The Department of Labor and IRS are ramping up efforts to improve compliance in corporate employee benefit plan administration. Frequent errors point to inadequate or improper administration by organizations, but also to auditors that lack the proper training and experience to conduct a technically appropriate employee benefit plan audit. Failure to make improvements can result in penalties and fines to companies and organizations — and even criminal charges in severe cases. That’s why it’s so important to choose an 401k Plan Audit team with experience once your organization reaches 100 eligible participants.
When seeking a quality, independent public accountant to perform a financial statements audit of your employee benefit plan, the AICPA outlines several guidelines to consider. First of all, auditors found to be out of compliance with professional standards had the following characteristics:
- Inadequate technical training and knowledge
- Lack of awareness regarding the unique factors of employee benefit plan audits
- Lack of established quality review and internal process controls for each audit
- Misperception that EBP audits are simply fulfilling a governmental requirement
- EBP audits encompassing a very small percentage of the firm’s overall audit practice
- Missing necessary audit work
- Misinterpreting the limited scope audit exception
- Limited time to adapt to new technical guidance
As you can see, there are many telltale signs that a potential auditor may not be highly qualified. When seeking an auditor, you must know how to evaluate knowledge and experience, licensing and ability to perform tests unique to employee benefit plan audits. Such tests may include:
- Finding whether plan assets covered by the audit are fairly valued
- Unique aspects of plan obligations
- Timeliness of plan contributions
- How plan provisions affect benefit payments
- Allocations to participant accounts
- Issues that may affect the plan’s tax status
- Transactions prohibited under ERISA
Less experienced auditors may be assigned to perform routine aspects of the audit, but you need to make sure that a more experienced employee benefit plan auditor will be reviewing that work as well as performing more complicated aspects of the audit.
When looking for a quality, independent auditor, you might start by asking for references and discuss the quality of work with other EBP clients. Ask the firm about recent training and continuing education specific to employee benefit plans. Another simple way to compare quality auditors with one another is to search for the firms that are members of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC). These firms have made a voluntary commitment to audit quality by adhering to higher standards in their policies, procedures and training. At a minimum, auditors for these plans must be licensed or certified as public accountants through a state authority.
“The DOL noted that firms with membership in the AICPA EBPAQC had fewer audit deficiencies. By contrast, most CPAs performing the fewest audits and showing the most deficiencies were not members.” —U.S. Department of Labor
Given all of these factors, one more distinction that must be identified is if the firm has sufficient independence to satisfy ERISA standards for third-party reporting. An independent auditor or its employees, for example, should not also maintain the financial records for the employee benefit plan. The same firm may perform tax filing, but accounting work may be deemed a conflict of interest that would affect an objective audit report. For more information on selecting a quality auditor for EBP financial statement audits, refer to the AICPA report, http://bit.ly/1SN8w0h
The report even provides guidelines on developing a detailed RFP to engage auditors.
To download the full whitepaper, click here: Choose Your Auditor Carefully for Employee Benefit Plans
As you can see, plan administrators have a greater burden to hire a qualified auditor, given evolving training and certification of auditors and the complexity of the audit itself. It will greatly benefit any plan administrator or trustee to schedule time with a EBP auditor at Cornwell Jackson to understand these changes and pursue additional training if necessary.
For several years now, the responsibility for financing one’s retirement has increasingly shifted from the employer to the employee. According to the Bureau of Labor Statistics, over the 15-year period from 1985 to 2000, the primary retirement plan participation of employees moved from defined benefit plans to defined contribution plans, such as 401(k) plans. And that trend has certainly continued.
