The DOL has conducted a nationwide study focused on
the quality of employee benefit plan audit work performed by certified public
accounting firms. The study took a sample of 400 retirement plan audits by 232
CPA firms for the plan years covered by the 2011 Form 5500 annual filing (plan
years beginning in 2011). To put this in perspective, there are approximately
80,000 benefit plan filings per year with the DOL.
The samples were divided into six strata based on
the size of the firm's employee benefit plan audit practice:
| # Plans
| Deficient Audits
The results reported a direct correlation between
the size of the firm's practice in this field and what the DOL deemed to be
deficient audit work. The report indicates that more than 75% of plan audits
were deficient in the 1-2 plan strata and that 95% of CPA firms audit fewer
than 25 plans, whereas firms with larger numbers of benefit plan audits are
shown to have fewer instances of multiple deficiencies. Further, the DOL did
acknowledge that firms that are members of the AICPA's Employee Benefit Plan Audit
Quality Center tended to have fewer instances of multiple deficiencies than did
non-members. View the DOL's complete report on Assessing the Quality of
Employee Benefit Plan Audits.
The DOL Audit Quality Study showed that practitioners who
only audit a few benefit plans do not have enough experience or knowledge to
perform audits that comply with professional standards, which ultimately could
subject plan sponsors to large penalties.
One root cause identified by the DOL is the
"limited scope audit" which DOL believes allows auditors to perform
lower quality audit work because they are not expressing an opinion on the
financial statements. The American Institute of CPAs (AICPA) has long been
supportive of the elimination of this option, which was provided by the
Employee Retirement Income Security Act of 1974 (ERISA), in order to eliminate
confusion in the industry.
Federal law (ERISA) requires employee benefit plans with
100 or more participants (and in some cases 120 or more participants) to have
an audit as part of their obligation to file an annual return/report (Form 5500
series). Selection of a quality auditor is a key responsibility of the plan
administrator for any employee benefit plan. Having a quality auditor engaged
not only helps ensure compliance with regulatory requirements, but can also
help plan management identify that the proper internal controls are in place to
help minimize errors in plan operations.
The DOL is proposing significant regulatory changes
in this field, and they have proposed many of these changes in the past.
However, the DOL has no regulatory authority and it is up to Congress to
determine what, if anything, to change, and Congress determines its regulatory
agenda. The process for regulatory change is a long one, so we don't expect to
see any major transformations in the immediate future.
If your employee benefit plan is required to have an audit, it is your duty to hire an auditor that is licensed or certified as a public accountant by a state regulatory authority. Contact us today to find out if your plan requires an audit and how Mueller Prost can help.
Click here for AICPA's Plan Advisory on Hiring a Quality Firm for Your Employee Benefit Plan Audit
Feel free to also download our whitepaper on "How to Choose the Right Auditor" for more guidance on this important selection decision.
MaryPat Davitz, CPA, CITP