How Divorce Attorneys Can Leverage a Financial Advisor | Free Webinar

DOL’s Fines for Deficient Employee Benefit Plan Audits are Fast, Furious and Frightening

By: Reid Roberts

A recent report released by the Department of Labor (DOL) shows their high level of concern about the audit quality of employee benefit plans. The report’s findings should raise concern for participants, plan sponsors and trustees as well.

In May 2015, the Office of the Chief Accountant of the Employee Benefits Security Administration, Department of Labor, released the results of their most recent assessment of the quality of audits being performed for employee benefit plans under requirements of the Employee Retirement Income Security Act of 1974 (ERISA). The report covers audits for the 2011 filing year.

As an employee, if you participate in an employee benefit plan where you are eligible for retirement payments or make contributions to a retirement account, such as a pension plan or a 401(k) plan, or if you are eligible to receive shares of company stock (ESOP), then you may very well be in a plan that is subject to the audit requirement of ERISA. 

As an employer, you may sponsor an employee benefit plan that is required to file a Form 5500 annually with the DOL. The filing of Form 5500 often includes an additional requirement of submitting audited financial statements that have been reported on by a Certified Public Accountant (CPA).   

39% Of Employee Benefit Plan Audits Were Found to Have “Major Deficiencies”

In 2011, there were more than 80,000 Form 5500s filed with the DOL that contained audited financial statements performed by 7,000+ CPA firms. In assessing the overall quality of the audits submitted to the DOL, the Office of the Chief Accountant selected 400 plan audits across six different levels. Each of the six levels was determined by the number of benefit plan audits that a CPA firm performed. The DOL was interested in gathering more information on audit deficiencies and determining whether there was any relationship between the numbers of employee benefit plan audits a CPA firm performs and audit deficiencies.

The results of their review found that 39% of the audits contained “major deficiencies” with respect to required auditing standards as established by the accounting profession and the reporting requirements of various governmental agencies. In addition, 76% of the CPAs who perform only one or two employee benefit plan audits annually had deficiencies in their audits. 

And Now, the Really Bad News

If you fail to file the required Form 5500 for your plan, or the Form 5500 that you filed is found to be deficient, the DOL stands ready, willing and able to fine you. You can be assessed:

  • A civil penalty against a plan administrator of up to $2,194 per day for the failure to file a Form 5500

  • $150 a day, up to $50,000, per annual report filing where the required auditor's report is deficient

  • $100 per day, up to $36,500, per annual report filing that contains deficient financial information, such as missing required supplemental schedules

  • $10 per day, up to $3,650, for failure to answer a question on Form 5500

A Good Audit Starts with a Good Auditor

For the CPA, employee benefit plan auditing can be complex and require specialized training.

There are many good CPAs out there performing quality audits as the survey shows. However, it also revealed that improvement is needed. In 2004, the last time the OCA performed an audit study, the overall deficiency rate was 33%. As a plan sponsor, administrator or trustee, you need to discuss with your plan auditor their qualifications in auditing employee benefit plans.

Also, ask if they are a member of the AICPA’s Employee Benefit Plan Audit Quality Center, a valuable resource for CPAs involved in the area of auditing benefit plans. You can read How to Choose an Employee Benefit Plan Auditor for more insight.

Need Help?

Contact us online or call 800.899.4623.

Published August 24, 2015

Subscribe To Our Blog

Get the latest business, tax and financial insights

Blog Subscribe

What Do Sureties Look At When They Review A Contractor’s Financial Statements?

The construction industry is diverse, with construction businesses specializing in HVAC, plumbing, electrical,...

What Nonprofits Need to Know About Functional Expenses

The issuance and implementation of the FASB nonprofit financial presentation standard, Accounting Standards Update...