DOL Report Calls for Improvement in Employee Benefit Plan Audits

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The U.S. Department of Labor has issued results of a study of employee benefit plan audits that show a continuing need for improvement.

The report is the result of a study that examined audits of Form 5500 filings from 2011. The DOL’s Employee Benefits Security Administration (EBSA) found that 61% of audits fully complied with auditing standards or had minor deficiencies. One or more major deficiencies were found in 39% of the 400 audits examined in the study.

Firms, like White Nelson Diehl Evans, that are members of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) performed higher-quality work than nonmember firms, the DOL report states.

Having been an EBPAQC member since the center’s inception, WNDE has been providing EBP audit services for over 20 years and typically performs over 60 audits per year. Furthermore, our firm invests extensively in seminars and training material to assure that our staff is highly proficient in conducting EBP audits.

The AICPA issued a response to the report. “We take the … findings seriously and are committed to working with the DOL and other interested parties to enhance audit quality,” the AICPA statement read, in part. “The audit of an employee benefit plan’s financial statements is an important financial reporting safeguard. Notably, none of the quality issues that the AICPA has reviewed thus far that were identified by the DOL pose a risk to the viability of any plan.”

Employee benefit plan (EBP) audits are part of an ongoing initiative by the AICPA aimed at strengthening audit quality. The AICPA in May 2014 launched its Enhancing Audit Quality (EAQ) initiative. A six-point plan released by the AICPA last month will promote the pursuit of quality throughout a CPA’s journey—from before an individual is licensed to when he or she builds professional competency and engages in peer review and practice monitoring. This road map to improved audit quality for CPAs includes these and other initiatives:

• Prelicensure
• CPA learning and support
• Peer review
• Practice monitoring
• Ethics enforcement and NASBA collaboration
• Standards and ethics code

In the DOL study, deficiencies were more likely among firms that performed smaller numbers of EBP audits. Deficiencies were found in about three-fourths (76%) of plan audits performed by firms that audit just one or two plans annually. “Overwhelmingly, most CPAs in the two smallest audit strata are not Employee Benefit Plan Audit Quality Center members,” the DOL report states.

The leading areas of audit deficiencies, the report said, were areas unique to EBP auditing, such as testing contributions, benefit payments, participant data, and party-in-interest/prohibited transactions. When CPAs did not meet professional standards, they either were not adequately informed about EBP audits or did not properly utilize the technical materials in their possession, according to the report.

Plan sponsors have fiduciary responsibilities regarding plan performance, ERISA compliance and audit quality. Therefore, the AICPA has suggested that the DOL initiate a comprehensive education program for plan sponsors to help them understand the critical importance of hiring a quality auditor.

If you would like to discuss fiduciary or quality issues related to your employee benefit plan audit requirements, please contact your WNDE professional. We would be pleased to answer your questions and discuss EBP audit services.

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