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DOL study affirms: Quality Counts

In a recent study, the Department of Labor (DOL) found that 39% of the retirement plan audits in its sample contained major deficiencies that would have caused the associated Form 5500 filing to be rejected.

The study, which included a review of 400 audit reports filed for the 2011 plan year, cited a correlation between the number of plan audits performed by a Certified Public Accountant and the quality of the work.

Based on DOL research, CPAs who perform the largest number of benefit plan audits encounter fewer deficiencies. The study cites a 12% deficiency rate among CPA firms that perform more than 100 employee benefit plan audits annually, while there is an astounding 76% deficiency rate among CPAs who perform only one or two employee benefit plan audits each year. In addition, the CPA firms with the smallest employee benefit plan audit practices had deficiencies in more audit areas than those with larger audit practices.

In light of this, the DOL is proposing a change to what it considers a “qualified public accountant” under the Employee Retirement Income Security Act (ERISA) to ensure that quality audits of benefit plans are occurring, and this might mean additional requirements and qualifications need to be met by plan auditors.

Why is a high-quality audit of a benefit plan important?

An audit that is proven to be deficient could be rejected by the DOL and cause daily fines to the plan sponsors. These fines can be significant, so it is important that the plan sponsor select a qualified, experienced, and reliable auditor.

Not only will a quality audit meet the plan’s legal responsibility, but it will protect the financial integrity of the plan and help fulfill fiduciary responsibilities.  Plan participants expect the funds in their benefit plans to be safe and secure, and that they will be until they are ready to use them.  In addition, a quality auditor understands the complex compliance issues that need to be tested to help ensure participants are being appropriately treated in accordance with the plan.  Company management can create an atmosphere of comfort by having a quality audit performed annually.

In addition to providing a quality audit, a highly experienced plan auditor can help plan management by providing suggestions for improving internal control, identifying and correcting plan compliance issues, providing insight into fiduciary responsibilities and ERISA rules, and helping better manage a plan.

What questions should be asked before selecting a CPA?

With this in mind, it is important to know the experience level of the CPA firms you are considering to perform your benefit plan audits. Consider asking the following questions of your audit firm candidates.

  • How many employee benefit plan audits does your firm perform each year?
  • How many years has your firm had an employee benefit plan audit practice?
  • What types of benefit plan audits has your firm performed?
  • How many experienced plan auditors does your firm have?
  • Is your firm a member of the American Institute of Certified Public Accountant’s Employee Benefit Plan Audit Quality Center?
  • How many hours of continuing education specific to employee benefit plan audits do your auditors receive each year?

Plan sponsors can take a proactive approach

The quality of your organization’s audit is dependent on how seriously the plan sponsors take their responsibilities in selecting an auditor. If the plan sponsors don’t take time to get to know the CPA firm and its qualifications, it can result in penalties against the organization and problems for the plan participants. Benefit plans are complex in nature, so it’s important to hire a competent auditor to ensure the plan is functioning well, fulfilling obligations to plan participants and complying with applicable laws and regulations.

To learn more about the DOL’s audit quality study, contact your WK advisor at (573) 442-6171 or (573) 635-6196.

compass pointing to quality

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Posted By Kristen Brown and Heidi Chick, CPA on 8-18-2015 | Topics: Articles,