2 overview - coming soonmacpamedia.org/media/downloads/2015ebp/dol_ppt2… · · 2015-04-20•...

4/20/2015

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DOL Update

Michael E. Auerbach, CPA

Chief, Division of Accounting Services

Employee Benefits Security Administration

The views expressed are those of the speaker and do not necessarily represent the official position of the Department

MD Association of CPAsEmployee Benefit Plans ConferenceApril 27, 2015

Overview• EBSA Audit Quality Study

• New Initiatives

• Enforcement Initiatives

• On the Horizon – Emerging Issues

• DOL Resources

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Audit Quality Study

Statistical Sample of 400 Plan Audits• 2011 Form 5500 filings

• 6 strata based on size of EBP practice• 1-2 plans

• 3-5 plans

• 6-24 plans

• 25-99 plans

• 100-749 plans

• 750 + plans

• 1 audit in lowest 2 strata, 5 in all others

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Our Sample• Type of Audit

• 80% = Limited Scope• 19% = Full Scope• 1% = Other

• Plan Type• 89% = DC Pension Plan• 6% = DB Pension Plan• 5% = Welfare Plan

• Sponsor Type• 95% = Single Employer• 3% = Multi-Employer• 2% = Multiple Employer

• EBPAQC Member• 55% = Yes• 45% = No

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Maryland CPAs

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Number ofPlan Audits

CPAFirms

Numberof Audits

PlanAssets

PlanParticipants

1-2 66 85 $495.6M 22,497

3-5 40 92 $1.00B 37,456

6-24 89 425 $15.88B 367,573

25-99 53 468 $42.38B 1,303,127

100-749 23 309 $73.12B 1,099,719

750+ 11 254 $13.43B 434,576

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Findings

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Audit Quality Continues to Decline

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Size of EBP Practice Matters

• Correlation between a firm’s EBP practice and deficient work

• Nearly 75% of plan audits were deficient in firms who audit 1-2 plans annually

• Deficient audits in this strata also had multiple deficiencies

• Less EBP specific training by firms in this strata

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Practice Monitoring/Peer Review are not Useful Identifiers of Quality EBP Audits

• Firms had clean peer review reports where we identified deficient EBP audit work• 70% in 1-2 strata

• 85% in the 3-5 strata

• 90% in 6-99 stratum

• In 4 of 6 strata, audits with 5+ GAAS deficiencies were performed by firms with clean peer review reports

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Other Useful Findings

• EBPAQC member firms had a lower deficiency rate than non member firms

• Audit work is often of lesser quality in engagements where firms have less expertise

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Other Useful Findings

• Problematic audit areas continue to be the same EBP-specific areas as previously identified

• No meaningful correlation between audit fees and the quality of audit work

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Referrals of Deficient Audit Work

• 131 referrals made to the AICPA’s Professional Ethics Division

• 13 referrals made to state boards of public accountancy

What Is Our Current Focus?

• High Risk Audit Engagements

• Health and Welfare Plans

• ESOPs

• Plans with hard-to-value assets

• Re-inspections of CPA firms

• Continued Outreach to EBP Stakeholders

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New Initiatives

Peer Review

• Compliance with state peer review licensing requirements?

• Provide evidence that an acceptable peer review was performed

• CPAs performing audits (in the Form 5500 database) –that are not in the AICPA’s peer review records

• AICPA has found numerous CPAs performing attest engagements that have not been enrolled in the peer review program

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Licensure

• Is the CPA performing the audit – licensed?

• Are CPA firms properly licensed where they practice?• Rules vary by state

• NASBA website – auditor mobility

• NASBA provided list of plan auditors to states• States reviewing to see if CPAs are properly licensed

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Enforcement Initiatives

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Reporting Compliance Enforcement

• Reporting of fidelity bonding status

• Missing audit reports

• Compliance with Small Pension Plan Audit Waiver requirements

• DFVC program compliance

• Plan asset accountability

• Health & welfare plan non-filers

• Stop filers (cooperative initiative with IRS)

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Health & Welfare Benefit Plans• Benefit claims adjudication/payments:

• very complex • inherently a high risk of errors, misstatements or fraud.

