Federal law requires most employee benefit plans with more than 100 active participants to have an independent audit of the plan financial statements and to include the audited financial statements with the annual form 5500 filed with the Department of Labor (DOL). For calendar yearend plans on extension, the filing deadline is October 15. Significant penalties can be levied against the plan administrators and sponsors by the DOL for deficient and or late filings. One of the most important decisions a plan administrator makes as part of their fiduciary duties is selecting a qualified, independent auditor to perform the plan audit. When making this decision, what really matters?
Three Factors to Consider When Choosing a Benefit Plan Auditor
1. Plan auditor qualifications
Federal law requires an employee benefit plan auditor responsible for signing the audit report to be licensed or certified as a public accountant by a State regulatory authority. In addition, the auditor must be independent and not have any financial interests in the plan or the plan sponsor.
2. Auditor experience and firm peer review results
One of the most common reasons for deficient audit reports is the failure of the auditor to perform tests in areas unique to benefit plans. The more training and experience an auditor has with employee benefit plan audits, the more familiar the auditor will be with specialized benefit plan auditing standards. In addition, firms performing benefit plan audits should have the audits subjected to their triannual peer review and annual internal inspection process. Peer review is an external inspection process performed by an external independent auditor. Peer review examines the audit firm’s adherence to their quality controls standards including “tone at the top”, hiring process and compliance with regulations to include; continuing professional education, compliance with auditing standards and the application of generally accepted accounting principles.
3. Association memberships
The Employee Benefit Plan Audit Quality Center (EBPAQC) is a voluntary membership center of the American Institute of Certified Public Accountants (AICPA) to help audit firms meet the challenges of performing audits of employee benefit plans. Being a member firm requires the audit firm to comply with a higher set of standards and practices specific to plan audits than non-member firms. In addition, the AICPA and EBPAQC requires its members to have their audit practice reviewed by internal and external qualified auditors.
In closing, employee benefit plan audits have increasingly become the subject of examination by the DOL and IRS, so it is imperative to select a qualified employee benefit plan auditor. For a full list of EBPAQC member firms, click here.
Some key questions to ask when considering a benefit plan auditor are: Are you a CPA? How many employee benefit plan audits do you perform each year? Are the auditors in your firm performing benefit plan audits required to have specialized employee benefit plan audit training? Are your benefit plan audits subjected to peer review? What were the results of your most recent peer review? Are you a member firm of the AICPA’s Employee Benefit Plan Audit Quality Center?
Choosing a benefit plan auditor can be overwhelming. If you don’t know where to start, contact Dan Harris, CPA, at firstname.lastname@example.org or 203-972-5191 for more information.