New DOL Audit Quality Study for Employee Benefit Plans Released
The Office of the Chief Accountant (OCA), Employee Benefits Security Administration (EBSA), U.S. Department of Labor (DOL), has completed its fourth assessment of the quality of audit work performed by independent qualified public accountants (IQPAs). This assessment focuses on IQPAs’ financial statement audits of employee benefit plans covered under the Employee Retirement Income Security Act (ERISA) for the 2020 filing year (plan years beginning in 2020).
Overall, EBSA’s review found that 70 percent of the audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. However, 30 percent of the audits (3 out of 10) contained major deficiencies with respect to one or more relevant generally accepted auditing standards requirements. This puts $927 billion and 11.7 million plan participants and beneficiaries at risk, an increase of $274 billion compared with prior EBSA studies.
Congress enacted the Employee Retirement Income Security Act (ERISA) in 1974 to remedy abuses in the nation’s private pension and welfare benefit plan system. Prior to ERISA, laws in the area of pension plans were complicated, lacked transparency, and made it difficult to ensure that employees would receive promised pension benefits when due. The Internal Revenue Service (IRS) played a principal role in the oversight of retirement plans dating back to the 1920s. With the passage of the Welfare and Pension Plans Disclosure Act in 1959, the DOL began its oversight role. Today, ERISA covers pension and welfare benefits and is administered by three separate federal agencies: the IRS, DOL, and the Pension Benefit Guaranty Corporation.
This is OCA’s fourth Audit Quality Study. Previous studies were performed in 1997, 2004, and 2015. The primary objective of this study was to assess whether the level and quality of audit work being performed by CPAs has improved since OCA’s previous study in 2015.
- This year’s audit quality study shows a 30 percent overall deficiency rate for plan audits, which is a statistically significant improvement in the overall quality of employee benefit plan audits.
- Consistent with the results in the previous study, the smaller the CPA firm’s employee benefit plan audit practice, the greater the incidence of audit deficiencies.
- The Practice Monitoring and Peer Review process established by the AICPA and administered by sponsoring state CPA societies is still ineffective in identifying deficient employee benefit plan audit work and ensuring compliance with professional standards, despite the numerous changes made to the peer review process.
- Audits performed by members of the AICPA’s Employee Benefit Plan Audit Quality Center had a significantly lower deficiency rate than audits performed by non-Quality Center members.
In the intricate tapestry of employee benefit plans, the importance of audit quality cannot be overstated. Beyond ensuring regulatory compliance, high-quality audits foster trust, mitigate risks, and ultimately contribute to the financial well-being of employees. As organizations navigate the complexities of managing benefit plans, prioritizing audit quality emerges not just as a regulatory requirement but as an ethical imperative, a commitment to the financial health and security of the workforce.
Engaging a quality CPA firm fosters a culture of continuous improvement. Through detailed analysis and recommendations, the audit process becomes an opportunity to enhance the overall effectiveness and efficiency of benefit plan administration.
At Meaden & Moore, we perform approximately 200 employee benefit plan audits annually. Due to the amount of plans that we audit, we are able to better serve our clients. We are members of the AICPA Employee Benefit Audit Quality Center, and we are committed to provide the highest quality of service. Please contact us if you have any questions or would like to discuss further.