Preparing for an Audit There are a number of ways to get your team ready for a pension review. 1. Be engaged during the planning and scoping phase. This will enable you to provide input on high-risk areas. 2. Advise your team of the benefits of an internal audit, so that it is not viewed as a threat. 3. Obtain buy-in from your team by having employees assist with the collation of data or information requested by the internal auditors. 4. Make sure that key process owners are available during the audit to respond to the auditors’ queries. 5. Proactively identify opportunities to add value based on your experience. At a minimum, answer the question “What keeps you up at night?” to determine significant risk areas. 6. Make sure that you are informed of opportunities for improvement as they are uncovered during the course of the audit, and develop a corresponding action plan to maximize these opportunities. 7. Have an open mind. Internal audit is there to help you improve a business function, not to criticize your operations. |
What To Expect
An internal audit can be an end-to-end review of pension and administration processes or an evaluation of one particular process. Such a project typically includes the following elements:
• a review of key documentation and background materials, such as policies and procedures, reports and performance indicators;
• testing of sample procedures and/or controls for accuracy, such as the benefit calculations and assumptions;
• determination of the process to ensure compliance with regulatory standards (particularly across multiple jurisdictions);
• a review of the adequacy of the segregation of duties and the minimization of potential fraud and errors;
• interviews with process owners to understand the process and controls;
• an evaluation of the key systems for security, data integrity and management; and
• relationship management with vendors, such as the actuary and/or the plan administrators.
The output from an independent internal audit is a report that outlines the findings, opportunities for improvement and corresponding recommendations. Generally, the internal auditors will solicit the sponsor’s input on the observations, the action plans and those responsible for implementing them, and the corresponding timelines. Often, status updates and/or follow-up reviews are conducted to determine if the action plans have been appropriately implemented.
While some companies have dedicated internal audit resources, few have the technical know-how to conduct an effective pension review in its entirety. For this reason, external resources are often engaged to either assist with or conduct the internal audit. Using third-party resources can yield additional benefits. Having a fresh set of eyes with the necessary subject matter knowledge and experience can improve the quality of the review. These external resources can also provide insights into current leading practices, resulting in recommendations for improving existing processes and controls.
Internal audit has matured into a function that adds value—particularly when it takes advantage of third-party expertise. A review of pension processes is an effective way to assess the level of controls and risks. Especially in today’s volatile environment, internal audit is a much-needed function to ensure good corporate governance and strong risk management.
Uros Karadzic is a senior manager with Ernst & Young LLP’s human capital/performance and reward practice, and Monica Chadha is a senior manager with the firm’s advisory practice in Toronto.
uros.karadzic@ca.ey.com
monica.chadha@ca.ey.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the July 2009 edition of BENEFITS CANADA magazine.