DOL report finds major deficiencies in employee benefit plan audits

The US Department of Labor (DOL) issued a report on its inspection of 2011 employee benefit plan audits, Assessing the Quality of Employee Benefit Plan Audits. Baker Tilly is one of the largest auditors of employee benefit plans in the country, auditing approximately 1,200 plans annually. We have been through DOL inspections and, for our public plans, PCAOB inspections without any major deficiencies. We take this development very seriously and are providing a summary of the results and issues identified. The report issued is quite troubling as the DOL found a deficiency rate that is too high for such an important element of the system to protect participants in employee benefit plans. Overall, the deficiency rate was nearly 40% in the audits examined.

A deeper look at the report is quite revealing. The DOL divided up the population of firms inspected into six stratums based on the number of plans they audit annually. The firms that audit the fewest benefit plans, from 1-99 plans, had a deficiency rate of 65%*; while those firms that audit more than 750 plans had a deficiency rate of 12%.

What does this mean for your employee benefit plan audit?

Deficiencies are a problem for the plan sponsors and administrators as fines can reach up to $1,100 per day without limit. This is an area that plan sponsors and administrators should be concerned with and aware of as they review their employee benefit plan auditor.

Plans sponsors and administrators have a fiduciary responsibility to the plan participants. A quality audit from a firm with experience and specialization goes a long way in meeting that fiduciary responsibility.

Plan sponsors should review their auditor and determine if they meet criteria for providing a quality audit:

• Experience level: How many plan audits is your current provider conducting annually?
• Quality: What is your current provider’s training regimen and requirements?
• Industry involvement: How involved in the employee benefit plan audit industry is your provider?

Changes coming to regulations regarding audit quality

Recently the AICPA put forward a Six Point Plan to Improve Audit Quality. The elements of the plan include the following:

1. Pre-licensure-revising the CPA examination to focus on higher order skills
2. Standards and ethics-support for quality control implementation and improved ethics guidance
3. CPA Learning and Support-Competency models for audits including specialty practice areas such as employee benefit plan
4. Peer review-greater focus on high risk audits such as employee benefit plan and stricter requirements for remediation
5. Practice monitoring of the future-real time monitoring of audit firms, by the AICPA in high risk practices such as employee benefit plan
6. Enforcement-aggressive investigation of referrals of deficiencies by regulators and others and real accountability for auditors that do not adhere to standards

The AICPA has also made recommendations to the DOL related to the report. These include:

• The DOL should seek congressional repeal of the exemption allowing limited-scope audits, which the Department’s Office of Inspector General determined is a major obstacle in providing audit protections for plan participants.
• The DOL also should initiate a comprehensive education program for plan sponsors to help them understand the critical importance of hiring a quality auditor.

What to do now

These changes will eventually affect the providers of employee benefit plan audits. Until that time, plan sponsors and administrators should act to ensure their audit is being conducted in a high quality manner with an experienced and specialized audit firm.

For more information on this topic, or to learn more about how Baker Tilly employee benefit plan audit specialists can help, contact our team.

*65% is the aggregate percent of deficiencies for the first four stratum of the report.

© 2024 Baker Tilly US, LLP