BEST PRACTICES: Actuarial Audits

Question 1

What is the purpose of an actuarial audit?

Answer 1

To monitor the quality of actuarial services and ensure the actuarial valuation process is performed according to actuarial standards.

Question 2

What does an actuarial audit provide?

Answer 2

Independent assurance on the credibility of the actuarial valuation process, increases public trust, assesses funding objectives, remedies errors, and recommends improvements.

Question 3

How is a level one actuarial audit described?

Answer 3

Full replication of the original actuarial valuation with examination of methods and assumptions for reasonableness.

Question 4

What characterizes a level two actuarial audit?

Answer 4

Testing valuation results with a sample of participant data and examining methods and assumptions for reasonableness.

Question 5

What does a level three actuarial audit involve?

Answer 5

Examination of the consulting actuary’s methods and assumptions for reasonableness, without performing actuarial calculations.

Question 6

How often does GFOA recommend providing for actuarial audits?

Answer 6

At least once every five years.

Question 7

What situations might trigger a more detailed actuarial audit?

Answer 7

Significant changes in trends, unexpected contribution rate changes, inconsistency in actuarial methods or assumptions with the plan’s objectives.

Question 8

What is encouraged when a new consulting actuary is engaged?

Answer 8

Full replication of the previous actuarial valuation to establish a baseline, if feasible.