks.
When you file your 5500, it goes into a system called EFAST, which is an obviously an automated system.
And they will run checks against EFAST after the major deadlines. And they look for plans that fit into what we just talked about and don't have an audit, and they will send you, they started this last year sending an email notice saying, "Hey, you know, we noticed we're due to have an audit and we didn't see an audit report attached."
But eventually if you don't, you don't respond to that or you don't get the audit completed there, you're gonna get, we, we like to call 'em nasty grams from the DOL, but I mean, it's an official letter. It'll be certified and it'll say, you know, "You didn't complete your audit. You have 45 days to fix that."
And then after that, if it's not completed in those 45 days, then within 30 days they will send you a penalty letter. So do you have a little bit of time, but not a lot. I mean, that wouldn't, if you had not even obtained an auditor and that, and you got to that point, um, you're gonna have a tough time, you know, securing an auditor and getting through, especially a first time audit.
Don't look at this as, "Well, I can put it off and when I get to, it'll-" Don't look at it that way cuz that could cost you a lot of money.
Karen Hill: Yes.
Kim Moore: To do that. So if I hit this amount of participants and so now I need an auditor. Very first thing you should probably try and do is find an auditor.
Karen Hill: Find an auditor.
Kim Moore: I mean, that just kinda makes sense. And we suggest that you start as early as you can for a couple of reasons. One, you wanna leave yourself time to do some due diligence about the auditors. We're gonna talk about that next, what kinds of things should you consider. But also, you wanna leave yourself time. Depending on when you're doing this, audit firms do a variety of of types of audits. They may only have a short time that they can fit 401(k) audits in, and they only have so many staff. They can't expand their staff really quickly. So you might call around several places and they don't have any room on their schedule for you.
So the earlier you start, obviously it gives you longer to find people, but it also gives you more bandwidth that if you, if you need to call 10 before you find somebody, you have the opportunity to, to be able to reach out. The later you get in the year, the harder it's gonna be to find anybody that can do the audit, let alone one that meets the criteria that we're gonna talk about next.
So, I would definitely encourage you start early.
Karen Hill: Yes. Plus if you, the earlier that you start, the earlier you can get on their schedule and maybe be able to more easily align up their schedule with yours, what works with you. Because if you call later, and they can only do it if they're, you know, a brick and mortar CPA firm is gonna come out, which is, you know, one of the things we'll talk about later, but if they're gonna come out to your site and the only week that they can do it is a week that you have vacation because you waited...
Kim Moore: Yeah.
Karen Hill: So yeah.
Kim Moore: You're not, probably not going on vacation. That's probably what's gonna happen.
Karen Hill: Yeah, you're probably going to have to switch it.
Kim Moore: You're gonna have to find somebody to cover you.
Karen Hill: Yeah. Or something.
Kim Moore: Yeah.
Karen Hill: Um, so yes. Or that's the other other reason to do it is because the earlier you get on their schedule, that you get in their ear and they have more room on their schedule, the easier it'll be to align your schedules up.
Kim Moore: Yeah, and I, I know from past experience here, when we get new clients, if we get them earlier, those odd, I mean, you know, you can imagine the first time audit: the auditor is new, plus you don't know the process and, and there's a lot to go through that first year that you won't. The second, third, fourth year, you don't have to go through all of that. But that first year, it's, there's a lot to it.
And you don't wanna, you wanna leave plenty of time to work through all these things because you, you know, you don't know what kind of documentation you're gonna need. You may have to search through things. So it, it just behooves you to start early. This is not something you wanna mess around with, cuz the fines can be pretty hefty. So definitely get, get started.
So I, I've listened to your advice and I need an audit and I need to go find an auditor. So, what kinds of things should I think about as I'm out here searching for audit firms?
Karen Hill: You wanna know what kind of experience they have. What kind of audits do they do? What experience do they have with employee benefit plan audits?
