The Employee Retirement Income Security Act of 1974 ( ERISA ) generally requires employee benefit plans with 100 or more participants to have their annual reports audited . Plan administrators have fiduciary responsibilities to hire independent qualified public accountants to perform quality audits . But recent studies by the U . S . Department of Labor ( DOL ) found an alarming number of audit deficiencies among benefit plans .
Here are some of the risks plan administrators face if audit deficiencies occur and ways they can evaluate an auditor ’ s qualifications to minimize those risks .
Auditing Plan Auditors
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 .
However , the DOL reports that nearly 40 percent of all benefit plan audits have deficiencies . Such errors and omissions are often linked to inadequate auditor qualifications . The more specific continuing professional education and experience that an auditor has with benefit plan audits , the more familiar the auditor will be with benefit plan practices , operations and rules .
Under ERISA , plan administrators are responsible for ensuring that benefit plan financial statements are properly audited in accordance with Generally Accepted Auditing Standards . The AICPA advisory reminds plan administrators about their risks if a quality audit is not performed . Administrators who hire unqualified plan auditors face substantial penalties from the DOL , which have risen in recent years . The DOL currently has the
Hiring a benefit plan auditor is considered a fiduciary function . As with all fiduciary responsibilities , there are potential liabilities .
right to reject incomplete , inadequate or untimely plan filings and assess substantial penalties that may reach as high as $ 2,063 per day on plan administrators for deficient filings .
Hiring an auditor for the plan is considered a fiduciary function . As with all fiduciary responsibilities , there are potential liabilities . Fiduciaries who don ’ t follow the basic standards of conduct may be personally liable to restore any losses to the plan .
Picking a Qualified Auditor
The DOL has found a correlation between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed . The DOL indicates there is a wide disparity between CPAs who perform the fewest plan audits and firms that perform the largest number of plan audits . For instance , CPAs who perform only one or two employee benefit plan audits annually have a 76 percent deficiency rate ; the deficiency rate for firms performing the most plan audits is 12 percent . Plan administrators should carefully evaluate an auditor ’ s qualifications , experience and dedicated resources .
Evaluating auditor qualifications requires consideration of licensing and independence rules . Independent plan