Employee Benefit Plan Audits
Department of Labor and Employee Retirement Income Security Act requirements make employee benefit plan audits very complex and place them outside of standard accounting services. ERISA generally requires plans with 100 or more participants at the beginning of the plan year to have an audit of the financial statements. It is important for plan administrators to obtain a quality audit, which helps to ensure the financial integrity of the plan, protect plan assets and aid the plan administrator in carrying out its legal responsibility to file an accurate annual return. By answering two questions, we will demonstrate our commitment and investment to this highly specialized service.
Why Did Some Audits Comply And Others Not Comply With Established Professional Standards
Of the 262 audit engagements selected for on-site workpaper reviews, 212 were considered to comply with GAAS. For these audits, we concluded that the audit was conducted within the framework of GAAS, meaning that:
the audit work was adequately planned and supervised
- the audit field work was properly performed and
- the results of the audit were properly communicated in compliance with existing professional standards.
For 50 of the audits in our sample, we concluded they were not conducted within the framework created by GAAS. In most cases, the GAAS deficiency related to a failure to perform any audit work whatsoever in a relevant audit area.
We analyzed these 262 audits to determine which attributes and factors contributed to the engagements that were performed in accordance with professional auditing standards, and those that were not. The common attributes and factors affecting audit quality included:
Size of the IQPA Firm Contributed to the Quality of Audit Engagement
Our review provided some valuable insights into the correlation between the size of an IQPA and the likelihood of one of their audits containing audit deficiencies. Most notably, in our sample, firms with 20 or less employees:
Adequate Technical Training and Knowledge
Awareness of Uniqueness of Employee Benefit Plan Audits
Quality Review and Internal Process Controls
In our sample, large firms tended to have very formal processes for internally reviewing audit work. These processes included:
Your Employees Are Your Organization’s Most Valuable Asset And You Want To Provide The Best Benefit Options Possible
MSL has a dedicated Employee Benefit Plan Practice Group within the firm. Our team has worked with all industries including not-for-profit organizations and private and public companies. The MSL EBP Practice Group is led by Kevin Murphy, CPA, who helped cowrite the AICPA Audit and Accounting Guide for Employee Benefit Plans while serving on the AICPA Employee Benefit Plans Audit Guide Task Force. Kevin has also been a member of the AICPA Employee Benefit Plan Expert Panel and is an active member of the AICPA Employee Benefit Plan Audit Quality Center, a national community of CPA firms committed to audit quality and raising awareness about the importance of employee benefit plan audits.
On an annual basis, MSL performs over 100 ERISA and non-ERISA employee benefit plan audits, including audits of pension, health and welfare, and 401 plans subject to the regulatory authority of the Department of Labor and the Employee Retirement Income Security Act as well as non-ERISA government plans. From assisting clients in self-correcting operational errors to preparing and reviewing Form 5500, MSL thoroughly understands employee benefit plan audits and can provide exactly the services you need.
Experience Our team of highly trained and experienced staff has extensive experience in auditing employee benefit plans. We can assist you in negotiating the constantly changing regulatory environment and help ensure that your EBP meets the reporting requirements.
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Who Needs To File A Form 5500
Often, a companys finance, HR or operations department, or any combination of these departments, will prepare the Form 5500. However, its the administrator of an EBP who is ultimately responsible for filing the relevant Form 5500. Alternatively, a third-party administrator may be used to file Form 5500.
We Dont Compete With Your Field Of Expertise All We Do Are Benefit Plan Audit Services
We are not a full service firm and we have no interest in performing corporate financial audits, tax returns, or consulting services for your clients. We focus on benefit plan audits each and every day. We participate as members on the PICPA Employee Benefits Plan Committee and our Quality Control Director has helped the AICPA write the Audit and Accounting Guide for Employee Benefit Plans.
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Your Roadmap To Ebp Audit Success
Whether you’re a new or seasoned EBP auditor, you want your name to be on work you can be proud of.
This guide is your ideal roadmap to a quality audit, giving you:
- Illustrative examples
These elements will help you at each stage of the audit.
This guide applies to the financial statements and audits of employee benefit plans that are subject to the financial reporting requirements of the Employee Retirement Income Security Act of 1974 , including:
- Defined contribution retirement plans
- Defined benefit pension plans
- Health and welfare benefit plans
Further, this guide contains example auditing procedures and information regarding statutory rules and regulations applicable to employee benefit plans and illustrations of plan financial statements and auditors’ reports. The Department of Labor Employee Benefits Security Administration strongly encourages the use of this guide in meeting the requirement contained in ERISA Section 103 that a plan have an audit conducted in accordance with GAAS.
- Practitioners in firms of all sizes
- Entities sponsoring employee benefit plans required to file audited financial statements
- Individuals preparing, auditing, or assisting in the preparation of plan financial statements, benefit pension plans, defined contribution retirement plans, and health and welfare benefit plans
Why Did Some Audits Comply And Others Not With Erisa’s Reporting And Disclosure Requirements
Based on our study, IQPAs performed substandard work most frequently when they were unaware of ERISA’s reporting and disclosure requirements and when they inappropriately applied ERISA’s regulations. These failures rested not only with the IQPA but also with the plan administrators who engaged them.
