How To Pick a Qualified Auditor for Your Employee Benefit Plan

Does your organization offer health care and retirement benefits for its employees? Benefit plans with 100 or more participants are generally required to have their annual reports audited under the Employee Retirement Income Security Act of 1974 (ERISA). Here’s some guidance to help plan administrators fulfill their fiduciary responsibilities for hiring independent qualified public accountants to perform employee benefit plan audits.

employee benefit planAssess risks

Under ERISA, plan administrators are responsible for ensuring that benefit plan financial statements follow U.S. Generally Accepted Accounting Principles (GAAP) and are properly audited. Independent audits of plan financial statements help stakeholders assess whether they provide reliable information about the plan’s ability to pay retirement, health, and other promised benefits to participants. They also help management evaluate and improve internal controls over the plan’s financial reporting.

Administrators who hire unqualified plan auditors face substantial penalties from the U.S. Department of Labor (DOL). In addition, plan administrators who don’t follow the basic standards of conduct under ERISA and DOL regulations may be personally liable to restore any losses to the plan.

Auditor qualifications

To demonstrate your commitment to quality and due care, it’s important to carefully review auditor qualifications, rather than simply accept the lowest-bid contract offer. Only after the technical evaluation is complete and the qualified respondents have been identified should the administrator review the audit fees quoted by the qualified respondents.

Evaluating auditor qualifications requires consideration of licensing and independence rules. Independent plan auditors don’t have any financial interests in the plan (or the plan administrator) that would affect their ability to render an objective, unbiased opinion about the plan’s financial statements. The DOL doesn’t consider a plan auditor to be independent if the audit firm or any of its employees also maintain the plan’s financial records.

RFP process

The American Institute of Certified Public Accountants (AICPA) provides recommendations on how to put together a comprehensive request for proposal (RFP) that can be used to evaluate bidders. Comprehensive RFPs provide detailed explanations of the audit engagement, including:

  • objectives
  • scope
  • special considerations
  • expected timeline

Once plan administrators eliminate unqualified respondents to their RFPs, they should invite the finalists to present and discuss their proposal letters. It’s important to interview prospective auditors to assess relevant experience and training. Also, ask prospective auditors to provide a copy of their firms’ latest peer review report. A clean peer review report can provide additional assurance that a firm is applying best practices when auditing benefit plans.

When evaluating potential auditors, discuss the auditor’s work for other benefit plan clients and obtain references. In addition, review the audit team’s continuing professional education records over the last three years to determine whether they possess recent benefit plan-specific training.

How Buchbinder can help you

Not every CPA is qualified to audit employee benefit plans. These engagements require specialized training and experience.

Buchbinder is one of the top-tier CPA firms in the nation providing audit and assurance services for employee benefit plans like 401(k)403(b) planshealth and welfare plansdefined contribution plans, and defined benefit plans. Our partners are highly trained to navigate the ever-changing requirements and regulations employee benefit plans face. Contact us to discuss your organization’s employee benefit plan audit.

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