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DOL Releases Study on Employee Benefit Plan Audit Deficiencies

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July 7 , 2015 | Posted by John Eberhart |

DOL Releases Study on Employee Benefit Plan Audit Deficiencies

In May 2015, the U.S. Department of Labor (DOL), Office of the Chief Accountant and Employee Benefits Security Administration (EBSA) completed a study of the quality of audit work performed by independent qualified public accountants with respect to audits of employee benefit plans (EBPs) covered under the Employee Retirement Income Security Act of 1974 (ERISA).

In most cases, ERISA requires that the financial statements of EBPs, with 100 or more participants, be subject to an audit by a CPA firm.

The study found significant deficiencies in reviewed audits, with auditors with less experience tending to have greater deficiency.

Summary of Findings and Recommendations

Overall, the assessment found that 61 percent of the audits fully complied with professional auditing standards or had only minor deficiencies. However, 39 percent of the audits contained major deficiencies with respect to one or more relevant auditing standards which would lead to the rejection of a plan filing. Below are some additional findings from the study:

  • The smaller the CPA firm’s EBP audit practice, the greater the incidence of audit deficiencies. On average, CPA firms auditing five or fewer plans had a significantly greater percentage of deficiencies compared to firms auditing six or more plans.
  • CPA firms that were members of the American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Plan Audit Quality Center (EBPAQC) tended to have fewer deficiencies than firms that are not members of EBPAQC. Overwhelmingly, most CPA firms auditing five or fewer plans are not members of EBPAQC.
  • Training specifically targeted at audits of EBPs may contribute to better audit work. As the level of EBP specific training increased, the percentage of deficient audits decreased.

Based on the results of the study, the EBSA recommended several changes to ERISA, including the qualifications needed by CPA firms to perform EBP audits. For those plans that are audited by CPA firms auditing five or fewer plans, the DOL will be communicating with the plan administrators the importance of engaging a CPA firm that has the appropriate EBP experience.

What Does the Study Mean to Plan Sponsors?

This study emphasizes the need of a plan sponsor to hire a qualified CPA firm. As the plan sponsor, it is your responsibility to ensure that the plan’s financial statements are properly audited in accordance with generally accepted auditing standards (GAAP). You should be aware that the hiring of a plan auditor is considered a fiduciary function. As such, plan sponsors should use the same care and prudence in hiring a plan auditor that they use when hiring any individual or entity that provides services to the plan.

As with all fiduciary responsibilities, there is potential liability: fiduciaries that do not follow the basic standards of conduct may be personally liable to restore any losses to the plan. There is a significant amount of risk to plan administrators associated with the audits of their ERISA plans. The penalties for such audit failures can be substantial. The DOL has the right to reject plan filings and assess penalties of up to $1,100 per day, without limit, on plan administrators for deficient filings.

Because an incomplete, inadequate or untimely audit report may result in a rejection of your filing and penalties being assessed against you as the plan administrator, selection of an experienced and reliable auditor is very important. Plan administrators should make the selection of the plan auditor a high priority and exercise due care during every phase of the auditor selection process.

How Can Cassady Schiller Help?

Cassady Schiller’s EBP Audit Practice delivers a team of seasoned professionals that can assist businesses in navigating through the maze of regulations and reporting required by the DOL, IRS, ERISA, and GAAP. We have more than 20 years of experience in performing EBP audits for multiple plans, ranging from 401(k) plans, defined benefit plans, ESOP’s and health and welfare plans. To ensure audit quality:

  • We are committed to EBP specific training. Our team of EBP auditors stays current in this highly technical practice area by attending the annual AICPA National Conference on EBPs and EBP specific seminars sponsored by several state societies of CPAs. In addition, our team members attend regular internal EBP specific training sessions.
  • We are an active member of the AICPA’s EBPAQC. EBPAQC is a national community of CPA firms that demonstrate a commitment to EBP audit quality and is designed to raise awareness about the importance of ERISA audits. Our membership in the EPBAQC enables us to gain access to a wealth of comprehensive resources to assist us in providing high quality EBP audits.

Cassady Schiller’s recent inspection history demonstrates its commitment to quality audits. During our most recent AICPA peer review, we received a clean opinion. In addition, our audit work papers have been inspected by the DOL, with no deficiencies noted.

For further information, please contact John Eberhart (jeberhart@cassadyschiller.com) or Karen Keller (kkeller@cassadyschiller.com).