Employee Benefit Plan Audit Quality Center

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Employee Benefit Plan Audit Quality Center

• Audit Managers and In-Charges Planning for 2006
  EBP Audit Season Live Forum
• April 26, 2006
•  

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Welcome and Introduction

• Ian MacKay, CPA Director
• AICPA Employee Benefit Plan Audit Quality Center

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Introduction

• First audit preparedness forum for managers and
  in-charges of ERISA audits
• Your role is important
• EBPAQC
• Milestones
• Background and purpose
• Center making a demonstrable difference in
  quality

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Forum Objectives

• Prepare you to plan and perform 2006 ERISA audits
• Provide you with information on how to use the
  Center resources
• Discuss key issues in auditing employee benefit
  plans
• Highlight new Center tools and resources

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Participants will have the opportunity to ask
questions

• Submit questions at any time during the live
  forum to the
• EBPAQC mailbox at ebpaqc_at_aicpa.org

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Discussion Leaders

• Anita Baker, CPA Erica OMalley,
  CPA
• Principal Partner
• Larson, Allen, Weishair
  Grant Thornton, LLP Co.

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Overview

• Why quality EBP audits are important
• Planning your EBP audits
• Best practices audit approach and procedures
• About the Center
• Center and other resources
• Q A session

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Why Quality EBP Audits are Important

• Helps protect the financial integrity of plans
• Produces more reliable information for managing
  the plan and preparing participant disclosures
• DOL relies on CPA audits
• Required by law
• Contributes to sound pension and retirement
  security system

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Preparing For Your EBP Audit Season

• Get involved in your firms annual internal
  inspection process
• Read and familiarize yourself with your firms
  quality control policies and procedures with
  respect to EBP audits
• Be aware that your audit work papers could be
  selected for review during
• Firms internal inspection
• External peer review
• Department of Labor work paper review
• PCAOB review, if an 11-k audit
• Review your EBP training needs and opportunities

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Preparing For Your EBP Audit Season

• Become familiar with common audit deficiencies
• Review and read
• Updated AICPA Audit and Accounting Guide
• Current AICPA Audit Risk Alert
• Make sure you have the most current tools
  and resources
• Be sure to read the most current plan
• documents (includes plan amendments
  and service agreements)
• Review new audit, accounting and DOL
• requirements

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New Reporting DevelopmentsAICPA

• Issued in September 2005
• TPA 6930.09, Accounting and Disclosure
  Requirements for Single-Employer Employee Benefit
  Plans Related to the Medicare Prescription Drug,
  Improvement and Modernization Act of 2003
• Available at http//www.aicpa.org/download/acctstd
  /FINAL_Medicare_TPA_6930.09.pdf
• TPA 6930.10, Accounting and Disclosure
  Requirements for Multiemployer Employee Benefit
  Plans Related to the Medicare Prescription Drug,
  Improvement and Modernization Act of 2003
• Available at http//www.aicpa.org/download/acctstd
  /FINAL_Medicare_TPA_6930.10.pdf

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New Accounting and Reporting RequirementsFASB

• On the Near Horizon
• FASB Staff Position (FSP) SOP 94-4-1, Reporting
  of Fully Benefit-Responsive Investment Contracts
  Held by Defined-Contribution Health and Welfare
  and Pension Plans
• Effective for periods ending after December 15,
  2006
• Retroactive application when comparative
  statements are presented (e.g.- 2006/2005 plan
  years presented)
• Available at http//www.fasb.org/fasb_staff_positi
  ons/fsp_aag_inv-1sop_94-4-1.pdf

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New Regulatory DevelopmentsDOL

• 2005 Form 5500 Schedule changes
• Schedule T no longer required
• Schedule As instructions include updated
  guidance on reporting insurance fees and
  commissions
• Schedule B instructions changes to improve
  reporting

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New Regulatory DevelopmentsPCAOB

• Effective for 2005 plan year reporting (11-K
  Audits)
• Audit Documentation (AS No. 3) effective for
  periods ending after November 15, 2004
• Reporting on Whether a Previously Reported
  Material Weakness Continues to Exist (AS No. 4)
  effective as of February 6, 2006

