May 29, 2015
The U.S. Labor Department’s Employee Benefits Security Administration has published its study on the quality of benefit plan audits performed by certified public accountants. The report, “Assessing the Quality of Employee Benefit Plan Audits,” reveals serious issues with the current system.
“The existing patchwork of regulations and rules needs to be overhauled and a meaningful enforcement mechanism needs to be created,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “The department is proposing, among other measures, legislation that will fix these problems.”
More than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefit plans. EBSA’s review found that 61 percent of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. The remaining 39 percent of the audits contained major deficiencies, however, which put $653 billion and 22.5 million plan participants and beneficiaries at risk. These figures reflect increases in the amount of plan assets and number of plan participants at risk compared with prior EBSA studies.
In addition to increased outreach to CPAs and enforcement of audit standards by EBSA, the report proposes legislative fixes. It recommends that Congress amend the Employee Retirement Income Security Act definition of “qualified public accountant” to include additional requirements and qualifications necessary to ensure the quality of plan audits. Under the proposal, the Secretary of Labor would be authorized to issue regulations concerning the qualification requirements.
The report also urges Congress to repeal the ERISA limited-scope audit exemption and give the secretary the authority to define when a limited scope audit would be an acceptable substitute for a full audit. When auditors have to issue a formal and unqualified opinion, they have a powerful incentive to rigorously adhere to professional standards ensuring that their opinion can withstand scrutiny. The limited scope audit exemption undermines this incentive by limiting auditors’ obligations to stand behind the plans’ financial statements.
Finally, the report suggests ERISA be amended to give the Secretary of Labor authority to establish accounting principles and audit standards to protect the integrity of employee benefit plans and the benefit security of participants and beneficiaries.
Read the full report at www.dol.gov/ebsa/pdf/2014AuditReport.pdf.