Posted by Chris Ciminera, CPA, QKA
In a previous blog, DOL Audit Quality Study: Employee Benefit Plan Auditors Are not Making the Grade, we discussed the results of the 2015 Audit Quality Study performed by the Department of Labor (DOL). The study found a direct correlation between the size of an audit firm’s EBP practice and deficient audit work. As a result, the DOL has increased its scrutiny on auditors and established initiatives to target firms that are likely to be performing deficient audits. In another previous blog, Case Closed! Re-Audit of Rejected 5500 Filings Accepted, we indicated that our team had the opportunity to perform a re-audit of the 2011, 2012, and 2013 financial statements for a plan whose filings were rejected by the DOL due to a deficient audit, and whose auditor was referred to the AICPA Ethics Division. As a result of the re-audits, we have seen first-hand the costly results of hiring a deficient auditor, including corrective contributions for multiple years of operational errors that could have been avoided by hiring a specialized audit firm.
As part of its initiative to educate plan sponsors that may be using a deficient auditor, the DOL has sent a communication to plan sponsors regarding the importance of selecting a specialized plan auditor. This communication provides further evidence that the DOL is taking this matter seriously and is doing everything in its power to protect plan participants who may not be benefiting from the oversight of a quality financial statement audit.
In the latest communication to plan sponsors, the DOL has pointed to its Audit Quality Study indicating that nearly 40% of employee benefit plan audits were deficient. The DOL also reinforced the benefits of quality audit work, including safeguarding plan assets, ensuring compliance with ERISA’s reporting and fiduciary requirements, and ensuring the necessary funds will be available to pay the benefits promised to plan participants and beneficiaries.
Key Auditor Qualifications
Additionally in this communication, the DOL provided factors to consider when looking at auditor qualifications including:
- The number of employee benefit plans the CPA audits each year, including the types of plans;
- The extent of specific annual training the CPA received in auditing plans;
- The status of the CPA’s license with the applicable state board of accountancy;
- Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the AICPA for investigation; and
- Whether or not the CPA employee benefit plan audit work has recently been reviewed by another CPA (called a “Peer Review”) and, if so, whether such review resulted in negative findings.
These are not the only factors to consider. Additional factors may be found in our blog, A Plan Sponsor’s Guide to Assessing the Qualification of Retirement Plan Auditors, which provides further considerations.
In conclusion, the results of the DOL Audit Quality Study have put this matter at the top of the DOL’s list of priorities. The primary objective of the DOL is to protect plan participants who may not be benefiting from the oversight of a quality financial statement audit. It is imperative that plan sponsors take action to ensure that their plan auditor is qualified to perform a quality retirement plan audit.