Not All 401(k) Audits are Created Equal: How to Select a Quality Auditor
Contributors
This article was originally published on the SHRM-Atlanta blog.
The Department of Labor (DOL) has long cautioned employee benefit plan (EBP) sponsors about the importance of quality when selecting firms to perform annually required EBP audits. The most recent DOL Audit Quality Study conducted in 2014 found that 39% of audits had deficiencies - the highest volume among the four Audit Quality Studies dating back to 1988. The DOL is currently undertaking an updated Audit Quality Study based on the 2020 plan year form 5500 filings. The retirement plan industry is eagerly awaiting the results to see if we’ve made any progress on audit quality over the past eight years. The DOL advises EBP plan sponsors that "selecting a qualified CPA who has the expertise to perform an audit in accordance with professional auditing standards is a critical responsibility in safeguarding your plan’s assets and ensuring your compliance with ERISA’s reporting and fiduciary requirements." Ensuring your audit meets the strict quality standards of the DOL is an important fiduciary responsibility.
Five Considerations to Add to Your Selection Criteria
There are many factors to consider when selecting a plan auditor. Some plan sponsors will consider the cost and the number of plans that an accounting firm audits and stop there. However, additional factors can contribute to a more efficient process while maintaining the integrity of the audit quality. Let’s explore five of the top criteria you should be considering when selecting an EBP auditor.
1.) American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center (EBPAQC) Membership
The AICPA established the EBPAQC to promote the quality of EBP audits. Firms may elect a voluntary membership and then must maintain more rigorous training programs and quality control processes. Member firms display a desire to enhance audit quality. Plan sponsors should consider a firm’s membership in the EBPAQC when selecting a plan auditor.
2.) An Experienced and Well-Trained Audit Team
One of the top complaints I hear from companies shopping for an EBP auditor relates to inexperienced team members and team member turnover (see #3 below). While each plan operates differently, plan sponsors should not feel the burden to “teach” auditors the basics of EBP operations. The audit will be more effective and efficient when well-trained auditors perform the procedures.
3.) Audit Team Continuity
Audit teams invest in plan knowledge during the audit, and firms seeking efficiency and effectiveness during the engagement recognize the importance of maintaining the consistency of that plan knowledge within the team each year. While there will inevitably be turnover or role changes throughout the year, audit firms should strive to maintain consistency within the engagement team to the highest degree possible each year.
4.) Familiarity with Multiple Service Providers and Online Portals
When accounting firms work with many plans, they encounter different service providers, online portals and information requests. When the auditor has access to information on the service provider portal, it reduces the time needed from the plan sponsor and creates a more efficient and thorough audit process. However, online auditor access does not eliminate the need for the plan sponsor to pull audit information altogether. Don’t hesitate to ask the auditor how many plans they work with that use your service provider(s).
5.) Knowledge of Correction Methods for Compliance Items
If your auditor uncovers an area of noncompliance, it helps if they have a working knowledge of the options for corrections. While an auditor will not have the extensive knowledge that some third-party administrators or ERISA attorneys have, the more experience they have with assisting clients through compliance missteps, the more quickly the auditor will be able to resolve these items.
Not All 401(k) Audits Are Created Equal
When exercising your fiduciary responsibility to select an auditor to conduct an EBP audit for your plan, you may also want to ask if the firm has had any findings in any DOL, Internal Revenue Service or peer review. Firms can provide a copy of their latest peer review report upon request. Out of more than 4,900 audit firms listed as performing plan audits, only 12% (571) are performing 25 or more plan audits. The DOL Audit Quality Study found “a clear link between the number of employee benefit plan audits performed by a CPA and the quality of the audit work performed.” Not all 401(k) audits are created equal. The selection criteria noted above, in addition to understanding the number of plan audits the firm performs, will help you select an auditor that can perform a quality audit effectively and efficiently. If you have questions about selecting an employee benefit plan auditor for your plan audits, the Moore Colson Employee Benefit Plan Audit Practice is here to help. Don’t hesitate to contact us for more information.
