Today's post comes from our Employee Benefit Plan Specialist, Linda Lauer. The following excerpt is taken from her article, "Why Selecting the Right Auditor is Critical," in the December issue of HR Professionals Magazine.
Department of Labor (DOL) statistics indicate there are approximately 75,000 ERISA audits performed annually by over 10,000 CPA firms. Only a small percentage of these CPA firms audit more than 100 employee benefit plans on an annual basis. Surprisingly, there are approximately 8,000 CPA firms performing five or less employee benefit plan audits and 5,000 CPA firms performing only one employee benefit plan audit. As result of so many plan audits being performed by CPA firms with little experience in these types of audits, the DOL continues to find a significant number of employee benefit plan audits do not meet DOL requirements.
The DOL performs routine inspections of auditors performing employee benefit plan audits. Some of the deficiencies found in these inspections include the following:
- Failure of the auditor to adequately plan the audit
- Using inadequate audit programs
- No evidence of any audit work performed in regards to investments, contributions, benefit payments, participant data or prohibited transactions
- Failure to test year-end values on investments and failure to test investment transactions (for full-scope audits)
- Failure to test payroll and deferrals for employee contributions
- Failure to test eligibility to receive distributions
- Failure to test eligibility to participate, forfeitures and allocations to participant accounts
Best practices for auditors performing employee benefit plan audits include a commitment to quality from the top down within the accounting firm. The firm should make “employee benefit plan audits” a specialized or niche practice within their firm and devote specific resources to this area of practice with expertise in the employee benefit plan industry. The audit firm should also conduct internal reviews or inspections of their audits, as well as conduct annual training to their staff specifically tailored to the unique characteristics of employee benefit plans.
A quality audit will not only help protect the financial integrity of your employee benefit plan, but will also help ensure the funds will be available to pay benefits. An incomplete, inadequate or untimely audit report may result in penalties being assessed against the plan sponsor. As the plan’s administrator, it is imperative for the plan sponsor to hire an auditor with specific experience in employee benefit plans in order to minimize your risk for any such penalties.