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It’s already midyear, and that means it’s the perfect time to review the audit requirements for your company-sponsored employee benefit plans. One of the most important and complex audits is the annual audit of your 401(k) plan. Here are some general tips and guidelines to help you understand benefit plan audits, when you’ll need one, and what to expect during the process.

When to Begin: Understanding the 80-120 Rule

Form 5500
If you’re involved in maintaining your company’s 401(k) plan, you’re already familiar with the Form 5500. The annual process of filling out the required Form 5500 has a helpful side benefit of determining your plan’s exact number of participants. Lines 5 and 6 on the Form 5500 are used to tally the total number of plan participants at the beginning and end of the plan year.  Participants include people in the following four categories:

Following the 80-120 Rule

If your plan has never had an audit, or if your participant count fluctuates from year-to-year, you’ll need to follow what’s called the 80-120 rule. In short, the 80-120 rule spells out your plan’s annual filing requirements if it is hovering somewhere between 80 to 120 participants.

For plans with participant counts in this range, the Department of Labor (DOL) allows the plan to use the same filing status as it used in the filing of its prior year Form 5500. There are two filing statuses, known simply as “large” plan (100+ participants) and “small” plan (under 100 participants). Plans filing as “large” plans generally have an annual audit requirement, while plans filing as “small” plans do not.

The 80-120 rule prevents plans with fluctuating participant counts from having to continually change from a “large” plan to a “small” plan each year. For example, the 80-120 rule allows a plan with 90 participants at the beginning of the previous year and 110 participants at the beginning of the current year to continue to file as a “small” plan in the current year. If the 80-120 rule were not in place, there would be unnecessary disruptions caused by the 100 participant cutoff.

While you won’t need your first audit until you exceed 120 participants at the beginning of a plan year, you’ll want to start preparing for a plan audit as you approach that figure. If your business is expanding, acquiring another business, or simply experiencing organic growth, you’ll want to contact us to ensure you’ll be in good shape for next year’s audit deadlines.

How to Prepare: The Basics of Benefit Plan Audits

To prepare for your annual 401(k) plan audit, you’ll want to have all of your materials in order ahead of time so that the process is as efficient as possible. Here’s a list of documents to prepare in advance:

The Outcomes: What to Expect from Benefit Plan Audits

In addition to issuing an audit report on the 401(k) plan’s financial statements, plan auditors will also communicate to management any internal control or operational deficiencies that they noted during the audit. Since 401(k) plans can be complicated to administer, it’s crucial that plan sponsors and administrators understand the plan documents and amendments. Most deficiencies result from inadvertently not following the provisions of the plan document. The resulting consequences can range from having to voluntarily correct the issues, being fined by the Department of Labor, or in the worst-case scenario, having the plan disqualified.


At Cray Kaiser, we recognize that having a sound 401(k) plan is one of the pillars of security that your employees count upon. Since every business has unique needs and methods, you’ll want to make sure you’re working with a team that has extensive small business experience and can be flexible to your specific plan. Contact us today so that we can make sure you’re well prepared for benefit plan audits.

Now that you have determined the need for a nonprofit financial statement audit, it is time to select an accounting firm and begin the process. This can be an overwhelming experience, but it doesn’t have to be. With the right team on your side and all the documentation you need prepared ahead of time, you’ll be ready to execute a successful audit.

Choosing a Firm

As soon as the need is determined, you can start the process of selecting an accounting firm for your financial statement audit. In addition to selecting a firm that’s certified to perform audits in the state of Illinois, you’ll want to make sure that you choose a team that truly understands your operations and transactions. It’s critical that the firm has extensive nonprofit experience since the regulations differ significantly from those of for-profit businesses. It is highly recommended to ask all potential accounting firms to provide a copy of their most recent peer review certificate and report.