Um, how many of them do they do? What types do they do? Because, uh, if you have a 401k plan, and usually if they do other kinds of benefit plans, they're gonna have experience with 401K plans, but you wanna make sure that they, if you have, maybe, maybe you have something else that's different. Maybe you have the 401k and you have something else that also needs to be audited.
Make sure they have experience with that as well. You wanna ask how many, because you wanna make sure that they understand all those idiosyncrasies that come along with the audits of the, of the employee benefit plans. I can tell you from working from different firms, I've worked for larger firms that did fewer plans.
And just the more that you're doing a 401k plan, the auditor just understands the, the different things that are going on. How many years experience do they have with the plans, uh, auditing plans? What percentage of their work is employee benefit plans? For a lot of firms, it's a very, very small percent of, of their work.
So you're not sure how much of a priority that will make your audit. And you also wanna know who's gonna actually work on the audit. What's the staff gonna look at it? Like, is there gonna be one person coming out? Will there be two or three people coming out to your location? How much experience did they have?
The AICPA also, they have a portion, uh, on their website. They. . Well, it's actually a, I'm not sure exactly what to call it, so you can help me maybe with that. But it's employee-
Kim Moore: It's a, it's a voluntary group.
Karen Hill: Yeah. Employee benefits-
Kim Moore: That specializes -
Karen Hill: Yes.
Kim Moore: -in benefit,
Karen Hill: Employee benefit plan audit quality center.
So you wanna know if they're a member of that, because the, the center, it does a lot of it, it, it can give you sample documentation, sample work papers lets you know when there's changes that have occurred and helps the audit auditor best document those, make sure that the, the auditor's doing what they need to do.
So if they are, if they're a member, how do they use the information on there? Do they read the information? I mean, there are some firms, I'm sure out there that are members to say that they're members, and then don't ever look at, at any of the information that's out there.
Kim Moore: Yeah, sure. I'm sure there probably is.
Karen Hill: And then you also-
Kim Moore: And also training.
Karen Hill: Yeah, I was gonna get to that next.
Kim Moore: There's a lot of training. Oh ok. There's a lot of training they provide. So.
Karen Hill: Well, I was gonna say, you wanna, that was a question you wanna ask is how much training do, do the staff have now? It is required, the partners have eight, I believe it's eight hours every year.
Kim Moore: Mm-hmm.
Karen Hill: There's no other requirement for the staff on there, but a lot of firms, like our firm, we have consider, everybody on our staff usually gets at least 20 hours of training on employee benefit plans every single year. So you wanna know, I mean, that's probably excessive, but if everybody has, you wanna make sure that the staff that's gonna be working is trained in some way on employee benefit plans because things are very, very…
Kim Moore: Yeah.
Karen Hill: They're just, they're, they're different.
Kim Moore: Mm-hmm. Yeah. The benefit plan. I mean, I think a lot of people will call around and, and say, you know, "do you have audit experience? You have auditors?"
Karen Hill: Mm-hmm.
Kim Moore: "Do you do audits?" You know, that kinda thing. And there's a lot of different kinds of audits. If you don't work in this space, to you an audit's probably an audit, but they're not all the same. And there, this is a very technical, regulated area. And it's important that your auditor understands all of those nuances in the benefit plan space versus just a generalist auditor.It's not to say that auditor's not good. I mean, and they know the rules, but they don't know the specifics for a benefit plan.
Karen Hill: Mm-hmm.
Kim Moore: You know, and we always, and it, this is funny, when we go to those conferences that we talked about from the quality center. The Department of Labor always has staff, well, it's actually management, senior management from the Department of Labor there. And they always remind us that the reason that they want these audits is because there's, these are people's retirement funds.
Karen Hill: Mm-hmm.
Kim Moore: And so it's very important that, not that, you know, you can, not every plan is audited, obviously, and you're not gonna test every single dollar going into every plan, but they feel like it's a good way for these plans to get looked at and make sure that they have good policies and procedures in place to watch over those funds and make sure that they're, they're being taken care of the way that they're supposed to.
