… and keep the process from lasting forever.
by jody grunden
as with any service area, it’s important to have a solid process in place. without one, it can be a little bit like the wild west! the 401(k) audit process involves six stages, which are typically completed within four to eight weeks.
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once a prospective client confirms they want summit to complete their audit, we send them the engagement letter and the questionnaires along with the governance planning memo that we’re required to give them.
this is also the point where we begin the payment requesting process. we request 50 percent of the payment before the audit begins, and the remaining half is paid after the audit is complete. we need to receive either the engagement letter back or the first payment in order for the engagement to begin, as those are our indicator that we are officially being hired to complete the audit.
stage 1
next, we conduct a kick-off call with the client. if they are a returning client, we want to discuss any changes to the plan or anything else that might have changed. we’ll also let the client know if anything has changed on our end. if they are a new client, we will talk through the process and let them know the list of items we will need from them.
we then create a collaborative spreadsheet for the client to keep track of the audit progress and all of the items needed, including:
- parties in interest listing
- census
- plan documents
- irs opinion/determination letter
- audit package/trust report
- asset certification
often, we have direct access to the plan website, which allows us to obtain many of the items listed above without having to request them from the client. in the cases where we can’t access these items ourselves, we’ll request them from the client and have them upload the needed documents within our software program.
stage 2
once we have all of the necessary documents, we begin the planning and risk/control assessment stage. we conduct another meeting to discuss control and fraud risks. we also begin collecting the second set of documents needed:
- internal control review
- fraud risk review
- compliance review
- ssae16 reports
- fidelity bond
- discrimination testing
we then begin “walkthroughs,” which are a test of the documentation. the client will have described to us how the plan works on their end when a person becomes eligible to participate, including the controls they have in place. we then walk through the process as a new person who is eligible to participate in order to verify that everything works the way the client described. if we discover any discrepancies, then we need to go back and revisit the reviews that were done earlier in this stage.
stage 3
next is the preparation and testing phase. we’ll assess everything we have at this point and decide which tests we need to conduct. the staff will come together and prepare the samples for those tests, i.e., samples for loans, for distributions, for eligibility, for deferral, etc. we’ll provide those samples back to the client and their provider using the provider’s format when applicable.
we also collect participant statements and other supporting documentation during this stage, and the information collected will vary depending on the situation. for example, we may need copies of the request for the distribution of the loan, a copy of a canceled check showing they received the money, enrollment forms, bank statements, payroll records, etc.
stage 4
once testing is complete, we meet with the client to discuss any questions we may have based on the testing that was done. if any issues were discovered, such as a variance, we collect any follow-up documentation that is needed and resolve all testing issues. the provider then provides the form 5500 draft for our review.
stage 5
once we receive the form 5500 draft, we review it and compare it to the information we have gathered. we then draft the audit report and review or prepare the financial statements, footnotes and supplemental schedule(s). also, a comprehensive review of all the work completed during the audit is completed by a senior staff member. while review is happening throughout the entire process, at this phase we want to be sure we have everything, all of the issues are resolved and there’s nothing left that needs clarification.
as we begin wrapping up the audit, we provide the client with the draft report. we discuss with the client all issues that came up and actions that may be required to ensure the plan remains compliant, the control deficiencies, and any audit differences. we also collect the final payment and the management representation letter – a letter we prepare and give to them for approval and signature. this letter is the client’s acknowledgement that everything they submitted to us is correct to the best of their knowledge, no information was withheld, we’ve worked through any discrepancies that came up, etc.
stage 6
finally, we prepare and deliver the final audit report, including financial statements with footnotes, supplemental schedules and all necessary memos. we send the client a customer satisfaction survey so we can get feedback on how the process felt from the client’s perspective. we then clean up our workpapers and “lock them down” in our audit software program.
our goal is to make the process as smooth as possible and to complete all audits in a timely manner. before we had a good process in place, audits would last forever because clients didn’t have incentive to get things to us in a timely manner. we ended up with a huge push toward the deadline, similar to tax season.
we then started putting mini deadlines in place along the way and creating a stake in the process for the client, which enabled us to wrap up audits on a timelier basis. no more wild west!