DOL Warns of Widespread Deficiencies in Benefit Plan Audits

Low-quality audits put plans and participants at risk

By Stephen Miller, CEBS Jun 3, 2015

A May 2015 report by the U.S. Department of Labor (DOL), Assessing the Quality of Employee Benefit Plan Audits, warns of serious issues with the quality of benefit plan audits performed by certified public accountants (CPAs).

"The existing patchwork of regulations and rules needs to be overhauled and a meaningful enforcement mechanism needs to be created" for audits of health, retirement and other benefit plans covered by the Employee Retirement Income Security Act (ERISA), said Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis C. Borzi, in a released statement.

More than 7,300 licensed CPAs nationwide audit more than 81,000 ERISA-covered employee benefit plans. The DOL's review found that:

61 percent of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards.

The remaining 39 percent of the audits, however, contained major deficiencies, which put $653 billion and 22.5 million plan participants and beneficiaries at risk.

The report proposes that Congress amend ERISA's definition of "qualified public accountant" to include additional requirements and qualifications necessary to ensure the quality of plan audits, and allow the Secretary of Labor to issue regulations concerning the qualification requirements.

The report also urges Congress to repeal the ERISA limited-scope audit exemption for benefit plans and give the Secretary of Labor the authority to define when a limited-scope audit would be an acceptable substitute for a full audit. "When auditors have to issue a formal and unqualified opinion, they have a powerful incentive to rigorously adhere to professional standards ensuring that their opinion can withstand scrutiny," the DOL stated. "The limited-scope audit exemption undermines this incentive by limiting auditors' obligations to stand behind the plans' financial statements, the report contends."

Accountants Respond

In a May 28 statement, the American Institute of CPAs (AICPA) said that while it takes the findings seriously and will work with the Department of Labor to enhance audit quality, “none of the quality issues identified by the DOL pose a risk to the viability of any plan.”

The AICPA also said that it would support efforts to repeal the ERISA exemption allowing limited-scope audits, and called for a comprehensive education program to heighten plan sponsors’ understanding of how important it is to hire a good auditor.

Stephen Miller, CEBS, is an online editor/manager for SHRM. 

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