So, so all of that really factors into it. And you just may be wondering, so how do I, how do I even find an auditor? I mean, okay, I got, I'm gonna ask him all these questions, but how do I, how do I find an auditor or not? I'd suggest a couple of things.
First off, you know, check with your finance area, your CFO. If you're listening to this and you work in the benefit area, you work in HR, you work in payroll, and you've just found out about this audit need, I would go check with your finance area and see, you may already have an auditor that does other things and you just may not know about it yet. So I'd check that first.
Cuz if they're already in there doing work, you know, if, if they meet all these criteria you just talked about, that would probably be your best bet.
Karen Hill: Mm-hmm.
Kim Moore: If they, if you don't have such a, a, a need, so you don't really have an auditor on staff. You, you know, you can do a couple of things. Again, I would, I would suggest talking to your finance area because they may have connections with local auditors.
If, if that's the route you wanna go, is someone local, someone who can come to your office and kind of walk you through it. They may know of some folks in town that do this, or they may know of a way to get in touch with some, you know, they might belong to a group, where there would be auditors. The other thing, you know, we, we get people all time that just Google 401k plan audit.
That's how they end up coming to us because we show up high in the, in the hierarchy when you do that. We do our audit remotely. We don't come to the office of the clients that we're auditing.
We have clients all over the country and we find for the 401k plan audits, it works really well doing them remotely because a lot of what you're auditing isn't at that location anyways. You know, the assets are in mutual funds that are igitally held. They're not sitting there. It's not like we gotta come and count certificates or anything anymore. So it it. Most of the information is not there, and what we do need from that location, we can get electronically. So that's how we choose to do the audits.
That may work well for you If, you know, you're, you don't really want somebody to come to your office. There's a lot of companies, they're, they don't have a location anymore. They're, um, they're like us. They're, they, they work remotely as well. So that, that would work in those situations. Or maybe you just don't want to host someone in your office for a set period of time.
You wanna do the audit over a little bit longer period. You wanna have a little bit more flexibility about when you're providing information. Those situations work well for a virtual firm. Situations where it doesn't work is if you are very time constrained, you have to get it done in a certain time period. That could pose a problem.
And the biggest thing is if you're. If everything's paper
Karen Hill: Mm-hmm.
Kim Moore: That's gonna be a problem cuz you're gonna have to scan all that paper in for an electronic firm. So I, I don't recommend if everything's paper that you go this route. I don't think that's probably your best option. Talk to your finance area.
If you have an auditor, you might wanna check there. If not, they may be able to find you. One. You can always Google, do Google search.
Karen Hill: Mm-hmm.
Kim Moore: You'll see there's a lot of firms that are like us that do them virtually. And the other thing, Karen mentioned this. It's called the AICPA. So if you actually put an A I C P A into your Google, you'll, you'll get to the website.
It's the American Institute of Certified Public Accountants. It's the body that, that we all belong to if you're actually a, a licensed CPA. And that's a national organization covers the entire country. So google that and then look for what's called the Employee Benefit Plan Audit Quality Center.
It's E B P A Q C. And in, once you get in there and, and anybody can search on for what I'm gonna talk about next, you don't have to be a CPA, you don't have to be a member of this organization. It's open to the public. But they have a listing of all of the firms that belong to the Quality Center. And so, you know, you would know that those firms do these kinds of audits. They wouldn't belong to this organization if they didn't do these kind of audits. And most of them are, are very open to taking on new work.
So look for your state if, you know, if you wanna have somebody local. Or it doesn't matter if you just wanna just get anybody. But you can look on there and it'll give you the name of the, of the contact person and, and then you can go directly to that person at that firm.
