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DOL Finds Major Deficiencies in Employee Benefit Plan Audits

February 15, 2024

The U.S. Department of Labor recently conducted an Audit Quality Study that exposed deficiencies in 30% of employee benefit plan audits. We dive into the study here.

Attention plan sponsors…the Department of Labor (DOL) has issued a report, Audit Quality Study, in November 2023 that exposes major deficiencies in employee benefit plan audits. Here’s what you should know.

A look inside the Audit Quality Study

The audit quality study analyzed financial statement audits of Employee Retirement Income Security Act (ERISA) employee benefit plans for the 2020 filing year. Why 2020? 2020 was the last year before auditors were required to comply with SAS 136, the new audit standard. This enabled the DOL to establish a baseline for audit quality before the new standard’s implementation. The DOL will assess SAS 136 with future studies.

The study reviewed 307 plan audits performed by 222 firms. While 70% of the audits were revealed to be compliant with professional auditing standards, 30% had one or more major deficiencies, meaning they did not comply with Generally Accepted Accounting Standards (GAAS) requirements. The previous 2015 study noted 39% had one or more major deficiencies, an improvement, however, still a high rate of deficiencies. The study estimated approximately 11.7 million participants were impacted by audits with at least one GAAS deficiency.

What may be a reason for the deficiencies and what was deficient?

Through the study, the DOL discovered that firms performing 5 or fewer of these specialized employee benefit plan audits per year had significantly more deficiencies than firms performing more than 5 per year. This has been the trend for the last several studies. In addition, the study noted the number of firms completing specialized employee benefit plan audits decreased from 5,207 in 2022 to 2,585 in 2020.

The most frequent deficiencies were found in testing contributions, benefit payments, participant data and party-in-interest/prohibited transactions.

The study also revealed that firms with memberships in the American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center (EBPAQC) had significantly less deficiencies than non-member firms.

What are some items to consider when it comes to selecting an auditor?

  • How many plan audits does the CPA firm perform each year? Is it less than 5?
  • Has the CPA been subject to any DOL findings or referrals?
  • Has the CPA been investigated by the AICPA or a state board of accountancy?
  • Has the CPA’s audit work been reviewed by another CPA in a peer review? Does the peer reviewer have expertise in EBP audits?
  • Does the CPA have limited experience auditing your type of employee benefit plans?
  • Is the CPA firm a member of the AICPA’s EBPAQC?

Questions? Our Employee Benefit Plan Team is here to help…contact us.

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