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DOL Stresses Plan Auditor Experience

04.06.16

Generally, plans with at least 100 participants must provide an audit report when filing IRS Form 5500. A recent analysis of private audits of Forms 5500 conducted by the U.S. Department of Labor (DOL) suggests the importance of ensuring that your plan’s audit is conducted by a well-qualified auditing firm. Although a majority (61%) of the sample either provided flawless audits or those with only “minor deficiencies,” the DOL considered 39% to be an unacceptably high proportion of audits with an “unacceptable” amount of errors.

The study, conducted by the Office of the Chief Accountant within the DOL’s Employee Benefits Security Administration, reviewed 400 audited Forms 5500 out of some 81,162 audit reports submitted for 2011 plan years.

A large number (7,730) of CPA firms audited the forms submitted that year. Half of those firms, however, audited only one or two Forms 5500. Those firms accounted for a larger proportion of the auditing errors. The error rate for auditors that had audited only one or two plans that year was higher than for those that conducted more. In addition, the DOL is petitioning the American Institute of Certified Public Accountants (AICPA) to make improvements to its Peer Review process, as many of the deficient audits were performed by firms that received “clean” peer review reports. (Under the Peer Review requirements, firms that audit benefit plans are required to have the workpapers for at least one benefit plan selected for review.)

Also, the study reviewed the difference between “limited-scope” and “full-scope” audits. Limited-scope audits are less costly than full-scope audits, and don’t involve testing of investment data. They’re allowed under ERISA if this data is supplied to the plan administrator by a bank or similar financial institution.

The DOL believes that plan auditors weren’t as focused on all relevant audit areas when they were subject to a limited-scope audit. According to the DOL, the most prevalent deficiencies were contributions, planning and supervision, internal controls, participant data, investments, party-in-interest transactions, and benefit payments. With the exception of investments, these deficiencies are tested under both limited-scope and full-scope audits.

For more information on BPM’s Employee Benefit Plan services, please visit our website or contact Jenise Gaskin at (925) 296-1040.

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