If you’re a CPA who conducts audits of employee benefit plans, heads-up: The Department of Labor is telling your potential clients what they need to look for in an auditor.
DOL Chief Accountant Ian Dingwall’s office has begun sending letters to everyone who administers “large” employee benefit plans (those with more than 100 participants, which is the number that requires an annual independent audit). The letter alerts administrators about the importance of a quality audit by a qualified and experienced auditor.
The timing of the letter is intentional: It coincides with the point during the year when most audit contracts are renewed or are out for proposal.
Here are excerpts from the letter:
“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.
“Substandard audit work can be costly to plan administrators and sponsors. It both jeopardizes plan assets and can result in significant civil penalties being imposed on the plan administrator by the DOL. A recent study conducted by the Department of Labor found serious problems with nearly 40 percent of employee benefit plan audits.
“A quality audit will help protect the assets and financial integrity of your plan and help to ensure that the necessary funds will be available to pay the benefits promised to your plan’s participants and their beneficiaries. It also helps make sure your plan is in compliance with the law.
“Employee benefit plan audits have unique audit and reporting requirements and are different from other financial audits. Care should be taken by the plan administrator to select a CPA who possesses the requisite knowledge of plan audit requirements and expertise to perform the audit in accordance with professional auditing standards.
“To ascertain the qualifications of a CPA firm to perform your plan’s audit, you might want to consider the following factors:
- “The number of employee benefit plans the CPA audits each year, including the types of plans.
- “The extent of specific annual training the CPA received in auditing plans.
- “The status of the CPA’s license with the applicable state board of accountancy.
- “Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPAs for investigation.
- “Whether or not your CPA’s employee benefit plan audit work has recently been reviewed by another CPA (this is called a “peer review”), and if so, whether such review resulted in negative findings.
“Additional tips for selecting an auditor and monitoring your auditor’s work can be found in our pamphlet “Selecting an Auditor for Your Employee Benefit Plan.”
This letter might make some auditors nervous, but think about it: If you’re doing the right thing — in other words, if you meet the DOL’s definition of auditor competence — this letter is to your benefit. Show it to your potential clients and say, “Look: I’m exactly the type of auditor the DOL says you should be using.”
Then go and do good work.