The audit of the wrong entity , the inappropriate use and misapplication of the limited-scope audit exception are examples that demonstrate a lack of ERISA knowledge. In providing an audit of the trust or the financial entity holding plan assets, plan administrators did not understand that the plan was the entity required to be audited. Likewise, IQPAs did not understand the limited-scope audit exception and, therefore, misapplied it. Finally, the IQPA’s failure to extend their opinion to the supplemental schedules indicated a lack of awareness of the unique requirements of ERISA.
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Melissa Missy Herbert Cpa
Missy Herbert is a Member in the Firm’s Audit Division. She has more than 20 years of employee benefit plan audit and consulting experience. Missy offers public and private companies plan audit knowledge combined with a strong ERISA and plan operations background. During her career, Missy has performed plan audits and consulting for over 850 different plans with plan bases ranging from 120-50,000 participants and assets from $500 thousand to $14 billion. She also has extensive experience auditing plans that are required to file an annual 11-K with the Securities and Exchange Commission . Recently, Missy authored an audit guide on how to audit employee benefit plans, entitled “Knowledge-based Audits of Employee Benefit Plans”. Speaking engagements for Missy include the AICPA Employee Benefit Plan Annual Conference, Georgia Society Employee Benefit Plan Annual Conference, UBS Fiduciary Forum, and several regional state society employee benefit plan training conferences. Missy and her family reside in Atlanta…. Read More
What Are The Potential Penalties For Form 5500 Issues
Take the time to carefully review your information and submit your Form 5500 by the required deadline in order to avoid penalties or delays in processing. Substantial penalties or fines may be imposed by the IRS or the DOL if you fail to file or fail to meet the filing requirements for Form 5500.
These examples offer some perspective on penalties that have been assessed:
- Up to $2,194 per day penalty assessed to the plan administrator
- $150 per day per annual report filing penalty for a deficient auditor report
- $100 per day per annual report filing penalty for a report filing containing deficient financial information
- $10 daily penalty for failure to answer a question on Form 5500
Taking into account the complex requirements, its easy to see how engaging with the right auditor can be a crucial difference between assurance and risk for potential negative outcomes. With that in mind, lets explore how to effectively choose an auditor and navigate the process wisely.
Chapter 6:
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What Is An Employee Benefit Plan Audit
An audit of an employee benefit plan involves the examination of financial statements provided by a third party to the DOL, plan management and plan participants. The primary focus of an EBP audit is to accurately gauge the ability of the plan to cover current and future benefits and payments.
In general, the sponsors human resources and financial accounting departments, an actuary, a third-party administrator, Employee Retirement Security Act of 1974 legal counsel, investment trustees and administrators, as well as an independent auditor, may all play a significant role in this process, as applicable.
An EBP audit can be a complex undertaking. The plans financial reporting and the audit environment both provide unique factors in an EBP audit and can make this process much more complex than a standard audit.
These unique factors may include:
- Regulations of the Internal Revenue Service and Department of Labor
- Federal and state laws
- Special reporting and audit requirements
- Nature of the plan operations
Need Just A Little Help
If you enjoy performing employee benefit plan audits, but are currently going through a DOL inspection a peer review of an EBP audit which you have some concerns need an engagement quality control review or have any other technical accounting, regulatory or compliance issue with an EBP audit matter, please let us know if we can be of assistance.
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Review Your Internal Controls
Often, smaller businesses struggle to prioritize controls. Its not uncommon for sponsors to believe that if an outside recordkeeper and custodian handle their employee benefit plan, then fraud or errors are unlikely to occur. But there is always the possibility of fraud to occur. For this reason, many TPAs produce a System and Organization Controls Report that details the control structure in place.
Ebp Audits: Dont Let Your Guard Down
Beware of common quality issues that can bite practitioners.
A lack of “healthy paranoia” can be one of the biggest problems in approaching employee benefit plan audits, said Bertha Minnihan, CPA.
An EBP audit at first may seem straightforward and simple, so auditors may let down their guard or attempt to perform an audit without the specialized training they need to do the job. If practitioners are not careful, they may find that an EBP audit is like a cute little dog that has a surprisingly nasty bite.
“We may think because they’re smaller, and the balance sheet may have three items reported as opposed to 20, that we can relax a little bit and kind of just overlook the risk,” said Minnihan, the national practice leader of employee benefit plan services for Moss Adams. “That can get us in trouble.”
In addition to a healthy dose of paranoia, EBP auditors need to arm themselves with expertise specific to these engagements. Understanding the areas of EBP audits that can be troublesome also can be helpful. With that in mind, the AICPA Professional Ethics Division has identified common quality issues that have arisen from investigations of EBP audits. The following tips address some of those issues and can help practitioners perform high-quality audits.
