Editor’s Note: This blog has been updated as of October 12, 2021 for accuracy and comprehensiveness.

The U.S. Department of Labor (DOL) recently communicated they are planning to conduct an audit quality assessment of audits performed by independent qualified public accountants for the 2020 Form 5500 filing year. The previous assessment included findings that the percentage of plan audits that do not comply with professional audit standards has increased from 19% in 1997 to 39% in 2014!

These results were compiled from the DOL’s Employee Benefits Security Administration (EBSA) division’s assessment of 81,162 audits performed by 7,330 different CPA firms from 5500 filings for 2011. The 39% (or nearly 4 out of 10 filings) of the audits that contained major deficiencies put $653 billion and 22.5 million plan participants and beneficiaries at risk.

Findings from the audit show that audit quality is directly linked to a firm’s level of experience and number of plans audited. In fact, CPAs who audit the fewest number of plans had a 76% deficiency rate, while those that audit the most plans had a deficiency rate of only 12%.

The DOL stresses the importance of hiring the proper auditor in their guide Selecting an Auditor for Your Employee Benefit Plan as the auditor is important protection to your plan.

5 Signs That Signal a Need to Switch Auditors

The financial integrity of your employee benefit plan depends on a quality audit, which according to the DOL has been difficult to find. If you have encountered any of the following issues with your current plan audit, switching auditors might be a good choice for the sake of your employees and their benefits:

1. The firm lacks experience and a committed employee benefit plan practice- The DOL mentions that if a firm specializes in employee benefit plan audits, audit quality drastically improves. Only 1% of all CPA firms in the nation audit 100 or more employee benefit plans annually and this group of firms has the least number of deficiencies.
2. There is high staff turnover at your CPA firm- Having a team of professionals complying with ERISA, DOL, and IRS requirements is vital, but it is important to have some consistency with audit staff as well, so they are familiar with your Plan and company operations. The average turnover rate for CPA firms is approximately 15-20% annually.
3. You’ve experienced low quality service, poor responsiveness, and lack of resources- Providing the best possible service depends on dedicated efforts to communicate with clients and ensuring that your auditor has experience with the Employee Retirement Income Security Act of 1974 (ERISA) and is a member of the Employee Benefit Plan Audit Quality Center (EBPAQC). Adequate resources must be allocated to this specific practice area of expertise (which is offseason work for most small firms) to ensure that quality and service is not sacrificed.
4. There is a lack of understanding regarding how specific types of plans operate and how the current industry is affecting the different plans- There are quite a range of plan types including defined contribution, defined benefit and health and welfare plans, which can further be grouped into profit sharing plans, 401(k) plans, 401(a) plans, 403(b) plans, and ESOP plans. You will want to hire an auditor with knowledge of all plan types so that he/she can update you if anything changes regarding different requirements for a specific type of plan under ERISA, the DOL or the IRS.
5. You’ve experienced regulatory agency scrutiny- If your audit frequently captures negative attention from a regulatory agency, it might be time to reconsider auditors. Consider hiring an auditor that provides technical support in the event that ERISA, DOL or the IRS selects your plan for review.

Putting your plan into the hands of experts will guarantee you peace of mind regarding your employees’ benefits. If your current auditor does not make efforts to communicate with you about any changes in individual plans, changes in staffing, or new developments in the industry, consider making a switch.

Questions? Contact a member of our employee benefit plan team at KLR (Also – we’re glad you asked - we audit approximately 95 plans annually).