Audit Deficiencies- Putting Plan Assets and Participants At Risk

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by Gosia Kanda, CPA


$3.4 trillion in Plan Assets and 55.7 Million Participants are at Risk due to Audit Deficiencies.

According to the Employee Benefits Security Administration (EBSA) study on the quality of benefit plan audits performed, nearly four in ten audits fail to meet professional standards, a statistic that puts too many plan participants as well as their fiduciaries at risk.

The study was based on the sample of 400 audits from a population of over 81,000 reports filed with the Department of Labor (DOL) that included audit opinions of over 7,000 licensed Certified Public Accountants (CPAs). The study revealed that approximately 40 percent of the examined audits contained major deficiencies. That failure rate applied to the current total asset amount in the market means roughly $3.4 trillion assets and 55.7 million participants could be affected.

Causes
• Number of plan audits performed by CPA: The study demonstrates a direct correlation between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed. Practitioners who performed only one or two audits annually had a 76 percent deficiency rate.
• Lack of audit quality oversight: members of the American Institute of CPA’s Employee Benefit Plan Audit Quality Center (EBPAQC) had fewer and less egregious audit deficiencies.
• Inefficiency of peer review monitoring: Deficient audits were found firms with clean peer review reports. Therefore, peer review monitoring was found to be an inefficient method in determining the quality of audit work.
• Lack of training: In the end, the study shows that a lack of training and limited understanding of the unique aspects of employee benefit plans continues to lead the list of audit deficiency causes.

Risks
The study also indicates that many plan sponsors are at risk. Not only is there a fiduciary risk for showing lack of prudence in selecting a qualified CPA firm, but also the potential rejection of Form 5500 as well as a possible assessment of civil monetary penalties should your audit be deficient. These penalties have now increased from $1,100 per day to up to $2,063 per day and are further outlined in the DOL’s Fact Sheet published last summer.

Solutions
Selecting an auditor for your benefit plan is an important decision that should not be taken lightly. Using a CPA firm with expertise in the nuances of plan compliance, including contributions, benefit payments, participant data and party-in-interest/prohibited transactions, is therefore instrumental in achieving compliance. Remember, your reputation for quality and your fiduciary responsibilities significantly depend on the reputation and capabilities of your auditor. The AICPA published an advisory to help plan sponsors select a quality plan auditor.

With the amount of plan assets increasing every year, so does the number of deficient audits, the study shows. It is important now more than ever for plan sponsors to ensure their employees’ plans and their audits meet the ERISA and DOL requirements.

Click here to download a full copy of the DOL Employee Benefits Security Administration’s report: Assessing the Quality of Employee Benefit Plan Audits.

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Gosia is an audit supervisor within the firm’s ERISA Assurance and Compliance Service Team.  Having joined McConnell & Jones in 2012, she is in charge of audits for employee benefit plans including defined contribution, defined benefit and health & welfare with asset base ranging from $1 million to $5 billion. She has knowledge of the requirements of DOL, ERISA, IRS and SEC for the 11-k filings and assists clients with regulatory updates and recommendations for administration of their plans. Gosia also trains and supervises staff on audit engagements and is part of the team that prepares and files clients’ forms 5500.

Connect with Gosia on LinkedIn or follow her on Twitter @KandaGosia.  If you need further information or if you have any questions, you can always just give us a call – we’re right by your side!