• Must be paid:• in the correct amount timely, in accordance with plan documents• Only to or on behalf of eligible, covered persons entitled to receive benefits

• Properly recorded and described in plan financial statements

• Type 2-SOC 1 reports may not include controls over whether the claim or benefit payment was appropriately calculated based on the provisions of the plan instrument.

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On the Horizon – Emerging Issues

• New Actuarial Study Longevity Improvements Considerations

• FASB Simplification Project

• Auditing Standards Board Project to Improve Plan Audit Reports

• EFAST 3 and Form 5500 Changes

• New AICPA Audit Quality Center Tools

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DOL Resources

•www.dol.gov/ebsa• For DOL publications, FAQs, copies of the Form 5500,

instructions, and related schedules

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DOL Resources• Office of the Chief Accountant 202-693-8360

• Office of Regulations and Interpretations 202-693-8500• For questions about ERISA reporting, filing or other regulatory

requirements

• DOL EFAST Help Center 1-866-463-3278• For questions regarding the Form 5500 or related schedules

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Ian MacKay, CPADirector EBPAQC

Employee Benefit Plan Audit Quality Center

(EBPAQC) Update


ERISA Plan Audits

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67,533 audits (82%)

15,045audits

EBPAQC (2,364 firms)

Non‐EBPAQC (4,994 firms)

Source: DOL 2011 Form 5500

82,579 ERISA audits

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EBPAQC Website—aicpa.org/ebpaqc

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Sharing Access to the Center Website with Staff

When your firm joined the Center you received a welcome email that contained your firm’s unique activation link.

You will need this link both to activate your account and to share access with others.

If you no longer have that email, please contact the Center at [email protected] and request that the link, along with instructions to activate the link, be resent.

There is no limit to the number of individuals in your firm to whom you grant access

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EBPAQC Webinars

New membership requirement for 2015

DP must participate in one of these EBPAQC Designated Partner Audit Planning webinars :

- January 21, 2014 (live webinar)

- February 24, 2014 (rebroadcast)

- May 7, 2014 (rebroadcast)

- June 9, 2014 (rebroadcast)

- Or watch archive version on EBPAQC website (available 24/7)

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Upcoming EBPAQC WebinarsLook for future EBPAQC EAlerts for registration information.

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May 1, 8,

15, 27

401(k) Basics‐ 4 Parts

May 5 Using SOC 1 Tool (Rebroadcast)

May 7 Designated Partner 2015 Audit Planning (Rebroadcast)

May 28 Managers and Supervisors 2015 Audit Planning

(Rebroadcast)

June 9 Designated Partner 2015 Audit Planning (Rebroadcast)

June 16 Investment Accounting and Reporting

June 23 Auditing Investments

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Archived EBPAQC Webinars

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Event Date

Defined Benefit Plan Audits

ESOP Audits

401(k) Basics

Health and Welfare Plans, Part 2 ‐ Audit Planning and Risk Assessment

July 16, 2014

June 13, 2014

May 9,22,30,June 6

July 17, 2013

Health and Welfare Plans, Part 1 – Introduction and Industry Update July 10, 2013

Multiemployer Plan Audits 2013 June 12, 2013

Using the Center's SOC 1SM Documentation Tool June 5, 2013

ASU 2011‐04 Fair Value Disclosures January 25, 2013

Understanding Insurance Products Offered to Employee Benefit Plans July 25, 2012

Employee Stock Ownership Plans (ESOPs) June 13, 2012

EBPAQC Tools and Resources: Getting the Most From Your Membership November 30, 2011

401(k) Plan Tax and Compliance Issues for Auditors July 13, 2011

Employee Benefit Plan Audit Sampling June 8, 2011

Auditor Communications: Best Practices and Common Pitfalls November 10, 2010

Investment Products Offered by Insurance Companies July 21, 2010

Fraud Risks in Employee Benefit Plans February 17, 2010

Available on the on the EBPAQC website


Documentation of review of nonattest services

New Tool- Auditor Independence

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Do nonattest services impair independence?

Has any “prohibited” nonattest services been performed?

