Audits of employee benefit plan (EBP) financial statements are an important public service in which quality performance is essential.
But studies by the U.S. Department of Labor (DOL) have found significant deficiencies in some of these plan audits, and stepped-up enforcement of the audit requirement carries risks for plan administrators.
The DOL has the right to reject plan filings and assess penalties of up to $1,100 a day, without limit, on plan administrators with deficient filings.
This makes selection of a quality audit firm essential for plan administrators. A new AICPA publication released Wednesday discusses steps for hiring a quality auditor for an EBP audit, with step-by-step instructions for the proposal process and documenting the agreement.
Evaluating the auditor’s qualifications, the publication says, is a critical step that includes considering licensing and independence rules, and reviewing the auditor’s experience and professional development.
Auditors engaged for EBP audits are required by federal law to be licensed or certified as a public accountant by a state regulatory authority. Plan administrators may wish to verify the firm’s license with the appropriate state agency.
Plan auditors also are required to be independent for the purposes of auditing plan financial information and issuing an auditor’s report. Independent auditors must adhere to rules established by the DOL, the AICPA, and, in some cases, the SEC and the PCAOB, the publication says.
According to the publication, auditors of EBP plans should have expertise in:
- Evaluating whether plan assets covered by the audit have been fairly valued.
- Unique aspects of plan obligations.
- Timeliness of plan contributions.
- How plan provisions affect benefit payments.
- Allocations to participant accounts, if applicable.
- Issues that may affect the plan’s tax status.
- Transactions prohibited under the Employee Retirement Income Security Act.
If a less experienced auditor is assigned to perform routine audit procedures in order to reduce audit costs, plan administrators should confirm that the work is reviewed by an experienced EBP auditor with recent continuing professional education, the publication says. The experienced EBP auditor also should perform the more complicated audit procedures.
Plan sponsors and other stakeholders can find tools at the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) website. A list of EBPAQC member firms is available at the site.
—Ken Tysiac ( firstname.lastname@example.org ) is a JofA editorial director.