The selection of a qualified plan auditor is a key fiduciary responsibility for plan administrators. A thorough audit performed by experienced plan auditors will not only assist with plan compliance but can also provide value added operational feedback on plan operations.
In its latest audit quality study released in November 2023, the Department of Labor ( DOL ) Employee Benefits Security Administration ( EBSA ) continued to express concern over the quality of employee benefit plan audits performed by independent public accounting firms.
The full report can be found here: https://shorturl.at/imCSU
In general, plans with 100 or more participants are required to have an audit for filing with the Form 5500 Annual Return/Report ( Form 5500 ).
The most recent report covered a sample of 307 employee benefit plan audits for the 2020 filing year with findings derived from a review of Form 5500 filings along with the related audit reports and supporting workpapers. These audits were divided into two categories: complex ( defined benefit plans, ESOPs, and health and welfare plans ) and simple ( 401k and 403b plans ).
Some key points from the latest report are:
1 ) Overall, 70% of the selected audits fully complied with professional auditing standards or had minor deficiencies. However, 30% of the audits contained major deficiencies with respect to one or more of the applicable requirements. This compares to 39% in the previous quality study from 2015. While there has been improvement, audit quality continues to be a major concern.
2 ) The study found there continues to be a clear link between the number of audits a firm performs and the quality of the audit work. Firms that performed 1-2 audits annually had a deficiency rate of 70% while those firms performing 100+ audits had a deficiency rate of 17%. Due in part to the AICPA’s Enhancing Audit Quality Initiative and the Peer Review Program, there has been a notable drop in the number firms who perform a small number of annual audits. From 2015 to 2020 the number of firms performing a low volume of audits dropped from 5,203 to 2,589. In aggregate, the number of firms performing retirement plan audits dropped from 7,330 in 2011 to 4,300 in 2020.
3 ) It was also noted that audits performed by members of the American Institute of Certified Public Accountants’ Employee Benefit Plan Audit Quality Center had significantly lower deficiency rates. The deficiency rate for member firms was 30% versus 71% for non-members.
4 ) The study also found, as previous studies have, that there is not a clear link between a firm’s peer review report and employee benefit plan audit quality. Of the 105 audits with identified deficiencies, 91% were performed by firms who had received a ‘pass’ peer review opinion while 7% received a ‘pass with deficiencies.’
Pension Assurance conducts nearly 900 benefit plan audits a year making us 15th in the nation in ERISA plan audits.
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