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Choose The Right Auditor For Your Company
Some of the most important considerations in selecting your auditor include competence, adherence to standards, familiarity with required procedures and DOL guidance. Heres a closer look at each of these standards:
In addition, the DOL suggests that the plan administrator should ask the auditor specifically about the importance of an audit engagement letter, the scope of the audit and what steps occur at the end of the audit.
Chapter 4:
This comprehensive review from the third-party auditor occurs in three phases: providing your requirements, fieldwork and audit results, reports and financial statements.
Appendix Iii Voluntary Feedback By Iqpas
In this era of reinvention and in an effort to provide better customer service, OCA provided a feedback questionnaire to practitioners selected for review. The questionnaire provided for practitioners to assess/rate DOL on a scale of one to five in the following areas:
- the conduct of the DOL representative performing the on-site workpaper review
- the sufficiency of professional guidance and training and
- the understandability of the Form 5500 and its related Instructions.
In addition, the questionnaire allowed the practitioners to provide any other additional comments or concerns they may have directly to the Chief Accountant of the PWBA.
A total of 114 responses were received from practitioners. The individual scores were compiled to arrive at an overall score for each feedback question.
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Employee Benefit Plan Audits: A Comprehensive Guide To Understanding Requirements And Navigating The Process
The Employee Retirement Income Security Act is a federal law that applies to most private employers and establishes standards for health, retirement and other welfare benefit plans in order to protect both employees and employers. ERISA applies to any private entity that offers benefit plans that fall under their scope of authority. This legislation requires that employers comply with specific standards, one of which includes an employee benefit plan audit requirement. Enter: employee benefit plan audits.
An audit of an employee benefit plan involves the examination of financial statements provided by a third party to the DOL, plan management and plan participants. Going through an EBP audit can be a daunting process, especially if youre going through the process for the first time.
Chapter 1:
To fully grasp the importance of an EBP audit, its wise to examine what EBP audits entail and the ultimate objective of these audits.
Overview Of Benefit Plan Financial Reporting Chapter
ASC 960Plan Accounting – Defined Benefit Pension PlansASC 962Plan Accounting – Defined Contribution Pension PlansASC 965Plan Accounting – Health and Welfare Benefit PlansEmployee Benefit Plans. PEB 1PEB 8
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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What Are The Types Of Form 5500
At the start of filing your Form 5500, you first need to identify which type you need to submit. The type of Form 5500 that is needed depends on the plan. There are three main types that are used.
- Form 5500 is generally used for an EBP that contains at least 100 participants, and it typically requires schedules and attachments.
- Form 5500-SF is generally used for organizations with fewer than 100 participants in their EBP. With significantly fewer reporting responsibilities on employers for filing their reports, this type of form is much less intensive. Because of the smaller number of participants, these plans usually dont require an audit.
Aicpa Issues Working Draft On Multiemployer Benefit Plans
The American Institute of Certified Public Accountants wants to add a chapter on multiemployer benefit plans to the Audit and Accounting Guide Employee Benefit Plans. Issued on September 7 as a working draft, the chapter follows Financial Accounting Standards Board guidance related to multiemployer plans. Such guidance includes FASB ASC 960, Plan AccountingDefined Benefit Pension Plans, and FASB ASC 960, Plan AccountingDefined Contribution Pension Plans.
Outlined in the draft chapter are the multiemployer plan requirements and how those plans vary from other employee plans. The guidance touches on the overlap among the accounting provisions of multiemployer plans and other retirement and benefit plans. Also mentioned in the chapter are the responsibilities of those involved with the plans oversight, such as the administrator, trustees, and the employers association.
Not addressed in the draft chapter are the financial statements that follow frameworks like tax accounting or regulatory accounting. The AICPA, however, said the guidance could be used for financial statements that abide by Labor Department rules, so long as companies note the departure from U.S. GAAP.
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Appendix V Strengthening The Quality Of Plan Audits
AICPA Comments
Pension and Welfare Benefits AdministrationU.S. Department of LaborWashington, D.C. 20210
Dear Mr. Dingwall:
The American Institute of Certified Public Accountants appreciates the opportunity to comment on the Pension and Welfare Benefits Administration , Office of Chief Accountant’s report, “Assessment of the Quality of Employee Benefit Plan Audits.” With the PWBA, we will bring additional improvements in this area and strengthen the quality of employee benefit plan audits.
As noted in the PWBA report, the AICPA, working with the PWBA, has made a concerted effort to improve the guidance and training available to auditors of employee benefit plans. They include revising the AICPA Audit and Accounting Guide for Audits of Employee Benefit Planssk alerts, conducting annual national conferences on employee benefit plans, developing continuing professional educational courses and technical checklists, and issuing accounting and auditing pronouncements aimed at improving plan financial reporting and providing guidance for plan auditors.
The PWBA’s findings of any substandard audit quality with respect to employee benefit plan audits are a matter that the AICPA takes very seriously. We continue to encourage the PWBA to refer all cases of alleged substandard audits to the AICPA’s Professional Ethics Division for investigatory and disciplinary action.
Proposed Actions to Strengthen the Quality of ERISA Audits
Sincerely,Original was signed by Ronald S. CohenChair