Beginning the Process

After your firm has been selected, you’ll start the organizational and preparation processes.  Your audit team should clearly communicate what documentation you’ll need to have ready initially. You’ll also meet with your auditors to understand what metrics, such as key balances from your balance sheet, will be important to the process. The auditors will go over your risk assessment and internal controls to ensure that they’re working properly. In a perfect world, those meetings should take place throughout the year so that nothing is missed. Finally, the team will review your accounting and personnel policies to ensure everything is up to date. Based upon these discussions, your audit team will determine the procedures that will take place during the audit.

Communication is Key

Once you’re ready to move forward, the most critical element of a successful audit is good communication between the auditors and your internal team. The audit team will relay which key documents will be necessary. Having all of your documentation and reporting ready in advance of any on-site visits will save you time and money. Since most firms bill by the hour, the less time that’s spent on the audit means more resources to devote towards fulfilling your mission.

2018 Changes

As a final note, there are going to be updates to the financial statements themselves. There are new reporting standards that will take effect for 2018’s audits. These changes are going to require major revisions to the current accounting policies and reporting for nonprofits. It’s important to start implementing these changes prior to the end of this year so that you’re prepared for next year. Click here for more information.

An unqualified audit report from the audit firm will provide reasonable assurances to your governing bodies, lenders, and donors that you’re running your organization responsibly. It can help open doors for more funding so that you’ll be able to pursue your mission to the fullest. Contact us today if you have questions about whether you need an audit or to see how we can make the process as seamless as possible.

When you hear the term forensic accounting, images of perpetrators in handcuffs and espionage may come to mind. In reality, it’s not always a CSI moment. Forensic accounting is not only important when taking steps to prevent crime, it’s also vital among day-to-day operations and decision-making within your business.

What is forensic accounting?

The Forensic Accounting Academy defines forensic accounting as “the art and science of investigating people and money”. While forensic activities imply the investigation of a crime, many of these methods and techniques should be a part of normal routine oversight, such as analyzing financial statements, reviewing an irregularity, or even when considering significant bids or contracts.

Forensic Facts

Forensic accounting allows us to identify any deviation from expected results, whether it’s a product of a crime or a less devious mistake. However, when fraud is the culprit, keep some of the facts from the Association of Certified Fraud Examiners’ 2016 global fraud study in mind:

1. In 83% of cases, asset misappropriation was the most common form of occupational fraud. However, it caused the smallest median loss of $125,000.

2. Organizations of different sizes have different fraud risks. Corruption was more prevalent in larger organizations, while check tampering, skimming, payroll and cash larceny schemes were twice as common in small organizations. This is where we recommend our clients have policies and controls in place to minimize risk.

3. Likely your biggest risk is your check register and the controls you put around those procedures. Among forms of asset misappropriation, billing and check tampering schemes posed the greatest risk based upon their relative frequency and median loss.

4. The most common detection method was tips. Organizations with reporting hotlines were much more likely to detect fraud. Even if your company isn’t large enough to have a hotline, most tips will come from within your business. Build relationships with your employees to ensure that they will feel empowered and supported to contact you with any concerns.

5. When active detection methods identified tips, such as surveillance and monitoring or account reconciliation, median loss was lower than when schemes were detected by passive methods or accidental discovery.

6. Fraud perpetrators tended to display behavioral warning signs when they were engaged in their crimes. The most common flags were living beyond their means, financial difficulties, unusually close association with a vendor or customer, excessive control issues and recent divorce or family problems.

7. External audits of financial statements were the most commonly implemented anti-fraud control; nearly 82% of the organizations in the study underwent independent audits. An audit, however, looks at documentation and not controls. It is most often the lack of controls and procedures that enable fraud to take place.

Each organization is unique in its processes, employees and risk exposures. But understanding the activities and systems within your own business helps protect you from internal threats and mistakes. Forensic accounting also gives you the opportunity to implement routine reviews and processes that help your business run smoother. If you would like to learn more about controls and other forensic accounting practices, please contact Cray Kaiser today.