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How Do You Select a CPA for Your Annual 401(k) Audit?

DWC 01/30/18


With over 100 participants in our 401(k) plan in 2017, we have learned that our plan will now require an audit each plan year from an Independent Qualified Public Accountant (IQPA). This will be the first year the plan is subject to an audit. The idea of beginning this process is daunting and a little unnerving, to say the least!


How do we go about selecting an IQPA for the plan?


Don’t let the word “audit” conjure fear and stress. With upfront diligence in selecting the auditor for your plan, the audit itself can be relatively painless and actually helpful to how you operate your plan.

First, experience matters. While many CPA firms are willing to complete a plan audit, not all CPA firms specialize in this type of work. The summer months tend to be much slower for CPA firms (following the hustle of the April 15th filing deadline) and some firms utilize plan audits as a means of keeping interns and associates busy. While that sounds like good business sense, you should be wary of firms that complete plan audits as simply “summer work” for employees who specialize in other areas rather than treating is as a specialty unto itself. Not only can this create added liability for your company (see below), but it can also make the entire audit more burdensome for you.

There are CPA firms that focus on retirement plan audits to offer clients a streamlined and efficient audit experience. Firms and auditors with a concentration in retirement plan audits work efficiently through the required fieldwork, leverage the appropriate parties to minimize “asks” of you, and offer valuable feedback to improve operations. The CPA firm should be able to provide you with a sample information request, a detailed timeline for fieldwork, and a commitment to when the report will be issued.

Second, the old adage “you get what you pay for” applies here. As with any contractual engagement, there is a benefit to seeking multiple proposals to complete the due diligence of comparing services and related costs.

Given the specialization needed to complete thorough and efficient audits, a reasonable expectation can run upwards of $7,000 - $15,000, depending on the number of participants, investment institutions and recordkeepers, location, and complexity of the plan. What may seem like a deal on the price tag often ends up much more costly in the long run.

Why does all this matter? Beyond just minimizing headaches, it is crucial to hire a qualified auditor to ensure the plan’s Form 5500 filing is accepted. If the Department of Labor determines the audit is deficient, the plan sponsor may be held responsible. Don’t take our word for it; check out this rejection letter from the DOL.

That means that $2,000+ per day penalty is assessed against you (not the auditor) for each day past the deadline it takes to submit a clean audit. Since the DOL has indicated that 40% of the audit reports submitted are deficient in some manner, this is not one of those “it could never happen to me” scenarios.

You’re not in this alone; we have resources to help! As you begin your research, the AICPA provides a listing of Employee Benefit Plan Audit Quality Center member firms on their website. These firms focus on employee benefit plan audits and maintain a current understanding of the ever-changing complex regulations of retirement plans. This list, organized by state, provides a starting point for firms to consider.

In addition, DWC works with several CPA firms to serve mutual client needs and would gladly work with you through this process. Selecting an auditor may seem stressful, but just as we would with other retirement plan needs, DWC is happy to assist in the process of engaging an auditor and ensuring, from fieldwork to financials, that the process is as smooth as possible.

For more information on the Form 5500 and annual audit requirement, please visit our Knowledge Center here and here.

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Topics: Question of the Week (QOTW), Form 5500, IQPA Audit, Fiduciary Duties and Due Diligence


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The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.