In May 2015, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published a report on its study of the quality of audits of employee benefit plans. The results of this study showed a high degree of deficiency in employee benefit plan audits. In the study, the EBSA selected a statistically valid sample of 400 employee benefit plan audits from a population of 81,162 Form 5500 filings for 2011. The population included 5,500 filings in which an accountant’s report/audit opinion was attached. The EBSA’s study found that 61 percent of the audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. However, 39 percent of the audits contained major deficiencies with respect to one or more relevant Generally Accepted Auditing Standards requirement that would lead to a rejection of a Form 5500 filing.
Considering these findings, what should an employer or plan sponsor do when looking for an auditor for their employee benefit plan?
When searching for a qualified auditor, an employer or plan sponsor should send out a request for proposal (RFP) to several different certified public accounting firms. In the RFP, the employer or plan sponsor should ask for information they will need to evaluate the accounting firm and its qualifications for performing an audit of an employee benefit plan. Such information would include, but is not limited to:
• What experience and training does the auditor have in relation to employee benefit plans and what kind of employee benefit plans do they currently audit or have they audited in the past;
• Has the prospective auditor had a peer review, and if so, what was the nature of the report and any letters of comment and the firm’s responses;
• What quality controls do they have to ensure a quality audit;
• Which states the firm is licensed;
• Whether the firm meets the independence standards of the AICPA and the DOL;
• Are they members of the AICPA’s Employee Benefit Plan Audit Quality Center;
• Have they been subject to any DOL findings or referrals, or any AICPA or State Society of Ethics referrals;
When selecting an auditor for an employee benefit plan, one should not only look for an auditor with employee benefit plan experience and training, but also for an auditor with experience in auditing your specific type of plan. This is important because an auditor who has audited 401(k) plans might not have the proper training and experience to audit a defined benefit pension plan or a health and welfare plan.
Federal law requires that an auditor be licensed or certified as a public accountant by a state regulatory authority. An employer or plan sponsor may want to consider verifying with the appropriate state regulatory authority that the firm holds a valid, up-to-date license or certificate to perform auditing services. Plan auditors must be independent of the plans they audit as Federal law requires that the plan auditor be independent for purposes of auditing plan financial information and issuing an auditor’s report on the financial statements and schedules required to be contained in the annual report. By making these and other inquires of prospective audit firms and fully evaluating the responses, an employer or plan sponsor can go a long way into ensuring that they receive a quality audit. I95
Weyrich, Cronin & Sorra