Protect Your Plan – Hiring Qualified Plan Auditors

Written by Derrel G. Curry, CPA, CGMA

If your company provides an employee benefit plan which has 100 or more participants, you are generally required to have the plan’s annual report (Form 5500) audited under the Employee Retirement Income Security Act of 1974 (ERISA). It is your duty and fiduciary responsibility as the plan administrators to hire independent qualified public accountants to perform quality audits.  Financial statement audits provide an independent, third-party opinion to participants, plan management, the DOL and other interested parties that the plan’s financial statements provide reliable information to assess the plan’s present and future ability to pay benefits.  This is in an effort to establish safeguards and protect plan participants.

Watch out for deficiencies

A study by the U.S. Department of Labor (DOL) revealed that four out of 10 employee benefit plan audit reports contained major deficiencies with respect to one or more relevant Generally Accepted Auditing Standards (GAAS) requirements. These deficiencies would lead to rejection of a plan’s annual report and put approximately $653 billion and 22.5 million plan participants and beneficiaries at risk.

Of the 400 plan audit reports reviewed, 17% failed to comply with one or more of ERISA’s reporting and disclosure requirements. The DOL’s findings underscore the importance of selecting an experienced accountant who specializes in handling employee benefit plan audits.

Select a qualified auditor

In addition to requiring employee benefit plan auditors to be licensed or certified public accountants, ERISA guidelines require auditors to be independent. In other words, they can’t have a financial interest in the plan or the plan sponsor that would bias their opinion about a plan’s financial condition.

Experience is another important selection criterion. The more training and experience that a CPA firm has with plan audits, the more familiar it will be with benefit plan practices and operations, as well as the special auditing standards and rules that apply to such plans. The DOL is very focused on audit quality and plan compliance including fiduciary rules and requirements, investment education, information distribution, policies, and annual reviews.  Not only is the DOL focused on these areas of performance, but they are also focused on documentation.  Everything must be documented.

Ask questions

When evaluating a potential CPA firm to audit your employee benefit plan, there are several questions you should ask before even considering fees to ensure that the firm has the experience and knowledge to perform your plan’s audit.  These questions include:

• Is your firm a member of the AICPA’s EBP Audit Quality Center?
  • Being a member requires additional training hours specific to EBP audits.
• How many plans does your firm audit?
• How many EBP auditors does your firm have?
• On average, how many hours does your firm spend on the audit?
• What are your Firm Peer Review results?
• Has the firm been evaluated by the DOL and, if so, what were the results?
• Can you provide references from other EBP clients?

As the plan’s sponsor, it is your responsibility to ensure that you hire the right auditor.

Additionally, it is important to be involved throughout the audit process and don’t be afraid to ask questions.  Contact your auditor to find out how you should prepare for the audit. The earlier the plan administrator plans for the audit and gathers required information, the better and smoother the audit should go.  Provide any information as promptly as possible to ensure there are no delays when completing the audit. The following are questions the plan administrator can consider in preparation for the external audit procedures as a proficient audit firm will focus on these areas:

• Have plan assets covered by the audit been fairly valued?
• Are plan obligations properly stated and described?
• Were contributions to the plan received in a timely manner?
• Were benefit payments made in accordance with plan terms?

At the conclusion of audit work is also a good time to ask questions.  For example:

• Did the auditor identify any issues that may impact the plan’s tax status?
• Did the auditor identify any transactions that are prohibited under ERISA?

In addition to providing an opinion, your auditor’s report will highlight any problems unearthed during the audit. Experienced auditors may suggest ways to improve your plan’s operations and/or internal controls.

Protect yourself and your employees

Employee benefit plan audits offer critical protection to plan administrators and employees. Your company can’t afford to skimp when it comes to hiring an auditor who is unbiased, experienced and reliable. If your CPA doesn’t provide this service, please contact our EBP professionals at BMSS.  We have at least a dozen EBP auditors who undergo continuing education specific to performing plan audits and all of the unique circumstances that surround them.  Our goal is to give you the peace of mind to ensure that your plan is in compliance with DOL regulations.  Contact our office at (205) 982-5500 or visit Employee Benefit Plan Audits on our website.