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DOL Study Reveals Deficiencies in EBP Audits

It is now the season for employee benefit plan audits. These audits often are treated as not very important by some CPAs, and many firms perform these audits only to keep staff busy in the summer/fall time of year but do not spend much time in training and understanding the requirements on how to perform correct audit procedures or how to report on the financial statement correctly. The results from the Department of Labor Employee Benefits Security Administration's 2011 Audit Quality Study indicate that it is more than just a few CPAs not meeting compliance requirements when performing these audits.

The study included full scope and limited scope audits, defined contribution and defined benefit plans with the majority of sponsors being a single employer. It covered 400 plan audits stratified by number of audits performed by a CPA firm. The strata included 1-2, 3-5, 6-24, 25-99, 100-749, and 750+, sampling one plan from the first two strata and five from the remaining strata. The results of the study compared to the last study completed in 2004 were that CPAs are not improving and the number of audits with deficiencies increased from 33 percent to 39 percent. The group with the worst results was the firms performing one to two audits with a 76 percent deficiency rate.

The most common deficiencies were in the auditing of internal controls (too much reliance on the SOC 1 report), investments, contributions, benefit payments, participant data, party-in-interest transactions, and planning and supervision.

Why should you, the sponsor, care? The DOL has no authority to penalize a CPA firm that performs a deficient audit. They do have the power to reject the 5500 filing due to a deficient audit and hold the sponsor responsible for obtaining a new audit that is not deficient. This can result in penalties and late fees assessed against the sponsor for not performing the required fiduciary responsibilities.

It is clear that the CPA firms that audit more employee benefit plans do a better job of meeting the compliance and reporting standards. As the plan sponsor, it is important that you select a qualified firm or individual to perform the audit because the DOL will hold you accountable for the results of the audit work performed. It is important to ask the firm you select: how many audits they perform, what kind of plans they audit, what training they have attended and when they attended, and whether they have been subjected to an audit by the DOL.