And that would be another, another way to go and that would help, you would answer some of these questions we just went through. You would know that they're a member of, of this group. And so, you know, you, you wouldn't have to go into depth on that. So that, that's how I would kind of try to find an auditor to get started.
Another question that we always encourage people to ask is how long, how long you think this audit is gonna take? So I'm talking to the prospective auditor and you want them to let you know how long is it gonna take? And when, you know, what's the timing look like for the audit? As Karen mentioned, Some firms may say, sure, I'd be happy to take your audit, but I can only do it at this timeframe because I'm already booked up all the rest of the time.
Or the audit is for calendar year plans. The first due date for these audits is the end of July. Most record keepers or TPAs will automatically extend that for you until October 15th, but there's no extensions beyond that. So if the auditor says, "Hey, love to help you, I can get started the end of October," you know, that's great, but already you've missed the timeline.
So you wanna be careful. What the timing looks like, when they can do it, how long is it gonna take? You know, and that, that's something that you can differentiate audit firms with as well. Cuz if somebody says, sure, I'd love to do the audit, it's gonna take three months versus somebody that's gonna say it's gonna take less time then obviously.
Karen Hill: Mm-hmm.
Kim Moore: You know, you're gonna use that in your decision making. And also the, just the timing that it's gonna work for you. You know, that you don't wanna schedule it. Some firms or companies, they're, they're busy at certain times of the year, and so they, maybe they wanna do the audit early or they wanna do it later because they have other things going on.
Or, you know, you may have a big system project that's coming up and you know, I'm gonna, I've already got all my. Regular work, plus I gotta work on this system project. And so boy, taking on an audit, that's gonna be really tough. You know, try, just think about that. Especially if you've got somebody that's gonna go on maternity leave or they're gonna be out with a, you know, extended vacation.
Karen Hill: That has happened. I've had clients who usually they always do the audit this timeframe, but you know, one year they'll call and say, "Hey, this person's pregnant. Wanna get it done before she, she has her baby." So they move everything up.
Kim Moore: Or, or we have to, or we have to delay it.
Karen Hill: Yes.
Kim Moore: Because they're off on maternity leave and won't be back until a certain time. And then I mentioned this due date, so. You know, again, stop and think.
It's your first audit, so you don't really know what to expect. We encourage people to try to book it as early as you can just to give yourself time. And remember you got those July versus October deadlines, no extension beyond that.
So you wanna make sure you, that you're planning that into your timing as well and with the auditor. So if, if you sit down and you figure out, well, the only times I can do it is here, and then you talk to the auditor and maybe that's not gonna work, then, um, you know, you have to talk to somebody else. So the timing is really important because as I mentioned, you got that end of July, and then you can go to October 15th. That's fine. That doesn't cost you anything.
Karen Hill: Mm-hmm.
Kim Moore: That extension is free and it, it, I call it kind of an automatic extension. It's not automatic. You do have to do the actual filing, but they don't pick and choose who they give it to or anything. It, it, it is next to automatic, but beyond that, there's no extension.
And if, if you start hitting those DOL letters that I mentioned earlier, we've seen people getting fines of $50 - $60,000 for one year, one plan audit. So it's significant dollars if you're missing these deadlines. So that's why the timing is, is really crucial for these.
I know. Karen, another thing that we always encourage people to talk about is audit procedures.
You know, this is a compliance audit and people look at it as a commodity. You know, all audit firms are the same and they. We all work to the same standards.
Karen Hill: Right.
Kim Moore: But how you work with the audit firm is gonna be different. And you might find a firm that can do your audit and pricing is good, and we're gonna come back pricing in a minute, but timing is good, but they're very difficult to work with
So, what are the, what are the things that you think we should consider as you're talking to the auditor about their procedures?
Karen Hill: Well, first of all, you need to know if the auditor's gonna come on site or if they can work remote. If you have a company where you have a work site someplace, a conference room, a cubicle someplace where they can actually set up, then you know that, that might not be an issue.