Has an understanding with the client has been established and documented in writing?

AICPA Ethics rules to state that financial statement preparation and cash-to-accrual conversions performed by the member for a client should be considered nonattest services

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Documentation of review of actuarial report in audit

New Tool- Actuary Report

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Actuary's competence, capabilities, and objectivity

Benefit information date Objectives, scope of work,

and assumptions used Census data Auditor's conclusion


New Primer- Health and Welfare Plans

Overview of health and welfare plans

Defining the plan Unique aspects of health and

welfare plan contributions Funding of benefits Key roles and responsibilities Annual health care process Unique aspects of health and

welfare plan benefit obligations, benefits administration

Additional resources

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H&W Plan Primer

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New Plan Advisory

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Why a Financial Statement Audit Is Important

Risks to Plan Sponsors if a Quality Audit Is Not Performed

Evaluating Auditor Qualifications The Proposal Process Documenting the Agreement Additional Resources

Hiring a Quality Auditor


EBPAQC Resources- On the Horizon

Coming soon!

• EBP audit best practices tool

• ESOP appraisal documentation evaluation tool

In the future...

• Plan document evaluation tool

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EBP Audit Report Project

AICPA Auditing Standards Task Force considering modifications to the auditor’s report (full and limited scope)

Describe what the auditor did and found

Improve transparency and user understanding

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EBP Reporting and Assurance Models Project

Explore and recommend alternative reporting and assurance models for EBPs

Better serve the various EBP stakeholder needs, including plan participants, plan sponsors and administrators, and the DOL

Models may either replace or supplement the current GAAP/GAAS financial statement model required by ERISA and DOL regulations.

May relate to financial reporting (i.e., GAAP or a special purpose reporting framework), compliance with laws and regulations, and/or internal control

Consistent with GAAS or the statements on standards for attestation standards (examination, review, agreed-upon procedures

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FASB Advocacy on EBP Accounting and Reporting

EBPAQC and Expert Panel engaged in substantial advocacy efforts

Goal: Raise FASB awareness about the uniqueness of employee benefit plan financial statements, including their purpose, users and preparers.

Observations about difficulties encountered in practice

• 26 page discussion memorandum (“Bucket List”) that identifies areas in current accounting affecting EBPs that are

- conflicting, redundant, irrelevant, or

- incomplete due to the specialized characteristics of plans.

Result: FASB has agreed to take on a research project on EBP financial reporting issues.

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EITF Agenda- EBP Simplifications

EITF Issue No. 15-C, "Employee Benefit Plan Simplifications“

Issue paper was prepared by a working group from the AICPA EBP Expert Panel, plan sponsors, service providers, and the DOL as a result of ongoing AICPA advocacy efforts

Discussed at the March 19th EITF meeting

Considering disclosure simplification for employee benefit plans related to: • fully benefit-responsive investment contracts,

• disaggregation of plan assets, and

• measurement date practical expedient.

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AICPA Suggestions to Tax Reform Working Group on Savings and Investments

March 26, 2015 AICPA Tax Executive Committee letter to Senate Committee on Finance Tax Reform Working Group on Savings and Investments

Recommendations to simplify employer-sponsored retirement plans and individual retirement accounts (IRAs):

1. Create a Uniform Employee Contributory Deferral Plan;

2. Eliminate Certain Nondiscrimination Tests on Employee Pre-tax and Roth Deferrals for 401(k) Plans, Matching Contributions;

3. Eliminate the Top-Heavy Rules;

4. Create a Uniform Rule Regarding the Determination of Basis in Distributions;

5. Create a Uniform Attribution Rule;

6. Create a Uniform Definition of Owners;

7. Change the Required Minimum Distribution Rules During Life and Remove Half-Year Age References; and

8. Create Uniform Rules for Early Withdrawal Penalties

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AICPA Audit Quality Initiatives

and EBP Audits

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ERISA Audit Quality “Ingredients”

Qualifications

• Licensed and independent (ERISA requirements)

• Code of Professional Conduct (AICPA)

Standards

• AICPA Firm Quality Control Standards

• GAAS/AICPA EBP Audit and Accounting Guide

Monitoring

• Peer review (ERISA audits are “must select”)

Enforcement

• AICPA Professional Ethics investigations

• State Boards of Accountancy (license)

Commitment

• EBPAQC

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Journey to maintain excellence

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AICPA Enhanced Audit Quality Initiativeand EBP Audits

EAQ initiative will enhance the quality of audits of private entities, including EBP audits.

