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Tax & Assurance Guidance

New Report from the US Department of Labor Indicates High Percentage of Deficient Employee Benefit Plan Audits

Posted on June 16, 2015 by

Dave Van Damme

Dave Van Damme

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Clayton & McKervey, P.C. is committed to audit quality. We dedicate considerable resources to making sure our audits meet the highest standards. The importance of commitment to quality has been highlighted with the recent release of the US Department of Labor’s (DOL) Audit Quality Study.

The DOL recently released its report of results from a nationwide study conducted on the quality of employee benefit plan audit work performed by certified public accounting firms. The study looked at a sample of 400 retirement plan audits by 232 CPA firms for the 2011 Form 5500 annual filing (plan years beginning in 2011). There are approximately 80,000 benefit plan filings made per year with the DOL.

The samples were divided into six groups based on the number of plans an accounting firm audits. The groups are as follows:

Number of Plans Deficient Audits
1 – 2 75.8%
3 – 5 68.4%
6 – 24 67.4%
25 – 99 41.5%
100 – 749 12.0%
750+ 12.0%

Findings

The results shown above demonstrate a direct correlation between the size of the firm’s employee benefit plan practice and what the DOL deemed to be deficient audit work. More than 75% of plan audits were deficient when a firm performed only 1-2 plan audits and greater than 67% were deficient when firms audited fewer than 25 plans, whereas firms with larger numbers of benefit plan audits are shown to have fewer deficiencies. The DOL did acknowledge that firms that are members of the AICPA’s Employee Benefit Plan Audit Quality Center tended to have fewer instances of multiple deficiencies than did non-members.

Impact

Audits of employee benefit plans require specialized knowledge. The DOL Audit Quality Study showed that practitioners who only audit a few benefit plans do not have enough experience or knowledge to perform audits that comply with professional standards.

Conclusion

The Employee Retirement Income Security Act (ERISA) requires employee benefit plans with 100 or more participants to have an audit as part of the annual Form 5500 filing. Finding a quality auditor is part of the fiduciary responsibility of the plan administrator for any employee benefit plan. Hiring a quality auditor can help plan sponsors with regulatory compliance, but also helps plan management confirm the proper internal controls are in place to help minimize plan operational errors.

Clayton & McKervey, P.C. has developed a significant employee benefit plan audit practice, with a particular  focus on 401k plans, and is a long time member of the AICPA’s Employee Benefit Plan Audit Quality Center.

We are committed to maintaining high quality and technical expertise in all of our audit work including the important and complex area of employee benefit plans.

If your employee benefit plan is required to have an audit, Clayton & McKervey, P.C. is available to discuss our services and how we may be able to help.

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Dave Van Damme

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Leading the firm's advisory & assurance group, Dave supports closely held businesses with audits, financial reporting and fraud analysis.

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