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Department of Labor’s Assessment of Employee Benefit Plan Auditors

During May 2015, the U.S. Department of Labor (“DOL”) published its study on the quality of the benefit plan audits performed by the CPA community. Such report revealed “serious issues” with the results and the system itself. The study, performed for the plan year 2011, reveals that 39% of these audits were substandard whereas they did not comply with professional audit standards (“GAAS”). The study noted “unacceptable-major deficiencies with….GAAS requirements, putting $653 billion dollars and 22.5 million plan participants at risk”.

This substandard rate was an increase from the last three similar studies performed whereby the substandard rates were 23% (1988), 19% (1997), and 33% (2004). Many of the recent deficiencies were not just inadequate testing in an area — it was a lack of evidence that any audit steps were done. The DOL links this to the increase in the number of limited scope audits being performed. DID WE GET YOUR ATTENTION!?

The study also revealed that CPA firms that performed the fewest number of audits had the highest deficiency rates. In fact, CPA firms that audited only a few plans had at least five significant deficiencies for each audit. DID WE GET YOUR ATTENTION YET!?

As a result of the increase in the deficiency rate, the office of the Inspector General of the DOL has proposed a number of changes – 11 in fact. Some of these recommendations include: targeting thesmallest CPA firms, ELIMINATE limited scope audits, open up communications for all to see the deficiencies, seek authorization to establish separate accounting principles and audit standards for plans, and expand DOL outreach to plan administrators urging them to seek out quality CPA firms. HOW ABOUT IT – DID WE GET YOUR ATTENTION!?

As the DOL has started to act on their recommendations, on November 12, 2015, ALL plan administrators received an email from the Chief Accountant of the DOL (see last item mentioned in the recommendations above). It stresses your seeking out qualified and quality CPA’s to perform your plan’s audit. It further emphasizes that it is your responsibility as it will ensure your compliance with ERISA’s reporting and fiduciary requirements. Finally, it states that “substandard audit work can be costly to plan administrators and sponsors. It both jeopardizes plan assets and can result in significant civil penalties being imposed on the plan administrators by the DOL”. DO WE FINALLY HAVE YOUR ATTENTION!?

Give us a call to discuss your plan’s audit. We have never had a civil penalty imposed on any of our plan audits.

If you want a copy of the DOL study, click here.

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