Over the last several years, the Department of Labor (DOL) has made compliance of employee benefit plans a focus and has been performing significant oversight over both plan sponsors and plan auditors.
The AICPA recently published an Advisory to help plan sponsors, administrators and trustees with an understanding of the importance of hiring a quality auditor to perform benefit plan financial statement audits.
Generally, the Employee Retirement Security Act of 1974 (ERISA) requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file an annual return/report (Form 5500 Series). If your employee benefit plan is required to have an audit, one of your most important duties is to hire an independent qualified public accountant, and to ensure that the plan has obtained a quality audit in accordance with ERISA and U.S. Department of Labor (DOL) requirements.
ERISA holds plan administrators responsible for ensuring that plan financial statements are properly audited in accordance with generally accepted auditing standards (GAAS). The sponsor of the plan is the plan administrator under the law unless another individual or entity is specifically designated to assume this responsibility. You should be aware that the hiring of a plan auditor is considered a fiduciary function.
As with all fiduciary responsibilities, there is potential liability: Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan. There is a significant amount of risk to plan administrators associated with the audits of their ERISA plans. DOL studies of audit quality have identified significant deficiencies in plan audits. Accordingly, the DOL has implemented various enforcement strategies with respect to audit deficiencies. The penalties for such audit failures can be substantial. In recent years, the DOL Employee Benefits Security Administration (EBSA) has significantly stepped up its enforcement of the audit requirement for employee benefit plans. The DOL has the right to reject plan filings and assess penalties of up to $1,000 per day, without limit, on plan administrators for deficient filings.
Because an incomplete, inadequate or untimely audit report may result in a rejection of your filing and penalties being assessed against you as the plan administrator, selection of an experienced and reliable auditor is very important. Plan administrators should make the select of a plan auditor a high priority and exercise due care during every phase of the auditor selection process.
Our firm performs employee benefit plan audits and we have made a significant investment to ensure that our professionals are provided with the resources needed to advise our clients and perform quality audits; including being members of the AICPA’s Employee Benefit Plan Audit Quality Center. If you have any questions or concerns about your plan, please contact Jodi Rinne, who leads our ERISA audit and consulting team. Additionally, we would be glad to provide you with a copy of the entire Advisory published by the AICPA.