However, there are more and more companies where people are working out of their homes. Most people are remote. So maybe having a remote audit in that case would be beneficial for you. And then, you know, maybe, maybe it doesn't matter, but you know, that's one of the things you need to know because if they come out on site, they're gonna be there probably for a week at a time. It's just gonna be a block of time that they're out there. Whereas remotely, it'll probably, it'll take place over a, a little bit longer period of time and there'll be some back and forth. And part of that will be because there's gonna be information that, that they're gonna ask for that you're gonna need to pro provide.
And since they're not there, you're gonna have to provide it online. Hopefully they have a secure way for you to provide that information, cuz the kind of information that they're gonna need is payroll records. We always ask, cuz we have, you have, one of the things we have to check is hire dates, birth dates and those sort of things.
So, we always ask for I9s, and that's gonna have some information on that, that you don't want to be easily obtainable to somebody who's, you know... you don't wanna email that kind of information. So you wanna make sure that they have a way that you can upload the information. So you just wanna make sure all that's secure.
Then how do they conduct the audit? Like, what's the process? So for us, our process is that we usually, once we send out the engagement letter and you return it, we assign a, a staff member to the audit and they will set up a, a time to have a scheduling meeting. And that's usually about a half hour, 45 minutes, depending. If you're a new client, I would plan on that, that would go a little bit longer to discuss the audit with you, to get some basic information, kind of let you know what's going on, what the process will be. You know, hopefully you, you can have some, something like that with whatever auditor that you choose, that they'll have an idea of what the process is as far as when will you provide the information that's requested.
When will the information be requested? Once it's requested, how long do I have to provide it to you? Especially if you're remote. If they're on site, once they ask the, the request, the information, they're gonna want it pretty immediately. If it's remote, you know, maybe they'll give you a list and you have a week to, to upload on the information that you.
Kim Moore: Yeah, it's a little, you have a little bit more flexibility with someone remote. If you've never had an audit of any kind before, when the, when the auditors come on site, they're gonna give you a list ahead of time.
Karen Hill: Mm-hmm.
Kim Moore: Of, I need these 20 or 30 things and, and it'll be pretty specific stuff. And the expectation is when they walk in...
Karen Hill: It needs to be there.
Kim Moore: ...that Monday morning or whatever it is, you know, it's gonna be all sitting in the conference room, on the conference room table ready to go for them. They're, they're not expecting to get there on Monday and then give you a list.
Karen Hill: Right.
Kim Moore: And then Wednesday you deliver the information.
Karen Hill: Right.
Kim Moore: It's not to say they can't be flexible, but, but the expectation is we get in, we get the stuff done, and we get out and we go to another client. So you, you, you just lose some flexibility that way.
Karen Hill: Mm-hmm.
Kim Moore: Versus remote.
Karen Hill: And, and then, you know, once they get in and start doing the testing, they may realize that they need additional information.
So they're gonna ask you to provide that. And at that point they're on site. And unless you want things to keep just lingering, you need to provide that pretty quickly.
Kim Moore: Yeah. They, I mean, their expectation is we're here to get this done.
Karen Hill: Right.
Kim Moore: And you, you know, you, I, I don't wanna say you need to drop everything. It's not like you can't do other work while they're there, cuz they are gonna be working on things in the conference room, but you know, they're gonna come. as Karen mentioned and said, Hey, I need this stuff. And they want you to then at that point, then drop everything and you gotta go do that. So, you know, it just depends on your, what your work pattern is like.
I mean, maybe that's fine. Maybe you'd rather have them come in, you just dedicate a week and then it's done and you move on. But some people just, they can't do that. They're just, their commitments just don't allow for that. And so again, you just wanna, those are all conversations you need to have with the auditor and make sure there's no misunderstanding.
So that you think it's gonna work one way and instead it works a different way. And I, you know, the confidentiality of information is critical. And even if the auditor is gonna come on site, they will still ask you for things to be sent to them ahead of time. So regardless of this onsite versus remote...
