Federal law 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). But it's important to remember in choosing an auditor for your plan that not all audits, and not all auditors, are created equal.
Consider this: A recent study by the U.S. Department of Labor (DOL) found that 4 out of 10 employee benefit plan audit reports contained major deficiencies with respect to one or more relevant Generally Accepted Auditing Standards (GAAS) requirements. There's a lot at stake: those deficiencies could put $653 billion and 22.5 million plan participants and their beneficiaries at risk.
The study also showed that the greatest percent of plan audits were deficient in firms that only audit 1-2 plans annually. And despite the deficiencies found by the DOL in the plan audits included in the study, a significant number of these firms conducting the audits received clean peer review reports.
What does this mean? It means that when it comes to quality benefit plan audits, size and experience really do matter. It also means that, in some instances, you get what you pay for: the lowest price does not guarantee a quality audit.
A deficient audit can also be costly. The DOL has implemented various enforcement strategies - i.e., penalties - with respect to audit deficiencies. The DOL can assess penalties on plan sponsors of up to $1,100 a day, capped at $50,000, per annual report filing where the required auditor's report is missing or deficient. That's why, as a plan sponsor, you should be careful in selecting your auditor.
The audit deficiencies noted by the DOL in this study were widespread and included, among other things:
There are a number of questions you can ask a new auditor or your existing auditor to get a better sense if the audit firm is right for your plan.
For example, if you are interviewing a new auditor for your plan or preparing a Request for Proposal, consider these questions:
Evaluate your current auditor by asking a series of simple questions, such as:
The hiring of a plan auditor is considered a fiduciary function. Use the same care and due diligence in hiring a plan auditor that you would use when hiring an individual or organization that provides services to the plan.
Questions: Contact your Berdon advisor or Joseph Reinhardt, CPA, Chair Employee Benefit Plan and Labor Union Practice, Berdon LLP New York Accountants