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As one quarter winds down, new review requirements and benefit plan audits ramp up

With a new quarter underway and benefit plans ramping up, we want to remind you that our skilled auditors are available to handle all your needs for quarterly reviews and for plan-oriented audits. We also welcome more “evergreen” questions and concerns related to financial documentation processes.

Quarterly reviews

You would engage with one of our auditor professionals to conduct analytic procedures. So, our team can then evaluate that the info in your financial statements is sound. This process provides a level of assurance that the financial statements don’t require “material modifications.” Comparatively speaking, the full audit involves assuring that account balances and disclosures are accurate and complete, corroboration achieved by examining documents, third-party confirmations, inspections and tests of internal controls.

The review sits somewhere between the audit and the compilation, as the latter simply involves the information necessary to present a financial statement. No effort is taken, as is the case with both the review and audit, to verify the accuracy of the numbers. So, the compilation essentially takes the info provided by the client at “face value.” The review takes a deeper dive by “testing” for the validity of the info presented by the client. The audit takes the validation a step further, with considerable testing to corroborate the compilation/statement.

It is important to remember when engaging with your friendly team at OFWF, that the resources and time horizon to complete a compilation, review and audit vary substantially, given the nature of each undertaking. Naturally, the audit takes greater effort and time than the review, whereas the review requires more resources than the relatively straightforward compilation. There are also differences regarding the applications for each; generally, if your business seeks investment of some sort, financing or a loan, those investors and institutions will naturally expect the highest degree of assurance – in the form of an audit. It’s important to get inside of the minds of those parties that may be reviewing the information to determine if they need to “vet” financial performance, cash flows and other indicators.

Leadership guides the process of strategically accomplishing goals and, to do so in a manageable way, the year is broken down into parts. In turn, there is a lot of power behind the quarterly review. It is about more than crossing the “t’s” and dotting the “i’s” from a compliance perspective; these reviews provide valuable, objective, and quantifiable (this isn’t a mere “hunch”) insights into:

  • The overall “state” of your business

  • The current state of the markets, which the business operates within

  • Allows you to a take the “pulse” of various departments, divisions, and units within your organization

When you have third party derived metrics into performance across the business and markets, these reviews represent business intelligence that can then be applied to:

  • Identify progress on given strategies or initiatives

  • Recalibrate priorities

  • Pinpoint new opportunities

  • Unearth areas for improvement

  • Assess and anticipate challenges with concrete actions

  • Retrospectively evaluate achievements, which may be applied to elevate the performance of other areas of the business (to replicate proven successes!)

Benefit plan audits

Before you know it, the deadline to submit Employee Benefit Plan (EBP) audits will be here. Over the next two months, it is vital to get your ducks in a row as it relates to examining the EBP’s financials. It is also vital to choose wisely when it comes to auditors because, in a landmark DOL study, significant deficiencies were reported in almost four of every 10 EBP audits that were examined in a given plan year. So, it is important to have the peace of mind that comes with partnering with a firm that retains specialized personnel with substantive experience in areas such as ESOPs, health plans, and pension plans; that is adept at centralized function to optimize efficiencies; performs testing specific to EBPs, such as contributions, payments, participant data, and prohibited transactions; and maintains vigorous quality controls.

As with other types of audits, examination of the EBP’s financial statement is designed to confirm that your plan complies with relevant laws and regulations. Notably, our auditors dive into your statements to confirm (or question) the plan’s ability to cover benefits and payments now and into the future. A complete and accurate audit is also designed to protect the financial integrity of your EBP and can aid in heightening plan operations. As the EBP requires that various parties work together and communicate, the audit supports the sponsor’s ability to carry out its legal responsibilities. Due to the nature of the audit, there are complexities associated with it that are not present with “standard” audits, which again underscores the importance of scrutinizing your partners and their ability to conduct inquiries and respond in a timely fashion, and to retain quality control.

After all, we are beholden to regulations put forth by the IRS and DOL, laws at both the federal and state levels, and specialized reporting and requirements. This says nothing of the moving parts, which are associated with these layered audits. We pull back the layers on benefit pay-outs, contributions, investment income, admin expenses, participant data, obligations and liabilities, and other items. We are conducting these audits at the height of our busy season. So, we look forward to smooth communication and timely back-and-forth with you and your team. The sooner that we can get the information that we need or request, the faster we can successfully complete a quality and accurate EBP audit (and minimize follow-ups!).

Be aware that generally extensions may be granted to submit required EBP audit information until October. Granted, we are still living in unique times. There are standard changes, for instance, that have been put on hold due to the impact of COVID-19. These represent the biggest changes to EBP audit rules in the past two decades, and include the likes of expanding audit opinions to include detailed listings of audit procedures.

As a full-service auditing and accounting firm, we at O’Donnell, Ficenec, Wills & Ferdig stay on top of the latest regulations and standards related to audits. Contact us sooner rather than later for responsive, quality reviews and audit services.

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