GBACO blog post

ERISA Plan Audits | Why Auditor Experience Matters.

Posted by Steve Spitz, CPA on Jan 30, 2017 11:09:06 AM

An Overview of The Employee Retirement Income Security Act (ERISA) of 1974

ERISA was enacted to solve abuses in the private pension and welfare benefit plan system.

It's overseen by:

It includes provisions to:

  • Protect plan participants and beneficiaries.
  • Detect and deter abusive practices.  

To follow ERISA provisions, plan administrators should:

  1. Annually report financial information and activities of employee benefit plans.
  2. Include in that report, an independent qualified public accountant (IQPA) issued audit.
  3. Make sure the IQPA stated within the audit, that the following is accurate:
    • The plan's financial statements (and any other required schedules) must conform with generally accepted accounting principles (GAAP).

Note:

  • Plans with over 100 participants MUST BE audited annually.
  • The plan sponsor is responsible for engaging the IQPA 

Why Experience Matters

According to the DOL...

"One of the most common reasons for deficient accountants' reports is the failure of the auditor to perform tests in areas unique to employee benefit plan audits. The more training and experience that an auditor has with employee benefit plan audits, the more familiar the auditor will be with benefit plan practices and operations, as well as the special auditing standards and rules that apply to such plans." 

-Selecting An Auditor For Your Employee Benefit Plan by the DOL. 

A report released by the DOL shows that...

The DOL traced most deficit audits to CPAs with less auditor experience of employee benefit plans.

  • 76% of audits performed by firms which perform less than three ERISA plan audits a year, have deficiency findings. 
  • 50% of CPA firms audit at most, one or two employee benefit plans a year.
  • 70% of auditors audit fewer than six ERISA plans a year.

What happens when an audit has a deficiency?

"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."

Factors for establishing congruence with professional standards:

  • Adequacy of technical training and knowledge on the part of auditors; 
  • Auditor awareness of the uniqueness of employee benefit plan audits; 
  • Whether auditors have established quality review and internal process controls; 
  • Plan administrator(s) and/or auditor(s) perception (beyond fulfilling governmental requirements) of the importance of employee benefit plan audits;
  • Amount of employee benefit plan audit work in the auditor’s practice; 
  • Auditors completion necessary audit work; 
  • Auditors full understanding of the limited scope audit exception; and 
  • The period of time available to adapt to new technical guidance.

Other Resources:

The AICPA established the Employee Benefit Plan Audit Quality Center (EBPAQC) to aid CPAs in meeting the challenges of performing quality audits specific to this complex area.  The EBPAQC is a firm-based membership center which includes resources about employee benefit plans such as pension, health and welfare, and 401(k) plans.  

The AICPA's Plan Sponsor Resource Center has plenty of tools and resources for plan sponsors, administrators, and trustees.

Explore our other blog posts regarding employee benefit plans:


Topics: ERISA Audits, Choosing an Auditor for ERISA Audits, Employee Benefit Plan Audits, Employee Benefit Plans, ERISA, Auditor Experience

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