EAQ is a holistic approach with major changes being proposed to peer review, standards, enforcement and other areas.

The EAQ will affect how your firm approaches your EBP audits even if your firm performs just one or a few.

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AICPA Enhanced Audit Quality Initiative

Peer ReviewPerform more extensive peer review procedures on high-riskand complex areas and engagements.

Address the risks posed by low-volume auditors of high-risk and complex engagements by requiring the firm, in all cases where material non-conformity with applicable professional standards is noted, to engage a third party to perform pre- or post-issuance reviews of those engagements in the future with periodic reporting to a peer review Report Acceptance Body (RAB).

Evaluate firms’ engagements in “new” industries promptly, rather than waiting for their next peer review.

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Peer Review (continued)Enhance the quality of peer reviewers by introducing a streamlined process for barring reviewers who do not meet required performance criteria.

Establish systems to facilitate the identification of the firm and engagement populations subject to peer review.

Explore ways in which peer review reporting can better articulate information users find meaningful.

Facilitate the prevention of audit quality issues before they start by developing a next generation of peer review that provides firms with near real-time feedback on their accounting and auditing practice, enabling them to quickly leverage and implement prescriptive measures, in some instances even before an engagement is completed.

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Ethics Enforcement

• Use publicly available information to proactively identify deficient audits and require members to correct the deficiencies.

• Consider sanctions, including admonishment, suspension or expulsion from AICPA membership, when a firm has failed to provide the AICPA Peer Review Program with a complete list of engagements that should be subject to review. The AICPA’s action would be reported to the appropriate regulators.

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Auditing and Quality Control Standards

• Monitor the use of the Auditing Standards Board’s new clarified auditing standards to ensure they are being consistently understood and implemented to achieve high-quality audits. Revise standards, issue supplemental guidance or provide additional education and tools as necessary.

• Identify and better understand where and how audit deficiencies occur and their root causes so revisions can be made to the appropriate standards and/or guidance.

• Consider whether more specificity is needed in the quality control standards to drive quality performance.

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Peer Review and Ethics EBP Audits

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Peer Review Findings- ERISA Audits

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Non-EBPAQC firms are 3X more likely to have a nonconforming ERISA audit engagement

EBPAQC firms have a peer review pass rate of 94% compared to 78% for non-members


Themes of Deficient Audit Work

Overreliance

• SOC 1 reports

• Work performed by actuaries

• Work performed by appraisers

• Predecessor auditor work

Lack of skepticism

Checklist mentality/complacency

Lack of audit experience – EBP or otherwise

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AICPA Ethics Investigations of EBP Audits

DOL and state societies continue to refer deficient audits to the AICPA Professional Ethics Division

Over 900 referrals to AICPA Ethics Division since early 1990s

- expect 130+ referrals in 2014-2015

An independent review is performed on all cases

AICPA Ethics Division findings typically are consistent with DOL findings

AICPA’s focus is on rehabilitating the practitioner

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EBPAQC Resources

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EBPAQC Resources

EAlerts

Webinars

Website

Member‐to‐member Forum

Resource Centers

Tools

Primers

Plan Advisories

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24 EAlerts issued in the past year

Are you sharing EAlerts with your staff?

