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DOL finds high rate of deficiencies for firms that audit fewer plans

June 1, 2015

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The Department of Labor (DOL) just released a report from their study on the quality of retirement plan audits. Specifically, they observed that, “There is a clear link between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed…CPAs who performed the fewest number of employee benefit plan audits annually had a 76% deficiency rate. In contrast, the firms performing the most plan audits had a deficiency rate of only 12%.”

While the results of the study are not favorable for many audit firms, you can rest assured that, if you are a Clark Schaefer Hackett client, your plan audit is in experienced hands. Auditing nearly 300 plans annually, CSH’s size puts it among the firms with the lowest deficiencies.

Here are more details about the study:

2015 Audit Quality Study

The DOL selected a sample of 400 retirement plan audits performed for the plan years covered by the 2011 Form 5500 annual filing. The sample was divided into six strata based on the size of a firm’s employee benefit practice, as follows:

# of Plans Audited 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 of the DOL’s Audit Quality Study reported a direct correlation between the size of an audit firm’s employee benefit plan (EBP) practice and deficient work. Firms that audit less than 100 plans had higher deficiency rates. Firms that audit 100 or more benefit plans had only a 12 percent deficiency rate, suggesting the importance of using dedicated EBP auditors with training and experience in the EBP industry.

Not only did CPA firms with smaller employee benefit plan audit practices have significantly higher overall deficiency rates, but their audits also had an unacceptably high number of deficient audit areas. For the 1-2 plan audit stratum, 56% of the audits contained five or more deficient audit areas. As the number of audits performed increased, the number and frequency of deficiencies decreased. In the two largest CPA firm audit strata, the audits that had five or more deficiencies (one in each stratum) presented unique audit situations not normally encountered in performing a routine plan audit.

# of EBP Audits # of Deficient Audits Audits with 5 or More Deficiencies
1-2 72 53 (56%)
3-5 65 40 (42%)
6-24 64 37 (39%)
25-99 27 14 (22%)
100-749 3 1 (33%)
750+ 3 1 (4%)

Deficient audits expose plan Form 5500 filings to rejection by the DOL, possibly subjecting plan sponsors and fiduciaries to additional risk and large penalties.

A quality auditor will not only provide insurance against steep penalties, but will be a valuable resource to plan sponsors, assisting with the implementation of processes that ensure controls are properly designed to minimize errors in plan operations, and ultimately ensure that the financial statements are complete and accurate.

The DOL is taking action

The DOL will be sending a letter to plan administrators who hire independent auditors who audit less than five plans annually to communicate the importance of hiring a plan auditor that has the appropriate EBP experience. The DOL is also planning to focus attention on auditors who are handling less than 99 plans.

In addition, the DOL is considering legislative changes regarding EBP auditor qualifications and enforcement powers over service providers (CPAs, actuaries, plan administrators), including the ability to assess monetary penalties. The DOL also expects to change the EFAST filing system and Form 5500 reporting to include questions related to material weaknesses, significant deficiencies, and other internal control deficiencies identified during the audit process.

How does this affect plan sponsors?

Plan sponsors who hired deficient auditors were notified by the DOL and could be subject to penalties if the audit deficiencies are not corrected. The DOL has the right to reject plan filings and assess penalties of up to $1,100 per day, without limit, on plan administrators for deficient filings. Because an incomplete, inadequate, or untimely audit report may result in a rejection of the filing and penalties being assessed against the plan administrator, it is important to select an experienced and reliable auditor.

Why you can rest easy

Our EBP experts perform a lot of audits: At CSH, we have over 85 professionals specializing in retirement plan audits and currently audit nearly 300 plans. Our firm is one of the top 30 firms nationwide in performing benefit plan audits based on the number of plans audited, the number of participants, and the assets under management. Our proficiency and expertise means you can trust our results.

We have an excellent record: Clark Schaefer Hackett received a clean report in our latest DOL inspection. Not only that, we meet the highest professional standards set by the American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center and the Public Company Accounting Oversight Board (PCAOB). In our 2014 peer review, we received a “pass” rating with no significant deficiencies noted in our system of quality control. This is the highest “clean” opinion available under the AICPA peer review program. The positive results of these inspections serve as evidence to our dedication to quality service and adherence to professional standards.

As a leader in the industry, CSH has been positioned to assist and work with the key players in the profession, including the OSCPA and AICPA, in an approach to improve audit quality.

CSH has your best interests in mind and will make sure that you have met your fiduciary requirements. For an update on the current regulatory environment, please register for our upcoming webinar “Regulatory Update – What Should Plan Sponsors Expect in 2015?”

If you have any questions or concerns, please contact one of our experts in the Employee Benefit Plan Audit Services Group.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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