Are you happy with your plan auditor? Do you know what qualifications to consider when choosing one? Equally important, do you know a recent study by the U.S. Labor Department’s Employee Benefits Security Administration found major audit deficiencies occurred 39 percent of the time resulting in possible Form 5500 filling rejections?
Yes, in review of over 81,000 audits performed by 7,330 audit firms, the mistakes put “$653 billion and 22.5 million plan participants and beneficiaries at risk,” according to the May 2015 DOL report Assessing the Quality of Employee Benefit Plan Audits.
The report looked at six different levels, or strata, of CPA auditors based on the number of audits performed by the firm. Specifically, the report made the following findings:
Numbers matter – CPA experience with plan audits is crucial to providing accurate results. “CPAs who performed the fewest number of employee benefit plan audits annually had a 76 percent deficiency rate. In contrast, the firms performing the most plan audits had a deficiency rate of only 12 percent.”
These audit deficiencies appear to cross all areas, too. For instance, CPAs conducting the fewest audits (strata one and two), had “significantly high deficiency rates spanning numerous audit areas that are unique to employee benefit plans, most notably: contributions, planning & supervision, internal controls, participant data, investments, party-in-interest transactions and benefit payments.”
Peer review is NOT a good gauge – Although there is an accounting peer review process, the report found the monitoring effects are ineffective as “a substantial number of CPA firms received an acceptable peer review report, yet had deficiencies in the audit work” in four of the six strata.
Membership matters – Auditors who were members of the American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Plan Audit Quality Center provided the best audits and had the fewest deficiencies. “Members of the AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC) tend to have fewer audits containing multiple GAAS deficiencies. Additionally, non EBPAQC member firms tend to have a larger number of GAAS deficiencies, per audit engagement, than EBPAQC members.”
Training helps – Auditors who received training for EBPs did better than those who did not have this education. “CPAs failed to comply with professional standards either because they were not adequately informed about employee benefit plan audits, or failed to properly utilize the technical materials that were in their possession.”
While the report recommends amendments to ERISA to correct these shortcomings, it’s important that retirement plan sponsors don’t wait for these changes to occur. Instead, carefully evaluate your plan auditor or auditing firm to ensure they have the experience and expertise to properly conduct your plan audit.