While CPA firms audit employee benefit plans, the U.S. Department of Labor (DOL) audits the quality of the audit work of CPA firms related to those plans. In May, the DOL issued their report, Assessing the Quality of Employee Benefit Plan Audits, and it was embarrassing for our profession. Their report found that 39% of audits had one or more major deficiencies. As the auditors of more than 50 plans, Ostrow Reisin Berk & Abrams (ORBA) took this report very seriously.
The DOL found a clear link between the number of employee benefit plans which a firm audits and the quality of those audits. Firms performing the fewest number of plan audits had the highest number of deficiencies. Second, they found that firms which are members of the American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center tend to produce audits with fewer deficiencies. Third, the DOL concluded that training specifically targeted to audits of employee benefit plans contributes to better audit work. We believe that ORBA’s focus on audits of employee benefit plans helps us in each of these three key areas.
In 2011, the data year for the study, there were 81,162 audits of plans performed by 7,330 firms. The DOL stratified these into firms that audit 1-2 plans, 3-5 plans, 6-24 plans, 25-99 plans, 100-749 plans, and finally, more than 750 plans. ORBA audits between 25-99 plans which puts us in strata where the most number of audits fell. Interestingly, 95% of the firms which perform audits of plans audit less than 25 plans per year.
At ORBA, we have a very strong focus on training in this area. The DOL announced their report at the AICPA’s annual spring benefit plan conference in Washington, D.C. We had several of our staff at that conference. We also send staff to the AICPA winter conference each year. One of our managers is also on the Illinois CPA Society Employee Benefits Committee which plans and sponsors two conferences each year, which are attended by many of our auditors.
While attending the Washington D.C. conference may be enjoyable for our staff, attendance comes with the responsibility of those attendees to organize an internal seminar once they return for our staff each May as we kick off EPB audit season. Certainly, training is a key component, and large expense, of our EBP audit practice.
After reviewing the DOL report, yes, we did make some changes to our approach to audit planning and documentation. While we believe we have always done a good job on audits of plans, we recognized we could do better and we took the report to heart.
As a plan administrator, what does this report mean to you? While this report was focused on auditors, other DOL reports have been focused on other plan service providers. Because of their fiduciary responsibility to the participants in the plan, it is very important for plan administrators to carefully look at the qualifications of the service providers hired by plan. Requiring a high quality audit is a key responsibility of being a plan administrator.