DOL Stresses Plan Auditor Experience

As a general rule, employee benefit plans with at least 100 participants must provide an audit report when filing Form 5500. A recent analysis of private audits of Forms 5500 conducted by the U.S. Department of Labor (“DOL”) found that a majority (61%) of the sample either provided flawless audits or those with only “minor deficiencies,” and 39% were “unacceptable.”  By DOL standards this high rate of failure is unacceptable.  The DOL considers these results as proof of the importance of ensuring that your plan’s audit is conducted by a well-qualified auditing firm.

The study, conducted by the Office of the Chief Accountant within the DOL’s Employee Benefits Security Administration, reviewed 400 audited Forms 5500 out of some 81,162 audit reports submitted for the 2011 plan year.

During that time period, 7,730 CPA firms audited the forms submitted that year; however, half of those firms audited only one or two Forms 5500. Those firms accounted for a larger proportion of the auditing errors. The error rate for auditors that had audited only one or two plans that year was higher than for those that conducted more. In addition, the DOL is petitioning the American Institute of Certified Public Accountants (“AICPA”) to make improvements to its Peer Review process, as many of the deficient audits were performed by firms that received “clean” peer review reports. (Under the Peer Review requirements, firms that audit benefit plans, such as Buchbinder Tunick & Company, LLP, are required to have the workpapers for at least one benefit plan selected for review.)

The study also reviewed the difference between “limited-scope” and “full-scope” audits. Limited-scope audits are less costly than full-scope audits, and don’t involve testing of investment data.  It is important to note that under ERISA, limited-scope audits are permitted only if this data is certified as being correct to the plan administrator, by a bank or similar financial institution.

According to the DOL, plan auditors weren’t as focused on all relevant audit areas when performing limited-scope audits.  The most prevalent deficiencies were detected in the following areas: (1) contributions, (2) planning and supervision, (3) internal controls, (4) participant data, (5) investments, (6) party-in-interest transactions, and (7) benefit payments. With the exception of investments, these deficiencies are tested under both limited-scope and full-scope audits.

As the DOL has stated on many occasions, “choose your auditors wisely” and avoid these audit deficiencies!!


Our firm previously published an article on this topic in response to increased efforts by the U.S. Department of Labor (DOL) to improve the quality of employee benefit plan audits.  We also published a one-pager showing how Buchbinder measures up to the DOL recommendations for selecting a plan auditor. (click here to download)


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