Karen Hill: Mm-hmm.
Kim Moore: You wanna make sure that the auditor has a mechanism for you to provide the information to them and, and vice versa for the auditor to provide information to you in a confidential way.
Karen Hill: Mm-hmm.
Kim Moore: So that, that, you know, the last thing you want is everybody's social security number-
Karen Hill: Right. Right.
Kim Moore: -gets leaked and, and now you've got this breach you gotta deal with.
Karen Hill: Mm-hmm.
Kim Moore: So you wanna be careful and you wanna make sure that your auditor has good document retention, but also document destruction so that, you know, we're, we're not sitting here with paper. We, it's electronic, but that, you know, there's a process to get rid of it when you don't need it any longer.
So, those are all things you just wanna talk to your auditor about and make sure that you are comfortable with, with how they're gonna handle your information. Last thing I had on the list was pricing. And we've said this in, I don't know how many multiple podcasts and blogs and everything else over the years.
My experience, when people find out they need an audit, a lot of times they're very surprised because they didn't even know that was a potential. Nobody ever told them that if you get big enough, you're gonna need an audit of this plan. And it's, as we said, not optional. You have to do it. And they're very expensive.
Audits are not, you know, 50, $60, I mean, you're talking tens of thousands of dollars potentially. So one of the first things everybody goes to is how much is it gonna cost? And while we know cost is important, and obviously you wanna find out how much you're gonna have to pay for the audit, and that's gonna be one of the questions that you wanna ask. It's like anything else. You kind of get what you pay for.
And the other thing I hear from people is, I just need this "audit" that, air quotes, I don't know what it is. I don't care. Just gimme the thing and let me move on. They, they think it's the same for everybody. And the reality is the Department of Labor holds the plan responsible for not only having an audit completed, but having the audit fulfill all the requirements that it needs to, for the audit. That all of the different aspects that needed tested were tested. That the audit report includes all the information it's supposed to. There are things called footnote disclosures in the back.
So if your auditor gives you a report, it doesn't have any, there's no words, it's just a bunch of numbers. That's not a complete audit, and, and that will get you in. The DOL will, I mean, they can do things about the auditor, but the, the basic, um, problem's gonna be with, with you as the plan sponsor that you didn't get a qualified auditor.
Now, I, I know it's a, it's a tough area because, you know, you may not know anything about auditing, and if you've never had one before, you may be sitting there saying, well, how in the world would I know if you're qualified or not? I mean, if, if I asked all those questions and they all came back with good answers, what else can I do?
But I would just caution you if an auditor is, you know, you're, you, you go and talk to 2, 3, 5 or six people and one comes back with a quote, that's half of all the other ones... I would be a little bit suspicious of why are they, you know, why is their costs so much less? If it was me, I would certainly ask, you know, “Hey, I went out and I talked to all these people and they're all up in this range and you're way down here. Why is that?”
Maybe they have a valid reason, you know, maybe they have a, a ton of experience and they know what they're doing and they're just trying to get started, and they're willing to lose money on your job to get started. That's not your problem. You know, it's not your job to make sure that the auditor makes money. But at the same time, if, if they're trying to get into something that they really don't know what they're doing, that, that's one of the ways that'd be a red flag.
Now, you know, if you talk to three or four people and they're all pretty much same price and you wanna go with the least one of the bunch. There's probably nothing wrong with that. But we just encourage people, and I know this sounds like, you know, I'm, I'm saying this because we get paid based on obviously what the pricing is, but you know, just be careful.
There can be repercussions if the audit doesn't get done and it, and if it doesn't get done well. If they don't cover everything that they're supposed to. You're the one that's gonna pay the penalty for that more than the auditor. Not to say that the auditor won't have, you know, some things happen to them, but, but ultimately that's gonna be your responsibility.
