Avoid these common ERISA audit deficiencies

The Department of Labor is getting tough.

The DOL is cracking down on the increase in deficient audits of employee benefit plans and referring deficiencies directly to the state boards of accountancy. This is significant recognizing that many of the largest firms have given up thousands of ERISA audits and smaller firms are entering into this practice area.

According to the DOL, 8,200 CPA firms perform five or fewer ERISA audits and 4,800 firms perform only one ERISA audit.

Whether your firm performs many ERISA audits or only one, you should be aware of these common audit deficiencies to avoid.

Planning

Inadequate audit planning.
Failure to assess the risk of material misstatement due to fraud.

Internal controls

Failure to document an understanding of internal controls, most often when a substantive audit is performed.
Inadequate use of SAS 70 reports.
Lack of testing when SAS 70 report is obtained.

Contributions

Failure to obtain adequate audit evidence for contributions back to contributing employers for multi-employer plans. Reliance on contribution reports is not enough.
Insufficient payroll audit procedures.

Investments

Failure to properly value hard-to-value assets.
Improper use of limited scope certifications (improper certifying entities; information other than investment information is improperly excluded from the audit scope).

Benefit payments

Inadequate auditing regarding eligibility of claims to be covered by the plan.

Participant data

Failure to test allocation of earnings and gains / losses to participant accounts in defined contribution plans with limited scope audits.

Sample sizes

Inadequate sample sizes for compliance and substantive testing.

Workpaper documentation

Inadequate documentation of audit procedures.
Lack of supporting documentation other than audit step sign-off.

Disclosures

Comparative statement of net assets not presented.
Net investment appreciation not detailed by type of investment.
Investments not properly presented at fair value.
No note disclosure regarding use of estimates.
No note disclosure regarding risks and uncertainties.
Prohibited transactions not properly disclosed in the schedules to the Form 5500.
Inadequate or no notes disclosure of the details of mergers, terminations and amendments to the plan.

There are a number of tools and resources available to assist in these audits including AICPA's audit quality center for this area of practice. See www.aicpa.org for more information.

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