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Pick the Right Auditor to Prevent Benefit Plan Audit Deficiencies

Bryan Porter Trevor Carter and Renee Collins sit while looking at laptop Bryan Porter Trevor Carter and Renee Collins sit while looking at laptop

The following article first appeared in the 2/23 issue of the Baltimore Business Journal.

As a savvy business executive, you’re tasked with ensuring that your company avoids pitfalls while productivity and profits remain high. And, if your business has 100-plus participants, you also have a fiduciary responsibility to meet the U.S. Department of Labor’s (DOL) complicated and ever-changing EBP regulations, while also conducting mandatory annual audits.

According to a recent DOL Audit Quality Study, hundreds of plan audits had major (five or more) deficiencies impacting nearly 12 million participants. These circumstances can create a waterfall of compliance issues across loans, distributions, and compensation — not to mention the negative impact on workforce morale.

For these reasons, it’s vital to have an independent qualified public accountant by your side. At an accounting firm like Ellin & Tucker, we understand the complexity of keeping up with the DOL. We meticulously review plans to identify areas of opportunity, recommend internal control improvements, and stay abreast of new and changing regulations. As a result, our clients rest easy knowing their plans and participants’ assets are protected.

Let’s break down some of the ways to create safeguards for your plans.

Who is tracking plan deficiencies and what was the study?

Broadly speaking, the DOL oversees working conditions of wage earners, wage seekers, and retirees. And among its many duties, the DOL focuses on protections around retirement and health benefits. But when it comes to the direct oversight of benefit plans and audits, a sub-organization of the DOL is in charge: the Employee Benefits Security Administration (EBSA). The EBSA ensures that audits are conducted with the same rigor and scrutiny as financial statement audits.

Thus, the Audit Quality Study (AQS) was created to assess the audit work of independent qualified public accountants, specifically regarding their audits of benefit plans. Administration of the study falls to the EBSA whose report was based on the results of their review of over 300 plan audits.

What were the study’s findings?

The AQS found some real problems in the most recent study published in November 2023. Thirty percent of audits showed major audit deficiencies. Worse yet, those deficiencies put at risk $900 billion plan assets, out of a total of $12 trillion. That’s more than the GDP of Chile, Finland, or New Zealand combined.

If you’re audited and your plan has deficiencies, then you’re responsible for potential taxes and penalties and corrective contributions back to employees for any of the problems that are found. But a good auditor, like the team at Ellin & Tucker that audits hundreds of plans annually, can save you from these problems — and a lot of wasted time and headaches.

How do you pick a quality auditor?

The AQS found that audits from CPA firms involved in the American Institute of Certified Public Accountants’ Employee Benefit Plan Audit Quality Center (EBPAQC) had a much lower deficiency rate. CPA firms that are members of the EBPAQC are committed to maintaining the highest audit quality and staying abreast of the latest trends in the ever-changing landscape of compliance areas. This is why it’s so important to vet the firm overseeing the audits and ensuring your company’s plan is compliant, and make sure they’re qualified.

Start this process by spending some time interviewing your current auditor. Ask questions until you understand what their audit process is and how they ensure they’re in DOL compliance. Specifically inquire about their participation in EBPAQC and approach to training their professionals on latest regulations impacting plans. Statistics show that CPAs who know the hot topics and timely items have a far lower deficiency rate.

For instance, the DOL has reviewed Ellin & Tucker’s plan audits and determined we satisfy the highest level of professional and regulatory standards.

Next, find out how many plans your CPA audits each year. AQS findings show that firms who audit just one or two plans a year had a whopping 70% deficiency rate. Even more alarming is that these CPAs only found major deficiencies (again, five or more) less than half the time.

On the other hand, in firms that audit over 100 plans a year, there were zero — yes, zero — audits in the major deficiencies category. Even if a firm audits as few as 24 EBPs a year, the number of plans with major deficiencies is just 8%.

In short, experience matters. A lot.

Keep in mind, a CPA firm’s size will not predictability. There are plenty of small CPA firms doing exceptional work, and large ones that are lacking. Asking questions and understanding a firm’s capabilities and experience in plan audits will quickly reveal the answer.

Let’s review the key takeaways

  • You have a fiduciary responsibility for your company’s benefit plan and maintaining compliance with the DOL.
  • Any CPA you hire for your plan must demonstrate that they are auditing up to the DOL standards.
  • A firm that conducts more than 100 audits a year and stays involved with the EBPQAC will have far fewer delinquencies.

By working with an accounting firm that has unsurpassed expertise in employee benefit plan audits, like Ellin & Tucker, you can quickly address potential deficiencies and alleviate future problems. Not only does this help uphold compliance but demonstrates your commitment to your employee’s well-being and your business’ integrity.

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