EBP Audit Season with Offshore Staff: Capacity Planning for Form 5500 Deadlines

Each Employee Benefit Plan (EBP) is required to file a Form 5500 with the Department of Labor on an annual basis. Since most Employee Benefit Plans are designed to operate on a calendar year, these forms are typically due to be filed on July 31 following the close of the plan year. For those that require an extension (e.g., October 15), missing the filing date can result in significant penalties for both the plan and plan administrator/sponsor. Penalties have been increasing significantly in recent years and can exceed $2,670 per day with no maximum for late filing. Thus, the seven months or so following the close of any given EBP audit season represents one of the most pronounced capacity challenges for any CPA firm and needs to be effectively planned in advance.

Offshore staffing can handle a large portion of the work, but it is essential to recognize that EBP audit work is extremely compliance driven. So, the manner in which one would plan for normal busy season or for tax season for example, is not exactly how one would plan for this work. There is specific work that can be handled offshore and we will outline that for you as well as the work that must be handled by in-house personnel.

Why EBP Audit Season Is a Capacity Problem, Not Just a Busy Season

Because a large number of Employee Benefit Plans operate on a calendar year basis, most EBP audits will be performed and completed within the same narrow time frame as other 12-month plans. As a result, in additon to completing the necessary field work, testing, and Form 5500 preparation, the same EBP audit work must be coordinated with other client work of similar scope and magnitude in order to meet the appropriate deadlines.

Audits under SAS 136 will be more complex than prior audits particularly in regard to ERISA compliance testing. In addition to extra testing, increased documentation will be required which will cause a firm’s current staff to be stretched to meet the demands of these audits as well as other clients during the Form 5500 filing season.

In other words, these types of seasonal spikes in high volume work are exactly what offshore staffing is designed to handle. Just make sure you scope the work properly and clearly define the compliance boundaries for the staff member handling the audit work.

What Offshore Staff Can Support in an EBP Audit

Good fit for offshore support:

• Preparing and organizing audit workpapers and lead schedules

• Testing of participant data (e.g. census reconciliation, eligibility testing, contributions etc.)

• Testing of investment activity and distributions against plan documents

• Drafting financial statement schedules (Schedule H, Schedule of Assets)

• Tracking open items and outstanding client requests

• Preparing draft Form 5500 schedules for reviewer sign-off

• Reconciling trust statements to recordkeeper reports

• Organizing confirmation responses and follow-up tracking

Keep in-house:

• Audit opinion sign-off and engagement partner review

• Risk assessment and audit planning decisions

• Client-facing discussions on findings or plan deficiencies

• Final judgment on materiality and sampling scope

• Any item requiring a signature from a licensed CPA (i.e. Engagement Partner, Principal)

As noted previously, work that can be completed and tested by offshore staff is done and reviewed by ETP Team members before they render their professional judgment and sign.

Building the Capacity Plan: Work Backward from October 15

I try to build the CPAA cadence for EBP season far enough in advance (i.e. to start in late September) and work backward from the date of the Form 5500 filing (e.g. Oct 15, extended to mid-Nov) to create a realistic calendar, rather than starting at a typical date for commencement of fieldwork and working forward.

The Form 5500 return is due on or before the date indicated by the Form 5500 due date (or extended due date if applicable). Therefore, reporting and review can take roughly 3-4 weeks prior to the filing date. Since the Field Work Completion needs to occur prior to this date, and Document Collection prior to the commencement of Field Work, it is important to create a backward calendar map that reflects the run-time required for the completion of these tasks in relation to the Client’s Year End. The scheduled capacity of your Offshore Staff must be created against this backward calendar map, not against the availability of time of the Partner that is responsible for their onboarding.

Checklist 1: Capacity Assessment — Before Season Starts

• Total number of audits for EBP for the current season's plans reviewed.

• Is there more than one year end for a plan and thus filing dates for the plan that may be overlapping.

• Draw up a map of all of the seasonal work of your firm for this year’s tax season. Identify any peak points to be sure that you have enough people to service all of your clients throughout the season.

• Actual testing hours per plan (based on last year’s actuals not on estimates).

• You've identified which specific tasks (census testing, contribution testing, workpaper prep) are suitable for offshore support this cycle

• Were last year’s EBP audits completed entirely in house, or did the firm rely on overseas staff to assist in completing audits on time, and were there any instances of last-minute ‘crunch time’ to complete an audit in time?

