Member of Russell Bedford International, a global network of independent professional service firms.
In this video, Kayla Daniels, an assurance supervisor at CK, explains the importance of Employee Benefit Plan Audits, emphasizing their role in ensuring compliance with Department of Labor regulations and internal revenue codes. She discusses the audit process from risk assessment to financial statement preparation. Kayla also offers recommendations for improving plan management and oversight to enhance compliance and operational efficiency.
Transcript:
My name is Kayla Daniels. Employee Benefit Plan Audit is an audit that is required by the Department of Labor to be filed with your 5500 annual filing. So Employee Benefit Plan Audit is a compliance audit, so we are making sure that plan processes and plan transactions are in agreement with the plan provisions in the plan documents. Generally employee benefit plan audits are required for any plan that has a hundred people with balances in the plan.
The purpose of an employee benefit plan audit is very compliance based. It is to make sure that your plan is operating in compliance with Department of Labor regulations, internal revenue codes, and a lot of the time those regulations and codes will be built into the plan document. So our audit is actually going to focus on making sure that your plan activities and transactions are in line with those plan provisions. The value that can be added from an Employee Benefit plan audit is related to identifying places in your plan that might have a weakness or could be improved in some way. So our audit will definitely look at those areas that might be a little bit more complex or areas that have a lot of room for error.
So during our audit we’ll bring it to the attention of management, any areas that we see that could be improved and that will help your plan operate more efficiently, more effectively, and will make sure that you’re in compliance. One of the key risks associated with employee benefit plans is the remittance of employee funds. So there is a requirement that plan sponsors have to permit funds in a timely manner. So that’s as soon as feasibly possible or as soon as the assets can be segregated, those assets need to go from the employer to the plan. And we’ll see many times that there are delayed remittances. So it took a lot of time between when it was withheld in payroll and when the plan actually received it. And that’s something that the DOL will definitely look at if you’re ever subjected to an audit. And when you do have delayed remittances it is your responsibility to correct that by calculating lost earnings and remitting those lost earnings to the participant to make them whole because a lot of our audit is going to focus on making sure that employee funds are being used in a proper manner in accordance with the DOL regulations.
Another deficiency that we sometimes see in plans is improper definition of compensation, which the definition of compensation is used when you’re calculating employee or employer contributions. And in the plan provisions, this can be kind of complex where certain types of compensation are excluded for certain types of contributions. So these things can be easily missed and fall through the cracks or maybe the payroll system isn’t set up correctly and is calculating contributions on the wrong compensation. So that’s also something that we look at during our audit and something that we see quite commonly and it’s something that we can fix and make sure that it’s right in the future.
And then another common deficiency that we see is deferral elections for employees not being followed. So when they sign up for the plan, they’ll tell you I want 5 % of my pay being withheld to the plan. And as a plan sponsor, you are required to do what a person wants you to do. And then after that point, they can change your deferral. So it’s important that there’s a process in place to track those changes, to track those new enrollments, to make sure that the employee’s authorization is being followed with their payroll funds.So the first place you want to start when you’re going to perform an employee benefit plan is with our planning and risk assessment. So we will set up a meeting with the client, we will discuss any changes that happened during the year that would include plan amendments, any new plan documents, agreements, and then that’ll serve as the foundation for our risk assessment. And during that process, we’re going to make sure that we identify all the risky areas of the plan and we’ll look back at prior years too to make sure that we’re including anything specific to the plan, where we will modify our audit procedures to ensure that we’re covering all of those areas and that our audit has great audit results. And from that step, we’re going to perform detailed testing of all the significant areas of the plan. And those generally will be related to contributions, distributions, loans and expenses. So we’ll do individual testing of all those areas to make sure that everything is in compliance with the plan documents. And lastly we’re going to prepare our financial statements which will be attached to the 5500.