And it is your fiduciary responsibility to make sure the audit is done and it's done the way that it's supposed to.
Karen Hill: Mm-hmm.
Kim Moore: So, pricing's not everything. You know, consider that in your, in your but, you know, it shouldn't be, shouldn't be the be all, end all of your decision. The other thing around pricing, I always try to stress with people two things:
How do they bill? How do they price? Here we used fixed fee for all of our engagements, so you'll know upfront how much the audit is gonna cost you. And each year subsequent to that, you're gonna know before we, we are engaged to actually do the audit. So you're gonna know upfront. It's, it's not an estimate. It's not, "Well, I think it'll be a range between here and here.
It just kind of depends on how long it takes us." We always say, you know, if we're totally inefficient and it takes us double amount of time, than it should to get an audit done, you shouldn't have to pay for that. That should be on us. So, we give you what we've considered to be a fair price for the work that needs to be done.
We do this all year long, so we are very knowledgeable about the requirements and making sure that we meet those, we give you a fair price and then that's it, you know, and if it just takes us longer, well that's on us. That's not on you. But not all firms work that way. Some do give an estimate, some give you a range.
Some will just progress bill. And if it takes 'em three months and they're working on it off and on all those three months, that's gonna be a pretty hefty bill at the end. And once you're into it, it's very difficult to say, "you know, I've had enough of this, I'm gonna go get somebody else." You're not gonna get that money back either, so you wanna be careful as you're talking to 'em.
It isn't just what's your price in a dollar amount, but how do they bill how. How do they come up with their price.
Karen Hill: Often too. Sometimes if they do a range or a progress bill or, um, an estimate, they might have something else in the engagement letter that'll say something about travel and incidentals.
So you wanna make sure if that, if you see that, that you ask about that as well. How much, because it could, you know, it could be that one firm charges a little more, but then you're not gonna have to pay for the travel incidentals. And the other one, maybe it's a little less, but when you add that onto it, it's gonna end up being more.
And if that was, if everything else was equal and you're just basically, you know, just looking down to price at that point, you kind of wanna make sure that you have everything included when you're considering that.
Kim Moore: Yeah, absolutely. I mean, I think a good question, and I get asked this all the time, so, you know, what, what else is there that you're not telling me? What else are you gonna bill me for that you didn't include in that?
In our case, nothing. But you know, that, that may not always be true. You also wanna ask what are the payment mechanisms? How do I pay this? Is it so much a month? Is it, you know, I can't imagine anybody saying I pay it all at the end, but I, I suppose that's possible.
We offer a couple of different options here. But there's, you know, there's other ways of doing it, but just depending on your company and how your accounts payable function works, you know, you may wanna check out, do they have a, a payment option that works for you. You know, maybe you don't wanna pay it all at once in one lump sum.
So, you know, can they accommodate that? Maybe you just wanna pay it and get it done. You know, can they accommodate that? So again, I would, I would ask that question. How does the payment work? How do I do it? And make sure that that's gonna work with your company as well. Cuz, cuz that that can be important.
And when you're getting down to the wire and you know, you gotta get your audit finished so you can get it filed on time. You don't wanna be running into, well I need to mail you check and it's gonna take two weeks to get there and I need the report tomorrow. You know that, that's gonna be a problem. So, so anyways, be careful with that.
Karen, anything else you can, you can think of that we didn't talk about?
Karen Hill: I don't think so.
Kim Moore: Okay. All righty. Well, I can't think of anything either. I'm gonna give you my email address again. It's the letter K and then Moore, m o o r e, at Anders with an s cpa.com. Feel free to shoot me an email if something in this podcast piqued your interest or you have a suggestion for a future podcast. We'd love to hear from you.
Otherwise, if, if you listen to this a month from now and you've just found out you need an audit, feel free to reach out and we'd be happy to have a discussion with you. Thanks for listening and we'll talk to you next month.
Narrator
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