How Does Your Audit Firm Stack Up to the Competition?
DOL Audit Quality Study
In May 2015, the Department of Labor (the “DOL”) issued a report on their examination of 400 of the 81,000 employee benefit plan (“EBP”) audits filed for the year 2011. The audits were categorized by the size of a CPA Firm’s EBP audit practice, not reflective of the overall size of the firm. The results showed that firms with smaller EBP audit practices had a greater occurrence of audit deficiencies than firms with larger EBP audit practices. Firms that performed only one or two EBP audits a year showed a 75% deficiency rate while firms that performed more EBP audits had a much lower deficiency rate. Also, firms that were members of the American Institute of Certified Public Accountant’s (the “AICPA’s”) Employee Benefit Plan Audit Quality Center (“EBPAQC”) were found to have performed better than firms that were not. There was also a clear correlation between the amount of EBP specific continuing education taken by the audit partner and the quality of the EBP audit.
The DOL wants to improve compliance with auditing standards and ERISA reporting and disclosure requirements, as well as, protecting the participants from deficient audits that could lead to loss of plan assets. It has recommended 11 enforcement, legislative and outreach changes that it believes would reduce these audit deficiencies. Among these are penalizing the responsible party. The DOL has the ability to assess a civil penalty of up to $1,100 a day against the Plan’s administrator and is proposing thatthe Secretary of Labor be able to assess penalties against the Plan’s accountant until the audit meets professional standards. These penalties would be assessed if the plan’s filing is rejected due to a deficient audit or if the accountant did not meet qualification standards for performing an EBP audit. Additionally, the DOL has proposed, allowing the Secretary of Labor to issue regulations to require additional training for CPA’s who perform EBP audits. The DOL wants the authority, currently held by the AICPA, to establish accounting principles and auditing standards for employee benefit plans.
The DOL reported that of the 72 firms examined that perform 1 or 2 EBP audits annually that were found to be deficient by the DOL, 60 of these firms were peer reviewed under AICPA guidelines of which over 80 percent received clean peer reviews. The AICPA still believes that to allow the DOL to set standards would only create confusion and add complexity. They stated it would be more effective to allow the DOL to participate in the standard setting process by observing and providing advice or by serving on the Auditing Standards Board. The AICPA does not want to relinquish its power to self regulate the profession or allow outsiders the ability to penalize its professionals.
EBP audits require a specialized skill set that is vastly different than auditing a commercial entity. Thus make sure your plan is being audited by a CPA firm experienced in EBP audits.