Knowing what to expect prior to the start of an employee benefit plan audit can help make the process quick and efficient. Whether your employee benefit plan is about to be audited for the first time or you are looking to improve upon the audit process from the prior year, consider these tips to prepare for an audit of your plan and maximize efficiencies. Achieving audit efficiencies means reducing your time and keeping your costs down, a goal easily attained with proper planning. Planning Be prepared to discuss with the audit team key policies and procedures that impact operation of the plan, any changes to such policies and procedures, any changes to the plan document, and any known or potential compliance issues. An understanding of these items early in the audit allows the audit team to easily identify and focus on risks pertinent to your plan.  Make the audit team aware of key plan resources available during the audit. Successful planning requires a solid understanding of the plan and good communication with the primary contact responsible for the overall audit process, including overseeing preparation of the plan’s financial statements and Form 5500, Annual Return/Report of Employee Benefit Plan. Establish a single point of contact for the audit team. Designating a single person with whom the audit team communicates helps create a smooth and efficient process. This is often a member of the plan sponsor’s benefits or accounting department, generally whoever has primary responsibility for the administration of the plan. The designated contact can direct auditor requests internally, to the third party administrator (TPA) and other involved parties, as appropriate. This prevents overlapping or duplicate efforts and keeps the primary contact involved with all communications related to the plan audit. Be familiar with the plan’s investments. The arrangement in which investments are held determines the scope of the audit (limited scope or full scope). The type and complexity of investments determines the extent of audit procedures and financial statement disclosures required. The planning stage is the time to gather required disclosure information about the plan’s investments from the plan’s custodian or investment advisors. This is especially important if the plan invests in alternative or hard-to-value investments. Provide ready access to documents requested on the auditor’s request list, along with a draft of the plan’s financial statements, prior to the start of fieldwork. The auditor’s request list will typically include items such as updated plan documents or amendments, an employee census report, the annual auditor package from your TPA, activity-level internal control narratives, spreadsheet templates to summarize certain plan activity and completed confirmation templates. Confirmations can be a relatively easy way to obtain audit evidence over certain demographic data and plan activity. The confirmation process can be done via email or paper requests. Participant confirmations tend to be most effective when sent early in the audit process and when the recipients are aware of the timing and importance of the document they will receive. Fieldwork Be available to meet with the audit team to discuss key plan processes and controls at the activity level and plan level, as well as the plan’s information technology controls. The audit team will want to meet with those responsible for key plan processes and controls in order to understand the implementation of these controls. Be ready to discuss any financial statement line items and footnote disclosures that need updating in the working draft of the plan’s financial statements. Involving the plan’s TPA in discussions with the audit team regarding the plan’s investments can help reduce or prevent back-and-forth communications between you, the audit team and the TPA. Be prepared with documents the audit team will need for tests of participant and plan-level data. Key testing areas include contributions, participant data, eligibility, an election not to participate, allocations to participant accounts, participant loans, benefit payments and any other significant plan transactions during the year. Also, be ready with data regarding the plan’s nondiscrimination testing, forfeitures applied and any prohibited transactions that may have occurred, such as late remittance of participant contributions to the plan. In the case of a full scope audit, investment valuation and transaction testing will be performed as well. Prior to leaving the field, the audit team will provide a comprehensive list of items required to wrap-up any open questions or testing and, together with you, will establish a timeline for completion of these. Wrap-up Be available for any final questions as draft financial statements are reviewed and comments are accumulated for final edits by all parties. Adjusting journal entries and passed journal entries to the financial statements, if any, will be discussed. Along with finalizing the financial statements, final audit communications will be presented for review. This includes a management representation letter to be signed and returned to the audit team, as well as letters that discuss the audit process and any findings during the course of the audit. And lastly, the draft Form 5500 will be reviewed to ensure it agrees to the draft audited financial statements, prior to issuance of the audit report. Summary Work together with your plan’s auditor during the planning stage of the audit and inform them of the plan’s activity for the year being audited. Be prepared for the auditor’s onsite fieldwork and try to conclude the process as soon as possible after fieldwork. Prompt attention to questions that arise over the course of the audit will help complete the audit timely and maximize efficiencies.

Knowing what to expect prior to the start of an employee benefit plan audit can help make the process quick and efficient.

