The U.S. Department of Labor (DOL) released the results of its most recent Audit Quality Study, the first since 2015. The study assessed the level and quality of public accountants’ audits of employee benefit plans (EBP) under the Employee Retirement Income Security Act of 1974 (ERISA), which includes defined benefit and defined contribution plans, health and welfare plans, and employee stock ownership plans (ESOP).
Generally, federal law requires EBPs with 100 or more participants1 to have an audit as part of their obligation to file an annual return/report (Form 5500). If an EBP is required to have an audit, one of the most important duties of the plan administrator is to hire an independent auditor for the plan. A quality audit helps ensure the financial integrity of a plan and protect plan assets. A quality audit also helps a plan administrator fulfill its legal responsibility to file a complete and accurate annual return/report for the plan each year.
The DOL must assess the quality of audit work performed by independent qualified public accountants on EBPs every ten years. The most recent study, released in November 2023, was based on 2020 Form 5500 filings. The 307 audits reviewed included both complex (defined benefit plans, ESOPs, and health and welfare plans) and simple plans (401(k) and 403(b) plans). Based on Form 5500 filings, there were $12 trillion in plan assets subject to audit covering more than 137 million plan participants. There were 86,863 plan audits performed by 4,300 CPA firms. While the number of plans increased from 81,162 since the last DOL report, the number of CPA firms performing EBP audits decreased dramatically from 7,330. In 2003 the American Institute of Certified Public Accountants (AICPA) created the Employee Benefit Plan Audit Quality Center (EBPAQC) to improve the quality of plan audits.
This year’s study showed a 30% overall deficiency rate for plan audits, which is a statistically significant improvement in the overall quality of employee benefit plan audits since 2015. The results continue to show a direct correlation between the size of a firm’s employee benefit audit practice and the quality of the audit. The study found 70% of the audits performed by firms that only perform one or two ERISA plan audits each year had major deficiencies. Firms that audit more than 100 plans had significantly fewer deficiencies, demonstrating the importance of using a qualified CPA firm with knowledge and expertise in performing plan audits. Audits performed by the AICPA’s EBPAQC member firms had a significantly lower deficiency rate than nonmember firms.
DOL Recommendations
The DOL identifies the following five key factors for plan sponsors to consider as they evaluate whether the CPA firm they have chosen to perform their plan’s audit “has the requisite knowledge of plan audit requirements and expertise to perform the audit in accordance with professional auditing standards”:
- The number of EBPs the firm audits each year, including types of plans
- The extent of specific annual training the firm’s CPAs received in auditing plans
- The status of the firm’s license with the applicable state board of accountancy
- Whether the firm has been the subject of any prior DOL findings or referrals, or was referred to a state board of accountancy or the AICPA for investigation
- Whether or not the firm’s EBP audit work has recently been reviewed by another CPA firm—referred to as a peer review—and, if so, whether such review resulted in negative findings
The DOL encourages plan administrators to review its brochure, “Selecting an Auditor for Your Employee Benefit Plan.” This brochure provides a road map for plan administrators to assess the qualifications of the firms they are considering for EBP audits.
FORVIS’ EBP Audit Practice
As you evaluate the qualifications of your plan’s auditors, it’s important for you to be aware of the following information related to our audit practice:
- We audit more than 2,800 plans annually, which is the second-largest EBP audit practice in the country.
- Our EBP experience includes audits of a variety of defined contribution (including ESOP and 403(b)), defined benefit, and health and welfare plans. We also have experience auditing plans with financial statements included in Form 11-K filings with the Securities and Exchange Commission (SEC).
- Our EBP auditors receive specialized annual training on EBP auditing, giving them strong technical knowledge of GAAP, SEC, and ERISA requirements.
- FORVIS has been a member of the AICPA’s EBPAQC since its inception. EBPAQC membership requires us to comply with rigorous audit quality control standards, including meeting specific experience, training, and practice monitoring requirements. EBPAQC member firms have demonstrated a commitment to EBP audit quality and raising awareness about the importance of such audits.
- The designated partner responsible for overseeing our EBP audit practice also is an active member of the AICPA’s EBPAQC Executive Committee.
- Our most recent peer review was completed for fiscal year ended May 31, 2023, in which we received a peer review rating of “pass.”
Conclusion
With the significant investment you make in your employee benefit plan, you understand the importance of closely monitoring your plan’s areas of risk, internal controls and financial statement amounts, and disclosures all while maintaining compliance with regulations. That is why many plan sponsors are turning to FORVIS for timely insight, innovative services, and depth of plan resources.
If you have questions on benefit plan audit qualifications at FORVIS, please contact one of our EBP audit professionals.
- 1Beginning January 1, 2023, a defined contribution employee benefit plan will only consider the number of participants with account balances, as of the beginning of the plan year. The determination will no longer be based on the number of eligible participants. As a result, some plans that previously met the audit requirement may no longer require an audit based on the new guidance. See “New Form 5500 Rule Impacting the Audit Requirement for Employee Benefit Plans" for full details.