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DOL Study of Benefit Plan Audits Suggests Size Impacts Quality
This week at the AICPA’s Employee Benefit Plan (EBP) Conference, the Department of Labor Employee Benefit Security Administration (DOL EBSA) revealed the results of the DOL Audit Quality Study conducted in 2014. The EBSA is charged by law with protecting the retirement, health, and other related workplace benefits of private sector workers and retirees nationwide. The DOL’s study sample included 400, 2011 Form 5500 filings and EBP audits by 232 public accounting firms.
Quality of audit related to size of practice
The overall findings in the study indicate that there is a 39 percent deficiency rate in plan audits. However, the DOL noted that the size of a firm’s employee benefit plan audit practice has a significant impact on the quality of the practice.
|Number of EBP Audits||Percentage of Deficient Audits|
Firms that audit less than 100 plans had higher deficiency rates. Firms that audit 100 or more benefit plans had only a 12 percent deficiency rate, suggesting the importance of using EBP auditors with dedicated personnel with training and experience in the EBP industry.
Results and recommendations
The DOL’s study offers several recommendations. It will be sending a letter to plan administrators who hire independent auditors who audit less than five plans annually to communicate the importance of hiring a plan auditor that has the appropriate EBP experience.
In addition, the DOL may recommend legislative changes regarding EBP auditor qualifications and enforcement powers over service providers (CPAs, actuaries, plan administrators), including the ability to assess monetary penalties. And last, the DOL expects to change the EFAST filing system and Form 5500 reporting to include questions related to material weaknesses, significant deficiencies, and other internal control deficiencies identified during the audit process.
How does this affect plan sponsors?
Plan sponsors who hired deficient auditors were notified by the DOL and could be subject to penalties if the audit deficiencies are not corrected. 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 the filing and penalties being assessed against the plan administrator, it is important to select an experienced and reliable auditor. Plan administrators should make the careful selection of the plan auditor a high priority.
AICPA EBP Audit Quality Center
In 2004, the AICPA established the EBP Audit Quality Center (EBPAQC). The center helps employee benefit plan sponsors find auditors that are committed to quality. In addition, it provides best practices, tools, and resources for audit firms to help them perform quality audits and raise the awareness about the importance of quality audits. Today, the center has over 2,300 member firms dedicated to providing quality employee benefit plan audits.
The DOL Audit Quality Study demonstrated that EBPAQC members, no matter how many audits they performed, had a lower deficiency rate than their peers. This is partially due to the requirement that members demonstrate their commitment to audit quality and require EBP-specific training for auditors. Plan sponsors can find member firms, resources, and articles such as “The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit” on the AICPA website.
Commitment to quality benefits clients
CliftonLarsonAllen joined the EBPAQC in 2004 and is the second largest auditor of employee benefit plans in the United States, according to the DOL. CLA designates a managing principal to oversee the EBP industry group, which includes professionals who are 100 percent dedicated to providing EBP audit, tax, and consulting services to our clients. Our firm provides EBP-specific training and has engagement teams whose primary focus is auditing employee benefit plans.
CLA supports our professionals’ involvement on the AICPA EBPAQC and EBP Expert Panel. In 2004, I was appointed as Chair of the Executive Committee of the EBP Audit Quality Center and continue to serve on the Executive Committee. In addition, I am Chair of the AICPA Ethics Division Technical Subcommittee that reviews deficient EBP audits referred to the AICPA by the DOL.
The AICPA conducts an independent ethics investigation of members to determine whether or not the auditor complies with auditing and accounting standards. If deficiencies are found, it imposes sanctions on members, including continuing professional education, required oversight and peer review. Our participation on these committees ensures our involvement in the standard setting process and keeps us informed on current regulatory issues that impact audit quality.
Our firm has been inspected by the DOL and was a participant of the Audit Quality Study. We are proud that CLA has demonstrated to the DOL that we perform high-quality EBP audits. The DOL report clearly demonstrates the importance of a high-quality EBP audits. It also reinforces our belief that an overarching commitment to quality benefits our clients.