Some of the discrepancies that you’ll see in the financial statements of plans will be supplemental schedules so that is required by the DOL. If there’s any delay remittances, those need to be identified and recorded in the 5500, in the financial statements. Also, you may see inconsistencies between the financial statement and the 5500. And either the 5500 will have to be revised so that it matches the audited amounts or will have to include a financial statement disclosure to make sure that those match up with each other for the filing.
The number one recommendation I would have for any plan that wants to improve their financial reporting in relation to their employee benefit plan would be to have a member of management or a team of management for proper oversight. That would be a person who does not perform the everyday activities of the plan but a person who knows the plan very well and can be involved in all the processes to make sure that everything is in compliance with the plan. When you are overseeing the process of your plan, you’re going to want to make sure that you have proper personnel documentation in place so that would be signed I -9 forms, anything from the personnel file that will support the important demographic information. So you’ll want to have those available to your auditors because we’re going to want to look at those to make sure that everything’s right. Also if you use paper forms for loans, distributions or deferrals you’re going to want to gather those. Make sure that they’re organized in a place where you can access them.You need to have an employee benefit plan performed every year that you have over 100 participants with balances and also you can have an audit done if you believe that your plan is going to go over 100 participants in the near future.
One of the more complicated issues that can come up when administering an employee benefit plan is when you realize that you haven’t followed employee deferral instructions. So you’ll find out a person originally deferred 5% and then they increased it to 15% and you didn’t implement that in a timely manner. So how you would fix that is you would remit them the extra that they missed out on and then you would calculate any missed earnings. If the market head gains and they missed out on those, you would calculate them and send them over to the participant to essentially make them whole again.
And another issue that you might come across in plans is issues with vesting. If there is employer contributions where it takes years of service for the participant to become fully vested. Sometimes when a participant takes a distribution, the vesting can be calculated incorrectly, which means that the person might not receive their full distribution. And in that circumstance, you would have to make an additional distribution to that participant to make them whole again.
So annually, the plan is required to have discrimination testing, and that is a series of testing that will ensure that highly compensated employees are not being favored over non-highly compensated employees and this is testing that will be performed either by the plan personnel or a third-party administrator. And the results of those plans will let you know if you need to make any refunds back to highly compensated employees and you need to remit those excess contributions within two and a half months after year-end or else you will have to pay a penalty. So it’s important to get those done in a timely manner and to make sure that you’re keeping track of your compliance testing every year.
One thing that I’ve learned while doing employee benefit plans is just the attention to detail that’s needed that you can carry over into other areas of your work life, where you really need to pay attention to what’s the intention, what is written into this agreement, and pay attention to those small details that really make a big difference.
In this video, Maria Gordon, Tax Supervisor of State and Local Taxation, delves into the intricacies of sales tax nexus, taxable items and customer exemptions. She also talks about the invaluable lifeline offered by the voluntary disclosure programs offered by some states.
Transcript:
My name is Maria Gordon. My title is Tax Supervisor of State and Local Taxation. Each of the states really wants to get a piece of their pie from taxpayers.
There’s lots of different types of taxes that businesses need to be concerned about. Income tax is an obvious one, but also requirements for sales taxes are continually changing with the states. And then we have local income taxes, we have personal property taxes and even gross receipts taxes based upon total receipts collected in a state and franchise taxes.
So, a business needs to determine whether or not they’re required to collect sales tax in the various states where they ship product or they do services and determining whether that business has nexus for sales tax is different from determining nexus for income tax.
In the past, if the business didn’t have any physical presence in the state, they really didn’t have to worry about sales tax, but that all changed in 2018 when the Supreme Court ruled on South Dakota versus Wayfair.
And now the states, all of the states, have enacted economic thresholds, whereby if you have sales into that state over a certain threshold, even if you don’t have any physical presence there, you are required to begin collecting sales tax from your customers in that state. And this has been an area over the past few years that businesses have really had to keep a close eye on. So, this is something that each year, you know, we’re taking a look at that to see where our clients have exceeded those nexus thresholds.
