Council Offers Recommendations for Retirement Plan Audits

The Council said it appears that the problems are not lack of adequate codification of practices, but rather a failure by auditors to understand or follow established practices and requirements.  

Ian Dingwall, Chief Accountant for the Office of the Chief Accountant (OCA) for the Employee Benefits Security Administration (EBSA) of the Department of Labor (DoL) testified before the Council that four problem areas lead to most audit failures. The DoL found that smaller firms that perform only a few audits are more likely to do poorly.   

The reasons they do poorly are due mostly to: 

• Inadequate technical training and knowledge;  
• Lack of awareness of the nature of employee benefit plans;  
• Lack of quality control on audit processes; and  
• A failure to understand the limited scope audit requirements.  

The ERISA Advisory Council noted that the American Institute of Certified Public Accountants provides guidance on how audits for employee benefit plans are to be conducted. Therefore, because a lack of guidance does not appear to be an issue, the Council concluded that auditor training and a failure to allocated adequate auditor/firm resources are leading causes.  

In addition, the report noted that Paul Beswick, Deputy Chief Accountant for Office of the Chief Accountant of the Securities and Exchange Commission (SEC) testified that “[c]onfidence in the reliability of audited financial statements depends upon the public perception of the outside auditor as a competent and independent professional.” He stated that for this reason the SEC “imposes strict standards of conduct on auditors who practice before the [SEC],” and also noted that the SEC established the Public Company Accounting Oversight Board (PCAOB).  

The DoL also discussed problems it faces when attempting to enforce auditor quality. Auditors are licensed by the states. The AICPA provides guidance on approved practice for audits, but it is a voluntary membership organization. Not all auditors licensed by the states are members of the AICPA.   

The DoL has no authority to discipline or sanction auditors. It works cooperatively with the AICPA and state authorities to report problem audits, but there is no assurance that this will prevent or obviate further issues with the auditor or remedy a defective audit. Moreover, states are not compelled to take action when the DoL reports problems with an auditor. The DoL can, generally, impose a penalty on the plan administrator for the auditor’s failure to comply with Generally Accepted Accounting Standards (GAAS).   

One of the Council’s general recommendations is that the DoL establish a Task Force to work with the AICPA and other stakeholders on audit matters, and a second general recommendation urges the DoL to engage in a study of quality and promotion of quality.  

The Council also recommended: 

• The Department should require plan administrators to identify on the Form 5500, or other annual report, whether or not the plan auditor is a member of the AICPA Employee Benefit Plan Audit Quality Center; and 
• The Department should establish a fiduciary safe harbor in the initial selection of plan auditors who are members of the AICPA Employee Benefit Plan Audit Quality Center.