July 14, 2015 – In May 2015, the Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL) released the findings of its study on employee benefit plan audits. This study examined a statistical sample of 400 benefit plan audits from the 2011 reporting year to determine how many of these audits the EBSA considered to be deficient. The results were staggering.
- 39% of audits had one or more major deficiencies with respect to Generally Accepted Auditing Standards which would lead to a rejection of the form 5500 filing. Similar prior audit quality studies showed lower deficiency rates (19% in 1997, 33% in 2004).
- 17% of the audit reports reviewed failed to comply with one or more reporting requirement.
- Firms who performed the fewest (based on statistical stratification) benefit plan audits annually had a 76% deficiency rate, while those who did the most had a failure rate of only 12%.
Employee Benefit Plan Fiduciaries: Take Note
If you’re a fiduciary of one of the 80,000+ employee benefit plans that attach independently audited financial statements to their Form 5500 filing, these numbers should be very concerning, as the EBSA has concluded that four out of every ten audits are not up to standard. While the DOL does not have the legal authority to penalize plan auditors, it can reject Form 5500 filings if it deems an audit to be deficient. If a plan’s Form 5500 filing is rejected, the Plan Administrator has 45 days to correct the deficiency issue with their auditor and respond to the DOL to avoid a fine of up to $1,100 per day, beginning with the original due date of the Form 5500 filing. This can end up being a costly affair for a plan sponsor that chooses the wrong auditor.
How to Choose a Plan Auditor
The results of the EBSA’s audit quality study clearly indicates the importance of selecting an auditor that is experienced in performing employee benefit plan audits to the DOL standards. To assist plan fiduciaries, the DOL has published a brief guide on how to properly choose a plan auditor. The basic message from the guide is to select an experienced reliable independent auditor and understand what the auditor is testing and what the results were from those tests. Another warning sign that your auditor may not be doing all test procedures required by the DOL is if their fee seems low as compared to other qualified auditing firms. A low fee could indicate that required procedures are not being performed, which could result in a rejected form 5500 filing.
The Dopkins Difference
At Dopkins & Company, we perform 70+ plan audits each year to the same high quality standards we use for all of our services. Our membership in AICPA Employee Benefit Plan Audit Quality Center, as well as our attendance of the AICPA’s annual National Conference on Employee Benefit Plans helps ensure that we are informed of the latest industry developments. If you would like more information on our employee benefit plan audit services, or would like to learn more about how we can assist you in the administration of your employee benefit plan, please contact Karen Costa at email@example.com or a member of our Employee Benefits Plan Team for more information.
About the Author
Karen D. Costa CPA
Karen, Assurance Services Director and Co-Leader of the Dopkins Not-for-Profit and Healthcare Teams, has lengthy experience with both for-profit and not-for-profit healthcare organizations specializing in auditing, revenue cycle consulting and certification of their Medicaid cost reports and specialized compliance audits.