Companies with more than 100 participants in a retirement plan have probably undergone an audit of the plan’s financial statements at some point. Periodically, the Department of Labor (DOL) conducts studies to ensure the accounting firms performing the audits are doing so according to the established standards. The DOL recently announced an upcoming study to evaluate the 2020 Plan year audits.
Instituting Measures to Increase Audit Accuracy
Over the years, the DOL has conducted four studies to determine the effectiveness of audits of employee benefit plans, including 401(k) Plans. Based on their most recent study done on the 2011 Plan year filings, there were deficiencies in 39% of the audits they selected to evaluate. Because of these results, the DOL developed various initiatives to ensure accounting firms performing these audits are doing so in accordance with the DOL’s standards. These initiatives include making changes to the Peer Review program for to employee benefit plan audits, providing more technical guidance and creating an Employee Benefit Plan Audit Quality Center (EBP-AQC), which provides materials and webcasts for training.
How Will the DOL Select the Audits?
Based on previous studies, the DOL found that firms that did fewer audits and lacked expertise in this field had a higher percentages of deficiencies. However, the DOL also noted that larger firms still have deficiencies due to their size creating a different set of risks and challenges. Based on Form 5500 filings, the DOL will stratify firms by how many employee benefit plan audits each has performed. Then, the DOL will select a sample of audits from each stratum.
Once the DOL makes their audit selections, it will notify both the CPA firm that performed the audit and the Plan administrator. The DOL is aiming to make their selections and notify the CPA firms and plan administrators by the end of November 2021.
What Happens if Your Plan Gets Selected?
The first thing you should do if you receive a notification from the DOL is forward a copy of the communication to the CPA firm that performed the audit. While the DOL will reach out to the CPA firm as well, it is beneficial to forward the information in case the communication to the CPA is delayed for any reason. If your Plan’s audit gets selected, there isn’t much you will need to do as a Plan administrator. The CPA firm will send the requested information to the DOL.
To provide some prospective, the DOL selected 400 audits as part of its 2011 study. Based on information from 2019 filings, there were approximately 87,000 plans that were subject to audit, which were performed by approximately 4,500 CPA firms. If the DOL keeps their sample size the same, then there is less than a 1% chance of your plan’s audit being selected.
It is not an indictment that there was something deficient with the audit if you receive notification that your plan’s audit was selected. It is important to follow up with your plan’s auditor to get the results of the DOL’s review. As the Plan administrator, it your responsibility to ensure that the hired service providers of the Plan have the knowledge and expertise to properly perform the duties you have hired them to do as it relates to the plan. Walz Group has an experienced team of employee benefit plan auditors that are willing to help answer any questions that you may have regarding your plan or communications you may receive from regulatory agencies.
By Kevin VanPelt, Senior Manager
This installment is brought to you by Kevin VanPelt, a Senior Manager in Walz Group’s Assurance Division. Kevin specialized is audit services for privately-owned entities, as well as employee benefit plans.
Connect with Kevin on LinkedIn or contact our office to get in touch.