Assurance

Employee Benefit Plan Audit

Top tips to prepare for an employee benefit plan audit

Authored by Paul Dillon, Michelle Hobbs and Michael Wronsky The Small Business Administration (SBA) released an interim final rule covering Paycheck Protection Program (PPP) loan forgiveness attributable to owner-employee compensation and certain nonpayroll costs. Specifically, the guidance provides a 5% threshold for determining C and S corporation employee ownership and adds potentially significant limitations on amounts eligible for forgiveness relating to rent and lease arrangements.  Key takeaways C and S corporation owner-employees Compensation paid to employees with less than a 5% ownership stake in a C or S corporation will not be subject to the more stringent forgiveness limitations. Since Congress did not intend windfalls to owners applying for PPP loans, previous guidance placed additional limits on business owner pay. The SBA explains this new 5% exception is to prevent the more strict limitations from applying to compensation of “owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.”  Whether this exception also applies to noncash compensation paid to such owner-employees is unknown. Pursuant to a previous interim rule, payments for noncash compensation are not forgivable if included in the owner-employee’s wages (as a matter of general tax principles). For example, health insurance premiums paid on behalf of an S corporation employee would be included in their wages if their ownership stake in the business was greater than 2% and, thus, these premiums would not be eligible for forgiveness. We expect further guidance to explain whether the exception applies solely to cash compensation. Nonpayroll costs attributable to borrower’s tenant or subtenant not forgivable PPP loan forgiveness applications cannot include costs attributable to tenants or subtenants of the borrower. To illustrate, the rule uses an example: a PPP borrower rents office space for $10,000 per month and subleases a portion to another business for $2,500 per month. In this instance, forgiveness for the borrower’s rent expense is limited to $7,500. This limitation would also apply to any mortgage interest or utilities expense attributable to the subtenant. Finally, loan forgiveness may not include household expenses associated with home-based businesses. Rent and mortgage interest payments to a related party Rent or lease payments to a related-party landlord can be forgiven. However, eligible amounts cannot exceed the amount of mortgage interest owed on the property attributable to the rented space during the covered period. This can be particularly problematic as some businesses rent from related-party owners that do not have a mortgage on the property.  For these purposes, the rule considers any common ownership between the business and the property owner as constituting a related party, with no de minimis exception. Conversely, mortgage interest paid to a related party is not eligible for forgiveness. The SBA rationalizes that the PPP is intended to cover certain nonpayroll-related payments owed to third parties and should not apply to payments that arise merely due to how the business is structured. This appears to be the case whether the common ownership is 1% or 100%, although it is not certain this is the intended result. We are hopeful clarifying guidance on this, as well as the owner-employee noncash compensation issue, will be is forthcoming ahead of when 24-week covered periods will begin expiring in September.  Expenses funded by forgiven loan proceeds remain nondeductible As a reminder, while Congress continues to consider the issue, expenses related to any loan forgiveness remain nondeductible for federal tax purposes. It is unclear whether this will be addressed when lawmakers return from their August recess.  We encourage you to reach out to your Baker Tilly tax advisor to discuss how the above may affect your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The Small Business Administration released guidance related to the Paycheck Protection Program’s loan forgiveness limitations for owner-employees and nonpayroll costs.

