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Employee Benefit Plan Audits: The Focus of DOL’s Review

By: Carl Kampel

The Department of Labor (DOL) routinely conducts reviews of audits performed by CPA firms of employee benefit plan financial statements. The results of these reviews have led DOL Regulators to conclude that audit quality for these plan audits is worse today than it was 25 years ago. This has led to the American Institute of Certified Public Accountants (AICPA) embarking on an ambitious program to enhance audit quality and reduce the number of audits the DOL determined to be deficient.

Recently, Marcus Aron, of the office of the Chief Accountant at DOL, delivered a presentation outlining the areas of focus and types of deficiencies DOL has observed in its reviews. The following is a summary of his presentation:

 

Documentation of the Work Performed

DOL believes audit work papers should provide a clear explanation of the work performed without the CPA who performed the work needing to provide supplemental oral explanations. This is best highlighted in the process DOL routinely uses in requesting CPAs to submit copies, in electronic or paper form, of their work papers for DOL to review. This review is performed without the benefit of oral discussions with the CPA. DOL believes, without proper documentation, it cannot conclude the work was actually and timely performed.

 

Reliance on Internal Controls and Work of Other Service Providers

In all audits, an evaluation of internal controls by the CPA is part of the determination the CPA would make as to the nature, extent, and timing of audit procedures selected to be performed. Routinely, this includes a review of the System and Organization Controls Report, usually referred to as a SOC-1 report.

SOC-1 reports are prepared to evaluate the processes and controls over various service providers retained by an employee benefit plan. These often include organizations that perform plan administration, handle investment transactions and payroll services. DOL has found over-reliance by CPAs on SOC-1 reports in several areas. The first and most basic area involves the CPA not determining whether the preparer of the SOC-1 report was appropriately qualified in the preparation of these types of reports. There are specified procedures that are required to be performed in making that determination. The second area centered on the CPA inappropriately substituting the work performed by the organization preparing the SOC-1 report for audit procedures that should be performed by the CPA. Lastly, DOL found CPAs did not always properly address the matters or deficiencies related to plan activities contained in the report.

 

Transactions with Participants

Employee benefit plans are just that, plans that benefit employees. DOL believes CPAs need to have a complete understanding of the plan provisions and perform testing to determine whether the plan includes all employees who are eligible and have elected to participate in the plan. Additionally, DOL found CPAs did not always have a complete understanding of the definition of compensation in the plan. This resulted in deficiencies which were not identified when CPAs performed testing of payroll data regarding employee and employer matching contributions being properly determined and remitted timely. Further, DOL did not find sufficient auditing procedures performed to determine that benefit payments were properly computed, taking into account the effect of forfeitures for non-vested balances and historical employee compensation.

Overall, DOL will continue to emphasize audit quality in its reviews and consider rejecting Form 5500 filings for audits of plans it concludes are deficient. The AICPA has worked with DOL through the Employee Benefit Plan Audit Quality Center in developing helpful information for CPAs to audit your benefit plan.

To download a PDF of this important information, please click here: The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit.


 

Carl Kampel HeadshotCARL KAMPEL, CPA is the director in charge of professional standards at Ellin & Tucker, an advisory role that ensures all aspects of client accounting and financial reporting, regardless of complexity, are properly presented. He is currently a member of the Financial Accounting Standards Board Emerging Issues Task Force and a past member of the Executive Committee of the AICPA Employee Benefit Plan Audit Quality Center.

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