Plan Audit Process & How to Best Prepare for Your Plan Audits to Reduce Cost. Presented by Tom Harrison Joe DeSimon

1. Plan Audit Process & How to Best Prepare for Your Plan Audits to Reduce Cost.Presented byTom HarrisonJoe DeSimone May 25, 2010

2. Types of Employee Benefit Plans • Defined contribution pension plans – A plan that provides an individual account for each participant and provides benefits that are based on (a) amounts contributed to the participant’s account by the employer or employee, (b) investment experience, and (c) any forfeitures allocated to the account, less any administrative expenses charged to the plan. • Defined benefit pension plans – A plan that provides a promise to pay to participants specified benefits that are determinable and based on such factors as age, years of service, and compensation. • Health and welfare plans – A plan that provides benefits such as medical, dental, and other health benefits, disability insurance, severance, etc.

4. Why is an audit required? • Generally, federal law requires employee benefit plans with 100 or more eligible participants to have an audit as part of their annual Form 5500 filings. • Exception - 80/120 Rule - If a plan has between 80 and 120 participants as of the beginning of the plan year, the plan administrator may elect to file the same category of annual report that was filed for the previous plan year. • Smaller plans may also need to have an audit if they do not meet certain conditions to be exempt from the annual audit requirement (i.e., Less than 95% of the plan assets are “qualifying plan assets.”). • Qualifying plan assets include any assets held by a bank, an insurance company, a registered broker-dealer/investment company, and any other organization authorized to act as a trustee.

5. What type of audit is required?

6. Types of Employee Benefit Plan Audits • Full Scope • All areas of plan must be audited with same scrutiny. This includes contributions, investments, benefit payments, plan expenses, etc. • Limited Scope • Allows the plan administrator to instruct the auditor not to perform any auditing procedures with respect to investment information prepared and certified by a bank or similar institution or by an insurance carrier. • SAS 70 Report required to accompany certification of investment information.

7. Why is the choice of an auditor important? • The higher the quality of the plan’s financial statement audit, the more reliable the information used to manage and administer the plan. • A quality auditor will help protect assets and the financial integrity of your employee benefit plan. • A quality auditor will provide suggestions to the plan administrator based on observations during the plan audit.

8. Why is the choice of an auditor important? • A quality auditor can ensure that the necessary funds will be available to pay retirement, health and other personal benefits to your employees. • A quality audit will help you carry out your legal responsibility to file a complete and accurate annual return/report for your plan each year. • An incomplete, inadequate or untimely audit report may result in penalties by the plan’s administrator. • The Department of Labor has listed the State of Ohio as one of the Top 5 states under higher scrutiny due to inadequate audits.

9. Is a plan auditor required to be licensed or certified? • Yes, federal law does require that an auditor engaged for an employee benefit plan audit be licensed or certified as a certified public accountant by a State regulatory authority.

10. Is a plan auditor required to be independent? • Yes, auditors of employee benefit plans should not have any financial interests in the plan or the plan sponsor that would affect their ability to render an objective, unbiased opinion about the financial condition of the plan.

11. Should a plan auditor have experience in auditing employee benefit plans? • Yes, auditors with experience know which tests to perform on employee benefit plans. • The more training and experience that an auditor has with this unique area, the more familiar the auditor will be with practices and operations. • An experienced auditor will also know the special auditing standards and rules that will apply to such plans.

12. Should I request references and check licenses? • You should ask for references from other employee benefit plan clients. • You can verify the provider’s license or certificate to perform auditing services with State regulatory authorities (i.e., Peer Review report). • Is the audit firm a member of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC)?

13. What to expect during the audit process

14. Engagement Letter • A contract prepared by the auditor that describes the audit work to be performed, the timing of the audit, and the fees. • This letter will explain the responsibilities of the auditor and the plan administrator. • Be sure to review this letter and resolve any questions or concerns prior to the engagement.

15. Will I have to furnish or prepare documents for the auditor? • Generally, it is the responsibility of the plan administrator to maintain plan financials or other records. • Many of these records will need to be made available to the auditor for review in the course of the plan audit. • Third party administration can ease this burden of the plan administrator. • See sample of items needed listing we provide to our plan administrators during the planning stage of our audits.

16. Phases of an audit • Planning • Prepare Engagement Letter and Audit Budget • Request Plan Information from Plan Administrator • Review Plan Documentation • Understand the Plan • Engagement Team Discussions • Determine Planning Materiality • Determine Audit Approach and Sample Size • Perform Preliminary Analytical Procedures • Request Items Needed Listing • Schedule Fieldwork

17. Phases of an audit • Fieldwork • Review BOD Minutes related to the Plan • Review SAS 70 Report, if applicable • Review Form 5500 • Perform Audit Procedures • Contributions, Investment Income, Distributions, Loans, Plan Expenses, Participant Data, Etc. • Sampling for Plan Compliance • Other Substantive Tests, if deemed necessary • Confirmations, if deemed necessary

18. Phases of an audit • Fieldwork (continued) • Risk Assessment Standards • In March 2006, the AICPA Auditing Standards Board issued Statement on Auditing Standards (SAS) Nos. 104-111, commonly referred to as the “Risk Assessment Standards” • Tests of Internal Controls • Fraud Inquiries

19. Phases of an audit • Office work • Prepare audit workpapers • Prepare permanent file • Prepare audit programs • Prepare audited financial statements • Prepare disclosure checklist • Make sure Form 5500 is consistent with audited financial statements

20. Phases of an audit • Review Process • Supervisor/In-Charge Review • Engagement Partner Review • Technical Review

21. Phases of an audit • Concluding the Audit • Prepare and deliver SAS 115 Letter • Communicating Internal Control Related Matters Identified in an Audit • Examples of common deficiencies • Obtain Management Representation Letter • Obtain Legal Representation Letter, if necessary • Deliver audited financial statements • Make suggestions to improve internal controls and plan operations, if applicable

22. A thorough audit of an employee benefit plan must consider these unique areas….

23. Whether plan assets covered by the audit have been fairly valued.

24. Whether plan obligations are properly stated and described.

25. Whether contributions to the plan were received on a timely basis.

26. Whether benefit payments were made in accordance with the plan terms.

27. If applicable, whether participant accounts are fairly stated.

28. Whether issues were identified that may impact the plan’s tax status.

29. Whether any transactions prohibited under ERISA were properly identified

30. Questions?

31. Our office is located at: 2055 Crocker Road Suite 300 Westlake, Ohio 44145 (440) 471-0800 tomh@corrigankrause.comjoe@corrigankrause.com