DOL's Employee Benefits Audit Quality Study: 5 Key Takeaways

Read this if you are a plan administrator for an employee benefit plan.

In November 2023, the US Department of Labor’s Employee Benefits Security Administration (EBSA) issued its fourth assessment of the quality of audit work performed by independent qualified public accountants. This assessment focused on employee benefit plans covered under the Employee Retirement Income Security Act (ERISA) for the 2020 filing year (plan years beginning in 2020). Thus, this report covers the last year before auditors were required to comply with the new Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. The intent is that, in reviewing the 2020 filing year, this would allow this assessment report to be compared to the results of previous assessments. Below, we share our five key takeaways from the assessment:

1. Of the 307 plan audits reviewed, 30% contained major deficiencies with respect to one or more relevant generally accepted auditing standards requirements. This is the lowest deficiency rate since 2004, which had a 33% deficiency rate. The 2015 assessment, which was the most recent assessment, had a 39% deficiency rate, the highest on record.
2. The number of plans audited by an audit firm continues to correlate to audit quality. Those audit firms that audit 100 or more plans annually had significantly lower deficiency rates than those audit firms auditing fewer than 100 plans annually. Those auditing 100 or more plans had a 17% deficiency rate while those auditing fewer than 100 plans had at least a 38% deficiency rate (with that deficiency rate increasing as firms audit fewer plans).
3. There does not appear to be a correlation between an audit firm’s American Institute of Certified Public Accountants’ (AICPA) peer review rating and their employee benefit plan audit quality. Of the 105 audits with deficiencies, 96 of them were performed by audit firms that received a “pass” peer review rating, with another 7 having received a “pass with deficiencies” rating. No audit firms received a “fail” rating.
4. Audits performed by those audit firms that are members of the AICPA’s Employee Benefit Plan Audit Quality Center had significantly lower deficiency rates than those firms that are not members. The deficiency rate for those firms that are members was 30%, compared to 71% for non-members.
5. The audit areas with the most deficiencies were participant data (15.6%), contributions received and receivable (15.3%), and benefit payments (9.4%). The assessment looked at 17 different audit areas, with the three listed above having the highest deficiency rates. These three audit areas are unique to employee benefit plan audits.

Although the 30% deficiency rate is an improvement from the two most recently issued assessments, it is still much higher than EBSA would prefer to see. These audits are meant to be a tool to help protect plan participants and beneficiaries. According to the Audit Quality Study, “while the plan administrator is responsible for selecting and hiring an audit firm, ERISA specifies they do so on behalf of the plan’s participants and beneficiaries.” Thus, it is important that plan administrators select a competent audit firm.

As noted above, an audit firm’s peer review rating may not necessarily be indicative of their ability to conduct an employee benefit plan audit. Given the nuances that these audits entail, the peer review process, although it does capture employee benefit plan audits, may be too broad to necessarily provide decision useful information when selecting a plan auditor. However, the volume of plans audited by an audit firm, as well as their membership in the AICPA’s Employee Benefit Plan Audit Quality Center, do seem to provide decision useful information.

To find out if a firm is a Quality Center member, you may go to the AICPA’s website, which includes a list of all member firms. Regarding volume of plan audits, this should be information that is readily known by firms and thus is worth asking. You may also consider asking if the firm’s recent peer review identified any findings or concerns specific to the employee benefit plans reviewed by the peer reviewer (peer reviewers must review at least one employee benefit plan audit). As always, should you have any questions, please don’t hesitate to reach out to BerryDunn’s Employee Benefit Plans team; with approximately 225 employee benefit plan audits and over 100 Forms 5500 prepared annually, we are here to assist!