Once a business decides that they are subject to collecting sales tax in a state, then the next step is to really determine what of their products or services are taxable. And this varies again from state to state. So, in some states, services across the board, you know, pretty much are not taxable and other states only specific services might be taxable. And then in this day and age, we have additional considerations like computer software. You know, when is that software considered a taxable product? Or when is it considered a non-taxable service?
So, there’s a lot to consider there just in determining what items are taxable. Once that’s determined, you also need to take a look at your customers and find out who of your customers are taxable because you may have resellers who you don’t have to charge tax to because they’re taxing the end customer that they sell to and so another really big aspect of protecting your business is to collect those exemption certificates, make sure that you have those on hand, and also make sure that they’re current. You know, if it’s been a few years since you’ve collected one, it’s always a good idea to go back to your customers and request an updated certificate from them.
But a business discovers that they have nexus in a state for income tax or for sales tax and that that nexus has existed for the last several years. There is a way that they can go to the states and get some protection and this is called voluntary disclosure. So many of the states offer a voluntary disclosure program where the taxpayers are coming forward and saying, you know, we recognize that we should have been filing income tax or collecting sales tax in your state. We’d like to make it right and the states in response to that coming forward place a limit on the look back period, so they may only go back three or four years to collect tax and then also they often will waive penalties. So it is it’s a great program to protect the business from back audit exposure because it limits those years and the states are very willing to work with taxpayers to get them into compliance.
In this video, Maria Gordon, Tax Supervisor of State and Local Taxation, sheds light on the crucial topic of tax incentives offered by states and localities to businesses. From empowerment and edge credits to research and development incentives, she underscores the vast array of opportunities available.
Transcript:
My name is Maria Gordon. My title is Tax Supervisor of State and Local Taxation. Businesses should really be thinking about tax incentives that many states and localities offer to them.
The states really want to see economic development in their state and even certain areas, and so often they will offer empowerment, credits, edge credits where your business is employing people there, investing in capital. And these credits are very specific. You apply for it with the state. And then it helps businesses to really expand and get some credit, some benefits there. And some states offer, you know, research and development credits. You can get that at the federal level, but if you are also doing research and experimentation in a state, you may be able to receive a state -level credit as well.
And then there’s even states that have credits that have to do with your activities such as the Wisconsin Manufacturing Tax Credit, that’s a credit against income tax. So, there is an awful lot out there with respect to state incentives and if a business isn’t thinking about these things, they really could be missing out on some benefits.
One benefit that business owners have had had for the last couple years is taking advantage of the pass-through entity tax, which is a tax whereby the business can pay state income tax at the entity level rather than having it paid at the individual level for partnerships and s-corporations where the income would generally flow through to the owners.
Now as a workaround to the state and local tax deduction cap, businesses can pay those at the entity level and get a state tax deduction against the business income. For most states, this is set to expire after 2025. So, we’re doing all we can to take advantage of those deductions right now.
I think the hope is that some of these states will extend that provision, but as of now for most of them it’s expiring 2025 and this is just an issue that we’re going keep up on and make sure we know all the changes that are happening over the next couple of years.
In the complex landscape of state taxation, businesses face a myriad of challenges as they navigate the ever-evolving requirements imposed by each state. Watch the above video where CK Tax Supervisor of State and Local Taxation, Maria Gordon, talks about the broad spectrum of activities that can establish nexus and the critical roles played by services, vehicle presence, and employee locations when it comes to paying state income tax.
Transcript:
My name is Maria Gordon. My title is Tax Supervisor of State and Local Taxation.
Each of the states really wants to get a piece of their pie from taxpayers. There’s lots of different types of taxes that businesses need to be concerned about. Income tax is an obvious one, but also requirements for sales taxes are continually changing with the states. And then we have local income taxes. We have personal property taxes, and even gross receipts taxes based upon total receipts collected in a state and franchise taxes.
