A recent study by the United States Department of Labor (DOL) examined the quality of employee benefit plan audits and found that nearly 40% of the audits tested had serious problems.
A notification was sent to plan administrators across the country with over 100 participants who require an independent financial statement audit. This notification reminded plan administrators of their responsibility to engage a quality CPA firm who has the expertise to properly perform the benefit plan audit in accordance with standards. Failure to meet audit quality standards and plan compliance regulations could prove financially harmful for these companies and their participants, so care must be taken to ensure these plans are being administered correctly.
To meet your fiduciary responsibilities, companies with benefit plans should take care to secure the right external support to ensure compliance with DOL and Internal Revenue Code (IRC) standards. This entails engaging appropriate external expertise, including third party administrators, custodians/trustees, legal counsel and auditors.The DOL study indicates that auditing firms that are too small or have a small benefit plan practice have a much higher percentage of audit deficiency rates, and conversely those with the depth of experience and a dedicated benefit plan practice result in rates that are much lower.
Here are some critical questions you should ask to make sure your company is in the right hands regarding the integrity of its benefit plan audit:
The DOL requires benefit plans with generally over 100 participants to engage an independent auditor. A quality audit will help you protect the assets and financial integrity of your benefit plan and ensure that the appropriate funds will be available for your plan participants. It also enables you to fulfill your fiduciary responsibility of filing accurate, thorough annual returns and reports each year.
There are several key qualities and requirements of the right auditor to safeguard your benefit plan. They include:
It goes without saying that an auditor engaged to perform benefit plan audits should be qualified to do the work, even above and beyond basic licensing and independence. The more training and experience an auditor has, the better equipped that auditor is to navigate the ins and outs of benefit plans and the special auditing standards and rules that apply to such plans.
AICPA Employee Benefit Plan Audit Quality Center Membership
Companies should examine firms for a robust number of audits and auditors in their benefit plan practice, for the appropriate staff size to support each client individually and for their membership in the American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Plans Audit Quality Center. AICPA membership brings with it the benefit of oversight by its National Peer Review Committee. Center membership has additional benefit plan-specific continuing professional education and oversight requirements, which provides even more peace of mind to a company looking to protect its benefit plan and its employees.
Auditors of employee benefit plans should not have any financial interests in either the benefit plan or the plan sponsor; this would impair their independence and could otherwise impact their ability to render objective, unbiased opinions about the financial condition of the benefit plan.
Licensure and Certification
An auditor engaged for a benefit plan audit must be licensed or certified as a public accountant by the applicable state board of accountancy.
Always. When engaging an auditor, obtaining references and discussing the auditor’s work for other benefit plan clients is critical. If you have additional questions following a reference check, you may also wish to verify with the appropriate state regulatory authority that all licenses and certifications are up to date. Doing so should give you the answer as to whether you are in the right hands.
Employees place a tremendous amount of trust in their employers regarding their benefit plans – in most cases they count on their plan administrator to handle all aspects of the plan and seldom get involved with the day to day administration. This is why it is essential to bring in the right external support to properly and thoroughly administer, oversee and audit your plan for full compliance and security. It’s the right thing to do for employees, and the right thing to do for your organization.
Looking for more information? Download our guide to get the 5 Questions You Should be Asking Your Benefit Plan Auditor >>