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Audit Challenges and Common Deficiencies

• Related parties/prohibited transactions
• SAS No. 70 and internal controls
• Investments
• Limited scope
• Full scope
• Participant data
• Contributions
• Benefit payments

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Related Parties/Prohibited Transactions

• Trick question Are there any parties in
  interest? Answer can never be no auditor firm
  always is a party in interest
• Identify all related parties prior to performing
  audit
• Identify possible prohibited transactions
• Make staff aware of parties in interest

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SAS No. 70 and Internal Controls

• Why use a SAS 70 Report?
• When do you need a SAS 70 Report?
• Who to obtain a SAS 70 Report from?
• Third Party Administrator
• Custodian
• Other service organizations
• Client internal controls

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SAS No. 70 and Internal Controls

• Obtain current SAS 70 Report type II, if
  available
• Read and analyze report
• Conclude on third party controls
• Modify audit steps based on SAS 70 Report
• AICPA Webcast April 27, 2006, 100 pm 300 pm
  ET, SAS 70 Reports and Employee Benefit Plans,
  click here to register
• Resources
• SAS 70 review checklist
• SAS No. 70 Reports and Employee Benefit Plans

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Investments Limited Scope

• Requirements
• Assets held by a bank, trust company, thrift or
  similar institution or insurance company
• Custodian certifies that the investments are both
  accurate and complete
• Assets held by a mutual fund company or
  broker/dealer generally do not qualify
• SAS 70 Report for the custodian is not required
• Auditor only responsible for
• Comparing custodian information to financial
  statements
• Amounts received or disbursed by custodian are in
  accordance with the plan
• Information properly presented and disclosed

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Investments Full Scope

• Assets not held by a certified custodian/trustee
• SAS 70 Report would be recommended
• Objectives
• Existence
• Owned by plan and are free of liens, pledges, and
  other security interests, or, if not, whether the
  security interests are identified
• Properly recorded and valued
• Proper disclosure in financial statements
• Properly initiated

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Investments Common Deficiencies

• Failure to obtain proper certification for
  limited scope audits
• Failure to test end-of-year market values for
  full scope audits confirmation does not replace
  this step
• Hard to value assets
• Inadequate or missing disclosures related to
  investments

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Participant Data Testing

• Objectives
• Employees properly included/excluded
• Accurate participant data used by plan
  administrator and plan actuary, if applicable
• Deficiencies
• Testing of payroll data insufficient, i.e., not
  verifying payroll register to personnel records,
  time cards
• Insufficient testing of participant eligibility
  or forfeitures
• Insufficient testing of investment income
  allocation

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Participant Data Testing

• Audit challenges
• Sample size
• Sample population
• Reconcile year-to-date payroll to census data
• Resolution of discrepancies/additional testing
• Multiple locations
• Investment allocations
• Are confirmations necessary?
• Test annually/quarterly?

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Contributions

• Objective
• Amounts received by or due to the plan have been
  determined and recorded in conformity with the
  plan document
• Proper disclosure in financial statements
• Appropriate allowance for uncollectible amounts

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Contributions

• Audit Deficiencies
• Insufficient testing of contributing employers
  for multi-employer plans
• Failure to test payroll internal controls
• Failure to test employee elective deferrals
• Inappropriate reliance on SAS 70 Reports
• Failure to test timeliness of participant
  contributions

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Contributions

• Audit challenges
• Test applicable client internal controls
• SAS 70 Report
• Sample size and population (may be the same as
  participant testing)
• Information tested
• Eligible compensation
• Salary deferral
• Employer contribution
• Are confirmations necessary?
• Do you need to test non-participation?

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Benefit Payments

• Objective
• Made in accordance with plan documents
• Made to or on behalf of eligible participants
• Recorded properly
• Audit deficiencies
• Failure to test participant eligibility
• Inappropriate reliance on SAS 70 Report
• Failure to test approval of benefit payments

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Benefit Payments

• Audit challenges
• Sample size and population
• Eligibility to receive benefits
• Are confirmations recommended?
• Do you need to review canceled checks or
  verification of proper receipt?