Businesses need to be concerned about whether or not they have enough connection with the state to be required to file income tax and that connection is called nexus. Each state has their own specifics about what creates nexus within their state, but very generally speaking for income tax, if a business is performing any sort of services in a state, then they’re going to be required to file income tax there. If they are driving their own vehicles into a state, then they would have nexus. Really, the one instance when a business does not have to worry so much about income tax is if they’re merely shipping products to customers in the state, and that’s their only activity. They may have salesmen in the states, but as long as those salespeople don’t do any services, then generally speaking, the business won’t have nexus with the state. We often ask our clients each year, what the activities look like in states where they have employees, and then we make that determination on a state-by-state basis.
The landscape of workers has changed a lot over the past 10 years. A lot of companies now have remote workers in states where they may or may not have filed in past years and so it is something to be concerned about and it all depends upon what activities the employee is doing for that business as to whether or not that’s going to trigger a nexus with the state. So it is very important to be mindful when you’re adding new employees in states or if an employee who works from home is moving to another state, you always want to take a look at those state requirements to find out if the business would suddenly be responsible for income tax filing.
So if a business determines that they have nexus within a state for income tax, then they need to determine what is their taxable income in that state. And we start with federal taxable income and then each state has their own modifications that they make to federal taxable income. Some really common ones are depreciation of fixed assets. States have different methods of depreciating than what’s allowed on your federal tax return. The states do not allow certain deductions like state income tax deduction. So once you make those modifications to the federal taxable income, then at that point you need to decide which portion of this is going to all of these different states. And there are formulas that the states use for that. Most of the time, it’s just looking at sales to that state versus everywhere.
But there are also states that take a look at the amount of payroll that you have in each state and property. So once you come up with that percentage, you’ve got your state taxable income.
It’s important to remember that when you add a state filing responsibility, if you kind of look at the whole pie, you’re not necessarily paying more state tax, it’s just a question of which state are you paying that tax to. And certainly there are some states with higher tax rates that it’s less favorable to file in those states but it’s best to kind of think of it as a pie and as long as you’re filing where you’re required to then that protects the business going forward.
You may be thinking “They’re just numbers people” but we can assure you, we are people people too. Being part of the CK team means so much more than facts and figures. We show up every day as trusted advisors to our clients and supportive teammates to our colleagues. And those days are also filled with lots of fun! To help show you what we’re all about at Cray Kaiser, we asked three team members to share what a typical day looks like and what it means to work here. Click below to hear their stories.
“The learning opportunities and personal growth I’ve received at Cray Kaiser have been tremendous.”
Click here to read a transcript of this video.
“I feel that my opinion and knowledge are always valued at Cray Kaiser.”
Click here to read a transcript of this video.
“There is so much opportunity at Cray Kaiser for anybody looking to make their mark in public accounting.”
Click here to read a transcript of this video.
If you are interested in a career with Cray Kaiser,
please click here to learn more.
My name is Kayla Daniels and I am a senior assurance accountant. I have been with CK for almost four
months. We’ve maintained really great communication with people who work from home. I also work
from home part-time, so I’ve experienced that firsthand where it’s really easy, we have the resources in
place to just jump on a video call. People are always available via their phone or cell phone. Honestly
working from home doesn’t feel that much different in terms of, just the lines of communication that we
have and they’re so open and available.
My name is Kayla Daniels and I am a senior assurance accountant. I have been with CK for almost four
months. Cray Kaiser is different from other places that I’ve worked mostly due to the flexibility that they
offer. I currently work on a flex schedule, which is only I work 30 hours a week, and it is what it sounds
like, it’s flexible. I can work from home, I can work from the office and we just kind of facilitate that
between ourselves every week. So I’ve really appreciated that flexibility that they’ve offered me.
