Performing Employee Benefit Plan Audits
Recently the Department of Labor (“DOL”) has been sending letters to employee benefit plan administrators that read
Dear Plan Administrator:
I am sending you this email because you may be in the process of selecting or working with a CPA firm to audit the 401(K) Plan’s 2015 financial statements that will be submitted to the Department of Labor (DOL) as part of the Plan’s Form 5500 filing. Selecting a qualified CPA who has the expertise to perform an audit in accordance with professional auditing standards is a critical responsibility in safeguarding your plan’s assets and ensuring your compliance with ERISA’s reporting and fiduciary requirements.
Substandard audit work can be costly to plan administrators and sponsors. It both jeopardizes plan assets and can result in significant civil penalties being imposed on the plan administrator by the DOL. A recent study conducted by the Department of Labor found serious problems with nearly 40% of employee benefit plan audits. (You may read this study on our website at: www.dol.gov/ebsa).
A quality audit will help protect the assets and financial integrity of your Plan and help to ensure that the necessary funds will be available to pay the benefits promised to your Plan’s participants and their beneficiaries. It also helps make sure your Plan is in compliance with the law.
Employee benefit plan audits have unique audit and reporting requirements and are different from other financial audits. Care should be taken by the plan administrator to select a CPA who possesses the requisite knowledge of plan audit requirements and expertise to perform the audit in accordance with professional auditing standards. To ascertain the qualifications of a CPA firm to perform your Plan’s audit, you might want to consider the following factors:
- The number of employee benefit plans the CPA audits each year, including the types of plans;
- The extent of specific annual training the CPA received in auditing plans;
- The status of the CPA’s license with the applicable state board of accountancy;
- Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPA’s for investigation; and
- Whether or not your CPA’s employee benefit plan audit work has recently been reviewed by another CPA (this is called a “Peer Review”) and, if so, whether such review resulted in negative findings.
Additional tips for selecting an auditor and monitoring your auditor’s work can be found in our pamphlet “Selecting an Auditor for Your Employee Benefit Plan” found at: .
We are eager to discuss with you the importance of a quality audit for your plan, and welcome your comments and questions at PlanForAuditQuality@dol.gov.
We have had several clients forward the letter to us and ask how we would answer these questions. Our responses are summarized below.
The number of employee benefit plans the CPA audits each year, including the types of plans
Clayton & McKervey audits about 30 employee benefit plans each year. The types of plans covered include defined benefit plans and defined contribution plans (both limited and full scope in nature).
The extent of specific annual training the CPA received in auditing plans
- Clayton & McKervey is a member of the American Institute of CPAs Employee Benefit Plan Audit Quality Center (AICPA EBPAQC) which has specific education requirements in order to be members of the center.
- Each year, the principal in charge of the employee benefit plan practice is required to attend an audit quality center sponsored designated partner planning video on recent developments in employee benefit plan auditing.
- In addition, she and our quality control reviewer attend the three-day AICPA Employee Benefit Plan Audit Conference and obtain up to 23 hours of employee benefit plan specific education. Upon returning, the attendees provide technical updates to employees who are part of the employee benefit plan audit team.
- All individuals managing employee benefit plan audit engagements complete a minimum of eight hours of employee benefit plan specific continuing professional education every three years in compliance with the requirements of the AICPA EBPAQC.
The status of the CPA’s license with the applicable state board of accountancy
All members with CPA licenses at Clayton & McKervey have currently active licenses, and those who work on employee benefit plan audits are members of the AICPA.
Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPA’s for investigation
Clayton & McKervey has not been subject to prior DOL findings or referrals and has not been referred to the state board of accountancy or AICPA for investigation.
Whether or not your CPA’s employee benefit plan audit work has recently been reviewed by another CPA (this is called a “Peer Review”) and, if so, whether such review resulted in negative findings
- Clayton & McKervey is subject to peer reviews every three years in accordance with the requirements of the State of Michigan and the National AICPA Peer Review Program. Our most recent peer review was completed in 2013 and we have our next review scheduled to take place during 2016. Our current peer review report is available on request.
- Clayton & McKervey also performs its own internal inspection every year. During our peer review and our internal inspections, all employee benefit plan audits are subject to selection for review. No reviews have resulted in negative findings.
At Clayton & McKervey, we have a dedicated team of professionals that work on the Employee Benefit Plan audits to ensure our clients’ audits are completed by individuals with expertise in this very complex area. Our team is focused on completing a quality and timely audit, but also on identifying any administrative errors or investment issues. Early identification of these issues allows the plan sponsor employer to proactively correct errors with minimal fines or penalties, rather than the DOL or IRS finding the error, which can have more substantial ramifications.