• New SAS 136 Requirements – Additional Hours Needed to Complete?

• Set a firm-wide internal completion date, at least 3 weeks prior to the DOL filing date.

Checklist 2: Scoping Offshore Support for EBP Work

• The offshore staffing partner can confirm they have experience with EBP/ERISA audit work and not general audit work.

• Staff assigned have experience with the plan types you audit (401(k), defined benefit, health and welfare)

• Staff assigned have sufficient experience with the applicable software and other tools your firm uses (e.g., PE and PE prep work, ER workpapers, etc.).

• Specify the individual testing steps that will be handled by offshore staff and the others that will be handled by internal staff.

• Set a review point before completing workpapers.

• Data security protocols for participant PII (e.g. SSNs, compensation data and related account balances)

• In the engagement letters or other internal documentation for the audit, reference that offshore resources were used.

• You've identified the person at the offshore firm that will be your contact throughout the engagement.

Checklist 3: Data Security for EBP Engagements Specifically

EBP audits contain a huge amount of personal data and financial information of participants. This needs to be treated differently than normal offshore work and should be reviewed separately from your general offshore data policies.

• Participant census and compensation data is accessed only through secure, role-restricted systems

• No participant PII is downloaded to local or personal devices.

• Access is restricted to only those plans being currently worked by the overseas staff member.

• Multi-factor authentication enforced for access to all systems handling plan data.

• Review cyber liability insurance for offshore data work.

• The confidentiality agreement for the offshore experts refers to financial and personal data of the plan participants.

• Documentation exists on how to revoke access to a particular plan once the fieldwork for that plan has been completed.

Checklist 4: The 12-Week Runway to Form 5500

Use this as a working timeline once you have created a plan for your additional capacity needs for the upcoming season. Make sure to note whether you have an extended or unextended deadline for the filing of Form 5500.

• Weeks 1–2: Finalize offshore plan scope; confirm access and begin assignment of plans to offshore team.

• Weeks 2–4: Client document requests are sent out; offshore team organizes / pre-tests data received from client.

• Weeks 4–8: Core fieldwork and testing of census, contributions, distributions, etc. as well as testing of other key components of the plans.

• Weeks 8–9: Workpapers prepared by offshore staff reviewed by the engagement partner and workpapers are organized and closed out on open items.

• Weeks 9–10: Draft financial statements and Form 5500 schedules prepared

• Weeks 10–11: Engagement partner review and sign-off

• Week 11-12: Actually file. Hold several days for any last minute requests from clients or problems found by engagement partner during final review.

• Post-filing: Hold a meeting to determine where offshore capacity for fieldwork added value and where there was not sufficient value and make recommendations for the next fieldwork season.

Common Capacity-Planning Mistakes During EBP Season

• Adopting the wrong model for offshore accounting support. EBP audit support is significantly different from general bookkeeping support, and as such, requires an offshore team with significant EBP audit experience and knowledge of the ERISA and SAS 136 requirements in addition to general accounting experience.

• Waiting until fieldwork has started to onboard offshore staff. If the time for census testing comes and there is no runway left to bring someone up to speed, this would not be an effective use of Intelligus’ services.

• No buffer before DOL filing date. If a client’s late document delivery or a reviewer’s error discovers a problem that requires additional time to complete the Form 5500 filing, there is no room for it in a plan that is strictly completed on time for the date of the DOL’s filing deadline.

• Your firm is a hybrid accountancy practice – utilizing in-house accounting staff in addition to seasonal EBP audit support from offshore accounting professionals. Intelligus recommends scaling up the use of offshore accounting professionals during EBP audit season, when your in-house accounting staff are also busy working on extensions for clients, e.g. individual and corporate tax preparation.

• No documentation of a plan-specific access scope for offshore staff reviewing and preparing workpapers for multiple plans.

Getting Ahead of Next Season

These are firms who plan for next season of EBP audit support several months before. The plan is based on the hours of last season’s work and creates a capacity plan that develops backwards from the filing date. The intricacies of last season of support can be designed and sourced well in advance to handle the same volume of work in the following season with the same quality and service for your clients and your firm.

Intellgus places dedicated offshore accounting staff with US-based CPA firms on a temporary basis for the specific seasonal or recurring work required (e.g. EBP audit support work). He can get this all scoped, secured and staffed with the appropriate levels of experience required for this type of work for next year’s crunch time – i.e. the Form 5500 season deadline that is keeping you up at night now.