The Department of Labor (DOL) recently released its study entitled Assessing the Quality of Employee Benefit Plan Audits. The DOL examined Form 5500 filings and related audit reports for the 2011 filing year and included a sample of 400 plan audits from a target population of over 80,000 filings. CPA firms were divided into six groups based on the number of plan audits each firm performed. The following table summarizes the results of the study:
The report is certainly a wake-up call for CPAs who do not perform a significant number of employee benefit plan audits. Deficiencies were identified in more than 2/3 of audits issued by firms performing less than 25 benefit plan audits annually (These firms make up more than 90% of the DOL’s sample). These results are also an important wake-up call for Plan trustees who are using firms to perform their plan audit that do not audit a significant number of employee benefit plans.
The study shows a direct correlation between the size of an employee benefit plan audit practice and the quality of the audit. It also clearly demonstrates that firms performing more benefit plan audits have fewer deficient audits than firms who do not perform a substantial amount of audits. Further, there are significantly fewer deficiencies for firms that audit over 100 plans. One of the more staggering statistics presented above shows there are 6,806 firms evaluated that perform less than 25 employee benefit plan audits per year. Those firms performed 28,411 audits. Interestingly, when asked, the DOL said they did not find a definitive correlation between fees paid and audit quality.
Compared with previous studies, the DOL expressed concern that the findings reflected “an increase in the amount of plan assets and number of participants at risk”. Given an overall deficiency rate of 39 percent, the DOL estimated that deficient audits put approximately “$653 billion dollars and 22.5 million plan participants and beneficiaries at risk”.
The report recommends targeting future investigations on plans audited by firms with smaller benefit plan audit practices. It also considers directly informing plan sponsors who have engaged CPA firms in the 1-2 and 3-5 range of the results of the study.
The spotlight on employee benefit plan auditors is expected to increase as the DOL continues to reject filings for substandard work. DOL referrals to the AICPA Ethics Division and state boards of accountancy appear to be on the rise and with good reason.
The American Institute of Certified Public Accountants (AICPA) has mounted a serious response to these findings. The AICPA is strengthening its Peer Review program by developing an Expert Oversight Program to engage experts in the area of auditing benefit plans to evaluate audits performed in order to identify issues and best practices.
Legacy audits over 350 employee benefit plans annually. The Firm is committed to the practice of auditing employee benefit plans and invests in education and training on an ongoing basis so the partners and employees remain on the cutting edge of what they need to know to best serve employee benefit plans. Legacy is a member of the AICPA Employee Benefit Plan Audit Quality Center. Partner Eileen Brassil served on the Quality Center’s Executive Committee, continues to serve on several of its taskforces, and the Firm remains an active member of the Quality Center. The Firm has also been asked and will work with the AICPA's Expert Oversight Program in 2016. Additionally, Legacy is actively involved in the International Foundation of Employee Benefit Plans (IFEBP), not only as members, but also serving on committees and at its professional conferences as both attendees and speakers.
Legacy has undergone two DOL Audit Quality Inspections. After both inspections, Legacy received very complimentary feedback from DOL, including praise for our Firm's strong commitment to the employee benefit plan business and to training our people. In summary, the DOL noted, “Our review left us with a very positive impression of audit quality at Legacy Professionals.”
The full report “Assessing the Quality of Employee Benefit Plan Audits” can be found at:
The AICPA resource “The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit” can be found at:
By Timothy F. Cibulka, CPA, CFE, Partner, firstname.lastname@example.org