Here are the important areas related to the administration of your employee benefit plan to include in your "pre-audit":

Read the plan document – You probably haven't read it for some time. That's understandable. It's long, written in legalese, and you may think that you've been following it all along. Often, those administering the plan fall into a routine and inadvertently stray from some of the terms of the document. Take time now to go back to the plan document, read it closely, refresh your memory on all of the key elements, and make sure you are operating in accordance with the plan document.
Check your personnel files for completeness – In the past, when employee files were maintained entirely in hard copy, the importance of obtaining and maintaining copies of all personnel records in a single location was clear. Today, employee information exists in a mix of electronic documents and hard copies and can be less formal, which leads to the possibility of these files being incomplete or inaccurate. If your employee benefit plan is audited in the future, the auditor will compare the employee information on file with the census information maintained by the plan's record keeper. Inaccuracies between personnel files and plan census information can lead to participants being admitted to the plan, becoming eligible for employer contributions and vesting in those contributions inappropriately.
Get to know the "timeliness of deposit" rules – It is imperative that you remit the employees' contributions as soon as those contributions can reasonably be segregated from the company's assets. Some companies believe they have 15 business days to remit employees' withholdings to the plan when in fact this is not a safe harbor. In evaluating the timeliness of your deposits, the DOL will consider, among other factors, the pattern you have established for remitting withholdings and your ability to segregate other types of withholdings (eg. Social Security). Complying with the latest "timeliness of deposit" rules will prevent a DOL prohibited transaction from occurring and assist with a smooth plan audit.
Review the definition of compensation – In the plan document, there is a very clear definition of what is considered compensation relative to the employees' contributions, and it must be followed. Certain types of special compensation, including bonuses, overtime, and tips, are sometime treated by the plan administrator differently than basic salary. It's best to have a clear understanding of how your plan document defines compensation and ensure that you are treating all such compensation accordingly.
Review the SSAE 16 reports of your service providers – Every year, you should receive a copy of the SSAE 16 (formerly "SAS 70") report from your service providers, including your payroll provider and plan record keeper. While the SSAE 16 is long and hard to read, you can cut to the chase and learn a lot by reading the user controls consideration section. This section of the report provides you with a clear checklist of where your company needs to have appropriate internal controls in place. Many plan administrators are surprised at where the line is drawn between their responsibilities and the service provider's responsibilities. Know where these areas are and build or strengthen your internal controls to be prepared for when the auditor starts asking the questions.
Assess how forfeitures are being handled – When participants leave the plan before full vesting, any forfeited amounts are left behind. This brings us back to our first point: read the plan document. The plan document has clear instructions on how this money should be utilized that are sometimes not followed. The DOL also has regulations about the treatment of forfeitures that need to be considered. Since these amounts may often be used to reduce employer contributions, appropriate and timely utilization of forfeitures can actually save the company money, not to mention preventing problems with the audit.

If you know that your benefit plan is going to have 120 or more participants for the first time or is heading in that direction, it is wise to take a fresh look at the operations surrounding your employee benefit plans to prepare for your first audit. Reexamining and updating your practices will benefit the company, the plan, your employees, and your auditors.

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Six ways to prepare for the first benefit plan audit

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