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Authored by Timothy Kosiek and Christopher DeMarco The small business owner's guide to the CARES Act For borrowers with a straightforward PPP loan compliance environment, we have developed a self-service, Excel-based loan forgiveness calculator. But if your situation is more complex, or you have limited staffing available to support the loan requirements, we can provide an automated approach to forecasting eligible spend, monitoring specific payroll exceptions, and managing compliance with final documentation requirements.
Business owners have been strongly affected by COVID-19 and are left with many questions. The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress are intended to assist them in overcoming the current challenges. Baker Tilly developed the below FAQs to guide business owners as well as certain not-for-profits and other employers during this uncertain time.  NOTICE: Baker Tilly is providing updated information as it becomes available. Due to the nature of the emerging and rapidly evolving information from government and non-government relief programs, some requirements and offerings may change before they are listed here. Please consult with your loan officer for the most current details. Paycheck Protection Program (PPP) loans The program provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans are forgiven up to the full principal amount of qualifying loans guaranteed under the PPP, which would help your workers remain employed, as well as help your small businesses and our economy to snap back quicker after the crisis.  PPP has a host of attractive features, such as forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between Feb. 15, 2020, and June 30, 2020. This program would be retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls.  View the PPP application Expand the section(s) below to view the FAQ.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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On July 16, 2020, the Court of Justice of the European Union (CJEU) ruled that the EU-U.S. Privacy Shield Framework, designed by the U.S. Department of Commerce and the European Commission, is no longer valid for transferring the personal data of European citizens and residents out of the EU to the U.S. The General Data Protection Regulation (GDPR), which went into enforcement in May of 2018, sets forth the principles and requirements for how personal data of Europeans can be used or processed by organizations, requires that data transferred outside of the EU must have a valid mechanism to support its transfer. While some countries have been deemed to have adequacy by the European Commission based upon their own national data protection laws, the U.S. has not. For this reason, many organizations in the U.S. have relied on Privacy Shield, an agreement between the EU and U.S., which grants adequacy to U.S. organizations that adopted the Privacy Shield Framework and Principles and self-certified to their compliance for processing European data. The ruling The July 16 ruling came out of the Schrems II Case and simply stated that Privacy Shield does not provide adequate protections to EU citizen or resident personal data due to U.S. authorities use and access to that data through surveillance and other U.S. governmental practices. This decision has left over 5,000 active Privacy Shield participants having to rely upon another mechanism for cross-border transfers, such as Standard Contractual Clauses (SCCs), to be GDPR compliant. Fortunately, for these organizations, the Court upheld SCCs; however, organizations must now also take into consideration relevant aspects of the legal system where the data will be transferred.  The ruling also seems to have left the door open for the SCCs to be revised in the near future. The ruling has been an earthquake in the data privacy world leaving organizations scrambling to determine the impact and next steps, and furthering the calls for U.S. surveillance reform or a U.S. national data privacy law similar to the GDPR.   What should U.S. organizations do right now? If your organization processes the personal data of Europeans as either a data controller or a data processor, and you are Privacy Shield self-certified, the advice out of the UK’s Information Commissioner’s Office (ICO) is to maintain your Privacy Shield certification and obligations. It must be noted, if you choose to leave Privacy Shield, there is a required process and you may find it more of a challenge than its worth. If your organization is not currently Privacy Shield self-certified and you process the personal data of Europeans, now is not the time to begin the process according to the ICO.  Regardless of whether you are Privacy Shield self-certified, or if you are a data processor or data controller, now is the time to refer to your records for processing documentation (you did create records of the processing documentation as required by Article 30 of the GDPR, right?), and evaluate the mechanisms you rely upon for processing European data. You should ensure your contracts have the GDPR SCCs in place and if not, work with your data controllers or data processors to sign data processing agreements.   You may find that savvy or apprehensive EU-based organizations, and even individuals, are going to ask questions about your organization’s transfer mechanisms, Privacy Shield status and data processing activities. Once your organization has established its mechanisms, develop a statement that explains what mechanisms you rely upon. Do so in a clear and concise manner so that the organizations and individuals with whom you interact feel confident you are protecting their personal data appropriately and lawfully. Remember, nothing breeds concern like ambiguity, confusion and inconsistency.  Data privacy is a complex and continually evolving issue. We are here to help. For more information or help with data privacy at your organization, contact our team.

The Privacy Shield Framework is no longer valid for transferring the personal data of European citizens to the U.S. A valid mechanism is required by the General Data Protection Regulation (GDPR).

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Privacy Shield no longer a valid mechanism for cross-border transfer of personal data

It has been quite a year and we’re not even half way through. A declared pandemic, multiple rounds of government-injected stimulus packages and nationwide closures have completely changed the way we currently do business. Only three years ago, we were just beginning a conversation about major tax reform. Now, many of those historical tax changes have been rolled back or deferred in an effort to help taxpayers survive the COVID-19 pandemic and resulting economic collapse.  The general theme of the tax provisions enacted in the past few months has been to increase deductions, reduce restrictions on the ability to utilize losses, and provide opportunities to carry back net operating losses and claim refunds. Changes include correcting the so-called “retail glitch” in the Tax Cuts and Jobs Act that had failed to classify qualified improvement property as bonus eligible with a 15-year life, ease restrictions on the deductibility of business interest expense, and allow taxpayers to retroactively make certain changes back to 2018.  Taking each provision alone, they sound relatively simple. However, their interplay coupled with the processing of amending prior returns, considering different tax rate structures, and revising past elections add considerable complexities in analyzing how to best apply these new rules for yourself and your business. To supplement our alerts and webinars, we are summarizing here how to take advantage of the many facets of the stimulus packages. 
Visit the sections below for more on what taxpayers need to know to help them through the pandemic and beyond: Planning to manage the QIP and business interest expense changes Should you consider a casualty loss provision for your business?  Federal coronavirus rescue programs
– Paycheck Protection Program
– Economic Injury Disaster Loans (EIDL) Program
– Employee retention credit Upcoming compliance deadlines for reacting to CARES Act changes  Lease modifications: Watch out for IRC section 467  Working with the IRS during a pandemic  International taxation relief provisions  States’ reactions in a pandemic environment 
For more information, please visit our Coronavirus Resource Center.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Baker Tilly’s federal, state and local, and international tax professionals review how taxpayers of all types and sizes can benefit from the coronavirus stimulus packages.

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