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Employee Benefit Plan Audit Quality Center

• EAlerts
• Designated partner receives periodic EAlerts
  ask him to forward them to you
• Past EAlerts are archived on EBPAQC website
  (www.aicpa.org/ebpaqc)
• Membership
• Requirements
• Member list
• Frequently asked questions
• Upcoming and past events
• On-Line Forum
• Resources

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EAlerts

• See past EAlerts on the Center website
  http//ebpaqc.aicpa.org/Resources/EBPAQCNewsAler
  ts/
• EAlerts provide
• Updates on EBP news and regulations
• Events
• DOL updates
• Center updates
• New tools and resources

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Past EAlert Topics

• 64 2006 EBP Training Opportunities
• 62 Online Forum
• 54 Investment Contract Reporting
• 51 DOLs New Audit Quality Enforcement
  Initiative
• 24 EBP Practice Questions QA

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Tools and Resources

• AICPA Resources
• 2006 AICPA Audit Guide and Audit Risk Alert
• Accounting Trends and TechniquesEmployee Benefit
  Plans
• EBP Checklists and Illustrative Financial
  Statements
• SAS No. 70 Reports and Employee Benefit Plans
• Service Organizations Applying SAS No. 70 as
  Amended
• Practice Alert 99-2, How the Use of a Service
  Organization Affects Internal Control
  Considerations

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Tools and Resources

• EBPAQC Tools and Forums (http//ebpaqc.aicpa.org/r
  esources/)
• EBP Practice FAQ
• SAS 70 Review Checklist
• List of Common EBP Audit Deficiencies
• Topix Primer Series Stable Value
• Funds and Investment Contracts
• An Overview

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Tools and Resources

• DOL Publications and Resources (www.dol.gov/ebsa/)
  
• IRS Tools and Resources (http//www.irs.gov/retire
  ment/index.html)
• FASB (www.fasb.org)
• PCAOB (http//www.pcaobus.org)

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CPE Opportunities

• AICPA EBP Conferences
• May conference geared for all levels
• December conference geared for partners and
  managers
• AICPA Webcasts
• State Society Seminars Conferences
• Self-Study

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Coming Events - Mark Your Calendars!

• AICPA Webcasts (https//www.cpa2biz.com/WebEvents
  /Webcasts/default.htm)
• April 27, 2006, 100 pm 300 pm ET, SAS 70
  Reports and Employee Benefit Plans
• June 30, 2006, Time to be determined, Employee
  Benefit Plans Audit Risk Alert

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Contact ListAICPA

• AICPA Accounting and Auditing Technical Hotline
• Submit question on technical inquiry form located
  at http//www.aicpa.org/members/div/infohot/index.
  htm, or
• Via email at aahotline_at_aicpa.org, or
• Call 1-888-777-7077 (option 5, followed by option
  3)
• AICPA independence and ethics inquiries
• Via email at ethics_at_aicpa.org, or
• Call 1-888-777-7077 (option 5, followed by option
  2)

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Contact ListRegulators

• Department of Labor
• Website http//www.dol.gov/ebsa/
• Regulations and interpretations, 1-202-693-8500
• EFAST hotline (Form 5500), 1-866-463-3278
• Voluntary Compliance Program, 1-866-444-EBSA
  (3272)
• Internal Revenue Service
• Non-discrimination questions, 1-800-829-0922

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Question Answer Session

• Submit questions to the
• EBPAQC mailbox at ebpaqc_at_aicpa.org

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Wrap Up

• Thanks for joining us today for the 2006 Live
  Forum for Managers and in-charges
• We welcome any additional feedback on todays
  live forum. Send comments to the Center mailbox
  at ebpaqc_at_aicpa.org.
• Consider attending upcoming AICPA EBP Webcasts

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Employee Benefit Plan Audit Quality Center

• Thanks for Participating!