Also archived on EBPAQC website

EAlerts

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The Importance of Hiring a Quality EBP Auditor (New) EBP Financial Statement Audits Plan Investments Internal Controls Monitoring Outsourced Recordkeeping and Reporting Understanding Auditor Communications

Plan Advisories

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EBP Fraud ToolDOL Criminal Enforcement Cases

Updated—Summary of over 185 EBP fraud cases

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Internal Control Communications Examples Tool

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• Oversight of the Financial Reporting Process

• Investments• Selecting,

Monitoring, and Valuing Plan Investments

• Securities Lending • Participant Loans • Bank Reconciliations• Claims Processing• Forfeitures

• Participant Accounts • Monitoring • Contributions • Employee

Contributions • Employer

Contributions • Eligibility

Distributions • Benefit Payments • Vesting Matters • Third Party Service

Providers • Multiemployer Plans

• Monitoring and Review

• Payroll/Personnel Records and Census Data

• Maintaining Records • Demographic Data • Census Data • Other • Plan Fees • Parties‐in‐Interest • Uncashed Checks• Plan Amendments

Updated—Over 135 example comments

Send us additional examples! Email to Center mailbox at [email protected]


SOC 1 Review Documentation Tool

Use to help document review of SOC 1 reports issued in accordance with SSAE No. 116• Summarize procedures and findings related to controls at a

service organization relevant to plan audits

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Other Tools and Aids

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Firm Preparedness Checklist for Employee Benefit Plans

Internal Inspection Tool

Responding to Requests for Proposals

Marketing Toolkit


8 forums

3,700 participants

2,500 topics posted

Valuable resource

Member-to-Member Discussion Forum

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Accounting and Audit Resource Centers

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Upd

403(b) Plans Auditor Communications Auditor Independence Defined Benefit Pension Plans SOC 1(SM) Reports and Service Organizations Employee Stock Ownership Plans (ESOP) Form 11-K Audits Fraud in Employee Benefit Plans Health and Welfare Benefit Plans Internal Control Limited Scope Audits Multiemployer Employee Benefit Plan Audits Pension Protection Act of 2006 Plan Investments Parties in Interest and Prohibited Transactions


EBPAQC “Topix” Primers

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Limited Scope Audits Tax and Compliance Issues for 401(k) Plans Parties in Interest and Prohibited Transactions Insurance Company Products Offered to

Employee Benefit Plans Alternative Investments in Employee Benefit

Plans Plan Investments in Bank Collective Investment

Funds Stable Value Funds and Investment Contracts Employee Stock Ownership Plans (ESOPs) Multiemployer Employee Benefit Plans 403(b) Plans Cash Balance Plans Plan Sponsor Subsidies Under the Medicare

Prescription Drug, Improvement and Modernization Act of 2003

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Limited Scope Audit Primer

Discusses:• Statutory and regulatory exemption

• Proper certifications from qualified institutions

• Plan administrator’s responsibilities

• Current environment

• Scope of testing

• Reporting

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401(k) Tax and Compliance Primer

Discusses:

• Tax advantages of plan qualification

• Plan qualification requirements

• Plan design

• IRS determination letters

• Non-discrimination tests

• Other operating tests

• Safe harbor plans

• Plan document failures

• Operational errors

• IRS correction programs

• UBIT considerations

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Parties in Interest and Prohibited Transactions Primer

Discusses:

• Party in interest under ERISA vs. related party under GAAP

• Prohibited party in interest transactions

• Administrative and statutory exemptions

• Reporting requirements for party in interest and non-exempt transactions

• ERISA or IRC penalties

• Voluntary Fiduciary Correction (VFC) Program

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Common EBP Audit Deficiencies

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SOC 1 Review Documentation Tool

Use to help document review of SOC 1 reports issued in accordance with SSAE No. 116

• Summarize procedures and findings related to controls at a service organization relevant to plan audits

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Other Tools and Aids

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Firm Preparedness Checklist for Employee Benefit Plans

Internal Inspection Tool

Responding to Requests for Proposals

Marketing Toolkit

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Find an EBPAQC Member Firm

Firms by Name

Firms By State

Search on EBPAQC website under Membership

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EBPAQC Marketing Toolkit

Sample General Announcement to All

Firm Staff

Sample Announcement to Employee Benefit Plan

Audit Staff (granting access to website)

EPBAQC Press Release and Press Relations

Guidelines EBPAQC Logo Usage and Guidelines

Client Communication

Client Talking Points

Newsletter Sample

Sample Web site Text

Networking Strategies Marketing Strategies

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Questions

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2 overview - coming soonmacpamedia.org/media/downloads/2015ebp/dol_ppt2… · · 2015-04-20•...

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