Why should your retirement plan be audited by an experienced CPA?
posted Apr 18, 2012 by Anthony Mangiarelli, CPA
Each year, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) releases some startling results on the amount of plan restorations, fines and penalties they have achieved through their enforcement actions. In fiscal 2011, they collected a total of $1.39 billion dollars, in fiscal 2010, it was $1.05 billion dollars, in fiscal 2009 it was $1.36 billion dollars, and in 2008 it was $1.2 billion. In fact, every year since 2003 this amount has exceeded $1 billion dollars. To coincide with the 2010 results, the EBSA found that over 70% of the approximately 3,000 retirement plans that were selected for audit resulted in monetary results or other corrective actions. With results like this, one could say that business has been great for the EBSA! They may even be hiring as they are looking to increase their enforcement personnel workforce by 10% this year.
With these types of results, one can tell the focus of the EBSA has been to look at larger retirement plans that more than likely are required to include financial statements audited by a CPA with their annual 5500 filing. If these plans are audited by a CPA, why are there such large findings when the EBSA audits them? The answer may lie in a 2004 report published by the EBSA where they found that approximately 30% of plan audits that CPA firms completed did not comply with professional audit standards or auditing requirements. A substantial number of these substandard audits were attributed to:
- The auditor’s inadequate technical training and knowledge
- The auditor’s inadequate familiarity with employee benefit plans
- A lack of quality control in the audit process
- A failure by the auditor to understand the requirements for limited scope audits
One should note that auditing a retirement plans’ financial statements and working with their records is very different then auditing corporate financial statements or working with corporate records or tax forms. The audit of a retirement plan is done to further the interests of plan participants and administrators not just check the records on the plan sponsor’s behalf.
In connection with a retirement plan audit, the CPA is required to review the internal controls that exist to determine whether they provide effective safeguards to prevent and detect fraud and errors. Any findings should be reported to the plan administrator in the form of a management letter. If one is issued, this letter should not be viewed negatively as it will provide the plan sponsor comments to take under advisory on how the plan and its internal control structure could be stronger and prevent issues from arising before the CPA or EBSA identifies them.
An audit of a retirement plan by a CPA who is experienced in this niche area will provide a higher level of assurance that the financial statements accurately set forth the financial condition of the Plan and that the participants records are appropriately maintained. Further, if the plan is selected for audit by the EBSA, it should be in the minority and not require monetary restitution.