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Explanations for the Top Ten Tips to Prepare for an Efficient Audit - Be Prepared to Explain Internal Administrative Processes

A major part of all audits is an evaluation of internal controls. Internal controls are the actual checks and balances in place to ensure that all of the procedures are being properly applied.

Example - The proper determination of compensation is an integral part of plan administration in determining the allocation of contributions on a compensation to total compensation ratio in a defined contribution profit-sharing plan. Some questions that should be asked are:

  • How is compensation determined internally and by whom?
  • Are those involved with the employer’s payroll administration knowledgeable about the plan’s definition of compensation?
  • How do those involved with the employer’s payroll provide compensation data to those who administer the plan?
  • Who coordinates and checks that the requested compensation data is accurate and in accordance with the plan's definition of compensation?

The coordination and review of compensation is needed by the individuals to ensure the correct compensation, per the written plan document, is applied in operation. This is just one example of the need for and being able to explain the internal controls and procedures.

Page Last Reviewed or Updated: 04-Apr-2014