Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

The Importance of Obtaining a Quality Audit

On November 16, 2015, the Department of Labor’s (“DOL”) Office of Chief Accountant sent an e-mail to all plan administrators of plans which are required to have an annual financial statement audit alerting them of the importance of obtaining a quality audit from a qualified and experienced CPA firm.

This is primarily in response to the DOL’s report issued in May 2015 in regards to audit quality where it was identified that audit firms with smaller employee benefit plan practices not only have a significantly higher overall deficiency rate but also had a high number of deficient audit areas. The study focused on 2011 Form 5500 filings, of which there were 81,162 filings with audits performed by 7,330 CPA firms. Of these 7,330 CPA firms, 95% of the CPA firms audit less than 25 plans on an annual basis and 50% audit 1 or 2 plans.

This email from the DOL focuses on audit quality and that selecting a qualified CPA who has the expertise to perform an audit in accordance with professional auditing standards is a critical responsibility in safeguarding the plan’s assets and ensuring compliance with ERISA’s reporting and fiduciary requirements. It also notes that employee benefit plan audits have unique audit and reporting requirements and are different from other financial statement audits, and that substandard audit work can be costly to plan administrators and sponsors.

The email lists the following qualifications to ask of a CPA firm:

  • The number of employee benefit plans the CPA audits each year, including the types of plans;
  • Henry & Horne audits approximately 50 benefit plans on an annual basis with individual assets ranging from $100K to over $350M and participant counts surpassing 6,000 participant.
  • The extent of specific annual training the CPA received in auditing plans;
  • Henry & Horne is a member of the American Institute of Certified Public Accountants (“AICPA”) Employee Benefit Plan Audit Quality Center which provides training, support materials and alerts on trending topics. In addition, Henry & Horne attends the annual employee benefit plan conference sponsored by the AICPA.
  • The status of the CPA’s license with the applicable state board of accountancy;
  • Henry & Horne is an active member in the Arizona State Board of Accountancy.
  • Henry & Horne is an active member in all other states where registration is required for work performed within the state.
  • Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPA’s for investigation; and
  • Henry & Horne has not been the subject of any prior DOL findings or referrals.
  • Henry & Horne ’s employee benefit plan audit work is not part of a state board of accountancy or an AICPA investigation.
  • Whether or not your CPA’s employee benefit plan audit work has recently been reviewed by another CPA (this is called a “Peer Review”) and, if so whether such review resulted in negative findings;
  • Henry & Horne ’s employee benefit plan audit work is subject to Peer Review by another CPA firm every three years. The firm’s last Peer Review was for the year ended May 31, 2013 has received a peer review rating of Pass.
  • Henry & Horne ’s employee benefit plan audit work is also subject to internal inspections by the firm’s Audit and Accounting Committee on a quarterly basis.

If you have any questions in regards to the DOL’s email, audit quality report or Henry & Horne ’s qualifications, please contact us.

By Kevin Bach, CPA, CVA