Dan: So here at Cray Kaiser, we have five core values, and the one that continually jumps out at
me is care. Care is we believe the work we do matters because of the people and the
businesses that it impacts. Lots of times accountants, we just deal with numbers, we’re
just numbers people, right, but these are people’s businesses. This is their livelihood. So it
means the world to me to make sure it’s done right, to make sure that they have good
solid numbers in order to make good, smart business decisions with. So care is huge to
me. You’ve got to have a high care factor in order to connect.
Micah: The main word that I would use to describe the Cray Kaiser’s culture is collaborative, both
in a work sense and on a personal sense. So clearly in a work sense, we’re working
together to find solutions for clients to get through these tasks, to make sure that we’re
getting the work done. On a personal level, it’s almost more of a family atmosphere. We
have a lot of involvement in each other’s lives, everybody asks, how are you doing? How
was your weekend? How’s so-and-so or your wife, how’s, so-and-so, your dog? Very
involved with each other. I would say that we care a lot about each other as people which
really speaks to one of our core values at Cray Kaiser.
Natalie: What I enjoy the most about being on the Cray Kaiser team is that I feel that my opinion
and my knowledge is always valued. I may not know everything, but I can certainly look
and have others help me to find answers. I think we just truly embody what a team
means. Again, everybody’s important. Somebody’s perspective might be completely
different from you, regardless of how many years of experience they have, but they may
be able to bring something to the table that you haven’t thought of or explain something
in another way that you may not have thought of before. I feel like we’re always open to
listening to other people’s ideas so that we can make sure that we come up with the best
answers for our clients.
Micah: Cray Kaiser provides a lot of educational opportunities and training opportunities,
whether in-house, or utilizing some other partner programs. We really provide the
resources for staff to learn and grow in the areas that they want to pursue.
Natalie: At Cray Kaiser I’ve been able to expand kind of my area of knowledge. I wasn’t
really strong on the S corporation side. I just didn’t work on them as often at my
prior firm. I really have been able to increase my knowledge on S corporations by
learning from other staff and attending CBE classes, things like that, and really
focusing on taking the knowledge that everybody had on other different aspects
of tax, including the S corporations and figuring out how to best plan and to
consult with my clients. Really expanding that because, it’s such a focus here at
Cray Kaiser is being able to consult and help our clients to either get to that next
step or minimize tax, whatever it is that their objective is. We really want to be
able to help them get to that objective.
Dan: Over the past nine years here, working at Cray Kaiser, my goal has always been
and will continue to be getting better each and every day. The learning
opportunities and the personal growth I have received while working here has
been tremendous. At the end of every year, I look back at where I was the prior
year, and you can just see these big grows every year. So again, it’s being a
better accountant, just getting better each and every day. And it’s impossible not
to while working here.
Natalie: Whether it’s been John Kaiser, who’s one of the founding partners. I mean, he’s
just a wealth of knowledge and I’ve tried to soak in anything I can from him. To,
again, every level here at Cray Kaiser and just always trying to learn, we’re
always trying to teach each other. I’ve really felt that I have expanded my
knowledge base since I’ve been here at Cray Kaiser.
Dan: What gets me motivated and gets me moving through the day is when I see our clients
really appreciative and thankful for our services. If I’m able to see kind of their stress level
decrease and are more comfortable with what’s happening, I feel like I’ve done my job.
Micah: I was drawn to Cray Kaiser when I was looking for an internship and it ended up being a
really good match. In the years, since then I’ve stayed here really because of the
relationships I’ve built both with clients, with colleagues or with referral partners. Those
relationships have been really the high point of my work at Cray Kaiser and the main
reason for me staying here.
Natalie: What I enjoy the most about being on the Cray Kaiser team is that I feel that my opinion
and my knowledge is always valued. I may not know everything, but I can certainly look
and have others help me to find answers. I think we just truly embody what a team
means.
Dan: There’s a lot of bright and talented people here at Cray Kaiser, and one of our core values
is care and education. So what do you think we like to do with some young, new staff that
come through the doors here? We want to make sure that you continue to grow, you
continue to learn and by doing so we help the client, we help you and we help each other.