Preparing for a Pension Scheme Audit

Pension Scheme Audit Preparation: A Guide

This Knowledge Hub article details the core steps of pension scheme audit preparation. Providing a roadmap for a smooth and efficient work flow process with your pension scheme audit firm.

Pension Scheme Audit Preparation: A stylised graphic showing a roadmap with a start point and an end point, plus Assure UK branding

Understanding the Purpose of a Pension Scheme Audit

Pension scheme audits are crucial for ensuring the proper management and compliance of pension funds. They help verify financial accuracy, regulatory compliance, and overall fund integrity.

Before preparing, it’s essential to understand the audit’s objectives:

  • Ensuring Compliance: Verifying adherence to laws and regulations.
  • Financial Accuracy: Confirming that financial statements reflect the true financial position.
  • Risk Management: Identifying and mitigating potential risks.
  • Trustee Assurance: Providing assurance to trustees and stakeholders about the management of the pension scheme.

Steps to Prepare for a Pension Scheme Audit

1. Gather and Organise Documentation

A well-organised set of documents is the foundation of any pension scheme audit preparation. Key documents include:

Financial Statements

Ensure all annual and interim financial statements are complete, accurate, and up-to-date. These include balance sheets, income statements, and cash flow statements.

Also work with your pension scheme audit firm to determine the best format for providing these documents. For example the Assure UK team find it better to work with Excel documents rather than PDF based ones, as this speeds up validation and checking both in level of detail and in the breadth of checking.

Plus by checking, you could save your internal team’s time as they may be saving Excel documents to PDF on the assumption that the pension scheme audit firm’s team wants them in PDF.

Investment Reports

Collect comprehensive reports on all investments, including details on the type, value, and performance of each investment. Ensure these reports are aligned with the scheme’s investment policy.

Trustee Minutes

Compile minutes from trustee meetings over the audit period. These minutes should detail decisions made, discussions held, and any actions taken, providing auditors with insights into governance.

Actuarial Reports

Gather actuarial valuations and funding reports, which provide a detailed analysis of the scheme’s funding position, liabilities, and assumptions used.

Compliance Documents

Collect all regulatory compliance documents, such as the scheme’s trust deed and rules, amendments, annual reports, and communications with members.

Latest Submitted Scheme Return

Everything submitted to the TPR with regard to the PPF levy. This is a permanent file requirement of your auditors.

Organising these documents systematically, ideally in both physical and digital formats, will facilitate easy access and reference during the audit.

2. Review Internal Controls

Effective internal controls are critical for safeguarding the pension scheme’s assets and ensuring accurate financial reporting. Key areas to review include:

Segregation of Duties

Ensure that responsibilities are divided among different individuals to prevent fraud and errors. For instance, the person authorising payments should not be the same person processing them.

Authorisation Processes

Review the procedures for approving transactions, ensuring that they are followed consistently. Check that all transactions have the necessary approvals documented.

Access Controls

Verify that access to financial information and systems is restricted to authorised personnel. Regularly update access rights and monitor user activities to detect unauthorised access.

Documentation and Record-Keeping

Ensure that all financial transactions are well-documented and records are kept in an organised manner. This includes invoices, receipts, bank statements, and investment records.

Assess the effectiveness of these controls through internal audits or self-assessments and address any identified weaknesses.

3. Reconcile Accounts

Account reconciliation is essential for verifying the accuracy of financial records. This involves:

Bank Reconciliation

Regularly reconcile the scheme’s bank accounts by matching the balance in the bank statement with the accounting records. Investigate and resolve any discrepancies, such as unrecorded transactions or bank errors.

Investment Reconciliation

Ensure that the reported values of investments in the financial statements match the detailed investment reports. Verify the accuracy of investment income, capital gains, and market valuations.

Contribution Reconciliation

Check that contributions from employers and employees are accurately recorded. This involves verifying that the amounts received align with the contribution schedules and are properly allocated to members’ accounts.

Perform these reconciliations regularly to maintain accurate and up-to-date records, facilitating smoother audits.

4. Communicate with Stakeholders

Effective communication with all stakeholders ensures a coordinated audit process. This involves:

Informing Stakeholders

Notify trustees, administrators, and third-party service providers about the upcoming audit. Clearly communicate the audit timeline and the information or assistance required from each party.

Assigning Responsibilities

Designate specific roles and responsibilities for the audit preparation. For instance, appoint a liaison officer to coordinate with the auditors and ensure timely provision of information.

Regular Updates

Hold regular meetings or update sessions to keep all stakeholders informed about the audit progress and address any issues promptly.

Clear and proactive communication helps in avoiding last-minute surprises and ensures that everyone is prepared for the audit.

5. Conduct a Pre-Audit Review

A pre-audit review helps identify and address potential issues before the actual audit. Steps include:

Internal Compliance Check

Verify that the pension scheme complies with all relevant regulations and internal policies. This includes reviewing the scheme’s governance structure, investment policies, and member communications.

Financial Records Examination

Review financial records for accuracy and completeness. Check for consistency between different financial statements and ensure all transactions are properly documented.

Identify and Resolve Issues

Look for any anomalies, such as unusual transactions, discrepancies in balances, or missing documentation. Resolve these issues proactively to avoid them being flagged during the audit.

Conducting a thorough pre-audit review helps in presenting a clean and well-prepared set of records to the auditors.

6. Prepare for Auditor’s Requests

Auditors may request additional documentation or clarification during the audit. Be prepared by:

Designating a Point of Contact

Assign a primary contact person responsible for liaising with the auditors. This person should be knowledgeable about the scheme’s operations and financials.

Creating a Checklist

Develop a checklist of commonly requested documents and ensure they are readily accessible. This includes financial statements, investment reports, actuarial valuations, compliance documents, and internal control records.

Organising Responses

Maintain a log of all requests from auditors and track the status of responses. Ensure that requests are addressed promptly and accurately.

Being prepared to respond quickly and accurately to auditors’ requests can significantly streamline the audit process.

7. Implement Audit Recommendations

Post-audit, the auditors will provide a report with their findings and recommendations. Implementing these recommendations is crucial for improving the pension scheme’s management. Steps include:

Review Findings

Carefully review the audit report to understand the findings and recommendations. Discuss these with trustees and relevant stakeholders to gain a comprehensive understanding.

Develop an Action Plan

Create a detailed action plan to address the issues identified in the audit. Assign responsibilities and set timelines for implementing each recommendation.

Monitor Progress

Regularly monitor the implementation of the action plan. Hold follow-up meetings to review progress and address any challenges. Ensure that all recommendations are fully implemented and documented.

Implementing audit recommendations demonstrates a commitment to continuous improvement and helps in enhancing the scheme’s governance and compliance.

Conclusions on Pension Scheme Audit Preparation

Preparing for a pension scheme audit requires meticulous planning, organisation, and communication.

By following the above steps, you can ensure a smooth and successful pensions scheme audit process.

The goal is not only to verify compliance and accuracy but also to improve the overall management and transparency of the pension scheme.

Plus, by demonstrating a commitment to best practices, you provide assurance to all stakeholders involved in the pension scheme.

Other Helpful Articles and Insights

Pension Scheme Auditor Checklist Part One: Qualifications and Accreditations 

Pension Scheme Auditor Checklist Part Two: Experience

Pension Scheme Auditor Checklist Part Three: Regulatory Understanding

How can Pension Scheme Accountants Support Trustee Decision-Making?

Basics of the Pension Scheme ORA

Pension Scheme Audits – What you need to know 

Pension Scheme Accounts Preparation

ESOG: Overview & how it enhances pension scheme management

Automation in Pension Scheme Management

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