Hiring an auditor with limited experience auditing benefit plans, or experience auditing only small plans … may cost plan sponsors. That conclusion can be drawn from a new assessment by DOL’s Employee Benefits Security Administration of audit quality after reviewing annual reports from 400 sample retirement plans of various sizes.
The agency found a nearly 76-percent deficiency rate for yearly audits of plans’ financial statements conducted by independent qualified public accountants that had just one or two benefit plan clients; the rate dropped to 12-percent deficiency among a firm’s plan clients when it handled 750 or more of these audits.
As a whole, 61 percent of the audits reviewed fully complied with professional auditing standards or had only minor deficiencies under professional standards. The study was based on audits performed for the plan years covered by 2011 Form 5500 filings to the federal government.
But the 39 percent of the audits that contained major deficiencies in one or more relevant Generally Accepted Accounting Standards requirements that would lead to rejection of a Form 5500 filing put a total of $653 billion and 22.5 million plan participants and beneficiaries at risk, the report said. Those figures are an increase from prior EBSA studies, the agency said.
“It appears that the quality of employee benefit plan audits has not improved since EBSA’s previous studies given an overall deficiency rate of 39 percent,” EBSA concluded.
Penalties of $1,100 a day and up for each filing submitted loom if DOL rejects a Form 5500 filing, so the problems created by an inexperienced accounting firm can be costly.
The other trend noted by EBSA from the audit review was that deficiency rates were higher for CPAs auditing plans that did not belong to the American Institute of Certified Public Accountants’ Employee Benefit Audit Quality Center, implying less expertise in this practice area. “Overwhelmingly, most CPAs in the two smallest audit strata [divided by EBSA by number of plan clients audited] are not members” of the center, EBSA said in its executive summary of the 191-page report.