Posted by Maria T. Hurd, CPA
The U.S. Department of Labor’s Employee Benefits Security Administration has begun a new enforcement initiative to monitor the quality of audits of 403(b) plans subject to the Employee Retirement Income Security Act (ERISA). The Department of Labor’s (DOL) initiative to review the quality of employee benefit plan financial audits has been in place for many years. However, the focus on audits of 403(b) plans is a new initiative resulting from recent legislation subjecting ERISA 403(b) plans to the same reporting requirements as 401(k) plans, including the requirement for “large plans” to attach audited financial statements to their Form 5500 filing.
If the DOL finds that the work performed or documentation was insufficient to support the audit, the DOL can reject the plan’s Form 5500 filing, resulting in the plan administrator being assessed penalties of up to $50,000 per year. It is DOL’s position that a plan administrator is not shielded by relying on an apparently competent accounting firm; the plan administrator must verify the sufficiency of an audit or face penalties if the audit quality is considered deficient. As a result, plan administrators should be diligent, not only in selecting a qualified independent auditor, but in reviewing the auditor’s work to ensure that the audit has been conducted in accordance with the applicable standards. The DOL’s guidance on what plan administrators should know about selecting auditors and reviewing their work product is available on their site titled Selecting An Auditor For Your Employee Benefit Plan. The AICPA has also provided additional guidelines for plan sponsors on their site.
Belfint, Lyons & Shuman, P.A. audits several 403(b) plans sponsored by charitable organizations and educational institutions. Last year, the DOL requested copies of all audit workpapers for one of our 403(b) audits, including but not limited to testing, checklists, audit programs, correspondence, permanent file documents…everything. The paper we submitted filled four large 3-ring binders.
Earlier this month, I received a phone call from the DOL auditor who reviewed our workpapers for the 403(b) audit. The agent has approximately a decade of experience with one of the big four accounting firms and the same amount of time as an internal auditor for Fortune 500 companies. The DOL agent said it was a pleasure reviewing our audit workpapers. Our documentation was clear and easy to follow. Our understanding of all the new risk assessment standards is exemplary, and the quality of our work is just as good as any of the big firms. Having seen audit workpapers for auditors all around the nation, the agent believes our workpapers are definitely top notch. We will get a closing letter in about 3 weeks.
We were ecstatic! More importantly, so was our client. It was proof that selecting a quality audit group that strives to achieve the most efficient audit possible while adding value to clients is noticed by the DOL and allows 403(b) sponsors to be accepting of the onerous new audit requirement, since at least they don’t have to fear the fact that ‘Big Brother is Watching.’