Benefits of a data-driven approach to your employee benefit plan audit

By DJ Charley, CPA, and Cole McCabe, CPA

Within many organizations, the annual employee benefit plan (EBP) audit requires a substantial amount of planning and preparation. This is often because of the extra work these audits require and the nuances of navigating a multitude of regulatory requirements.

Typically, human resources and finance departments—that are already strapped for time—are asked to pivot from critical tasks to provide auditors with required documentation. Depending on the organization’s record-keeping practices, this can be a stressful endeavor.

Thankfully, in recent years, a solution has emerged. Now, using a web-based software tool and technology platform, auditors can leverage data that’s readily available in an organization’s existing systems to complete the EBP audit. This data-driven approach not only helps to streamline the audit process but also results in other benefits.

As a firm that has fully embraced this new approach, here are a few benefits we’ve experienced:

Fewer headaches (for busy HR and finance professionals)

Typically, an EBP audit relies heavily on sampling, which means randomly selecting a subset of plan participants or transactions to compare to source documentation. This requires the client to pull source data (i.e., documentation) for these samples, which can be both challenging and time-consuming, especially when it involves a lot of back-and-forth.

With the new data-driven approach, we’re able to use client data that’s already in digital format (many organizations use third-party payroll providers and record keepers that integrate with the web-based EBP tool) to significantly reduce sample sizes and the amount of related source documentation required for the audit.

Whenever possible, we work with our clients to obtain direct access to their service providers’ (primarily recordkeepers’) data, which allows us to independently collect the vast majority of supporting documents and other information required for the audit. In these cases, our clients are able to significantly reduce the amount of time it takes to provide us with information.

Proactively identify compliance issues

When we use the web-based tool to complete an EBP audit, we take an organization’s full population of data and run comparisons between two of its systems (e.g., payroll and record keeper systems). This allows us to provide a greater quality of assurance for the audit, as we aren’t only relying on sampling. This also allows us to identify instances where the data doesn’t line up as it should and helps us focus our audit efforts on clearly identified discrepancies in the plan’s data rather than on randomly sampled transactions.

By capturing and assessing an organization’s full population of plan transactions and data, we are much more likely to identify potential issues and discuss these with our clients. Sometimes these data mismatches can easily be explained. In other instances, however, they may point to a plan error or compliance issue.

Improve compliance efforts

Identifying plan errors and compliance issues during the EBP audit allows our clients to swiftly make the necessary corrections and maintain compliance.

Of course, maintaining compliance allows our clients to avoid penalties and fines from the U.S. Department of Labor (DOL) and the IRS. It also helps to prevent plan errors that could cause participants to miss out on real retirement dollars like investment earnings and bonus deferrals—in other words, real participant dollars.

Explore a more efficient EBP audit experience

If the DOL requires your organization to have an EBP audit for its 401(k) defined contribution plan and this stresses you out, or if you are unhappy with your current audit process, know there could be a better way.

While the web-based EBP tool won’t work for every organization, it is becoming more and more applicable each year.

If you’d like to explore how a data-driven approach to an EBP audit could benefit your organization, contact us today.