Key insights
- A well performed audit is vital protection for your employee benefit plan (EBP). The latest Department of Labor audit study found improving audit quality but noted 30% of audits had one or more major audit deficiencies.
- The study found firms performing at least 100 EBP audits annually had the lowest major deficiency rate.
- The DOL advises organizations should select an auditor based on several factors — including training and experience — and not just cost. A major deficiency finding in an EBP audit can cause problems for plan fiduciaries.
Improve the quality of your employee benefit plan audit.
A well performed audit is vital protection for your employee benefit plan (EBP). And that’s not just our opinion — it’s advice the Department of Labor (DOL) dispenses, as well.
The DOL’s latest study found audit quality is improving, but 30% of audits still had one or more major audit deficiencies. In addition, firms performing at least 100 EBP audits annually had the lowest major deficiency rate.
The DOL advises organizations should select an auditor based on several factors — including training and experience — and not just cost. A major deficiency finding in an EBP audit can cause problems for plan fiduciaries.
Background
The DOL’s most recent study reviewed 2020 filings, which was the last year before auditors were required to comply with the new Statement on Auditing Standards (SAS) 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA.
This was the fourth such study the DOL has conducted and the first released since 2015, which was based on audits performed for the 2011 filing year.
Sampling process
The DOL sampled audits from over 300 plans from a variety of CPA firms and grouped them based on the number of annual EBP audits performed:
- 1 – 2 plans
- 3 – 5 plans
- 6 – 24 plans
- 25 – 99 plans
- More than 100 plans
The DOL then split the audit samples into two categories, simple and complex audits, and conducted workpaper reviews between December 2021 and October 2022.
| Simple audits | Complex audits |
| Traditional 401(k) | Defined benefit plans |
| Traditional 403(b) | Employee stock ownership plans |
| Health and welfare plans |
Study results
The DOL found 70% of audits fully complied with auditing standards or had minor deficiencies whereas 30% had one or more major audit deficiencies. This was an improvement from the study released in 2015 that found 39% of audits had one or more major audit deficiency.
Like the 2015 study, the DOL found a strong correlation between the number of EBP audits a firm performs and audit quality. CPA firms performing at least 25 audits had a major deficiency rate of 25% while firms performing fewer than 25 audits annually had a major deficiency rate of 55%. Firms performing at least 100 audits had the lowest major deficiency rate at 17%.
The audit areas with the most frequent deficiencies included procedures surrounding:
- Contributions
- Benefit payments
- Participant data
- Party-in-interest transactions
- Prohibited transactions
However, the DOL did not find a statistical correlation in terms of deficiency rates as it relates to audit complexity and hopes to dig deeper into the root causes in a future quality study.
Other findings
The study produced other noteworthy findings on the number of CPA firms performing EBP audits.
Based on DOL filings, there were approximately 81,000 plans audited by just over 7,300 CPA firms in 2011. However, there were approximately 87,000 plans audited by only 4,300 CPA firms based on the 2020 study.
The significant decrease in the number of CPA firms performing EBP audits is primarily driven by firms auditing just one or two plans annually. In 2011, there were nearly 3,700 firms performing two or fewer audits compared to approximately 1,700 in 2020. Additionally, the number of firms performing at least 100 EBP audits annually increased from 81 in 2011 to 133 in 2020. Firms auditing at least 100 plans accounted for approximately 55% of all plans audited in 2020, up from 42% in 2011.
What’s next?
While this study showed progress over previous studies, the DOL acknowledges there’s still room for audit quality improvement.
Many of the deficiencies and issues discovered in the previous DOL audit quality study helped mold the SAS 136 audit standard, which was published in 2019 and effective for 2021 filings. This was the first auditing standard to provide specific audit requirements for ERISA-covered employee benefit plans.
The DOL has expressed its intention to assess the impact of SAS 136 on audit quality in a future study.
How we can help
Choosing an auditor for your benefit plan is an important fiduciary responsibility and should not be taken lightly. A quality audit can go beyond affirming your plan compliance — it can also help your organization identify operational issues to tackle.
CLA has provided employee benefit plan audit, tax compliance, and consulting services for more than 60 years. The DOL’s most recently published list of top 100 firms has CLA performing over 3,800 employee benefit plan audits annually, the most in the country.
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