Is your organization providing health care and retirement benefits to its employees? According to the Employee Retirement Income Security Act of 1974 (ERISA), benefit plans with 100 or more participants are generally required to have their annual reports audited. To assist plan administrators in meeting their fiduciary obligations when selecting independent, qualified public accountants to conduct these employee benefit plan audits, here’s some valuable guidance.
Assess Risks
Under ERISA, plan administrators are responsible for ensuring that benefit plan financial statements follow U.S. Generally Accepted Accounting Principles (GAAP) and are properly audited. Independent audits of plan financial statements help stakeholders assess whether they provide reliable information about the plan’s ability to pay retirement, health, and other promised benefits to participants. They also help management evaluate and improve internal controls over the plan’s financial reporting.
Administrators who hire unqualified plan auditors face substantial penalties from the U.S. Department of Labor (DOL). In addition, plan administrators who don’t follow the basic standards of conduct under ERISA and DOL regulations may be personally liable to restore any losses to the plan.
Auditor Qualifications
To demonstrate your commitment to quality and due care, it’s important to carefully review auditor qualifications, rather than simply accept the lowest-bid contract offer. Only after the technical evaluation is complete and the qualified respondents have been identified should the administrator review the audit fees quoted by the qualified respondents.
Evaluating auditor qualifications requires consideration of licensing and independence rules. Independent plan auditors don’t have any financial interests in the plan (or the plan administrator) that would affect their ability to render an objective, unbiased opinion about the plan’s financial statements. The DOL doesn’t consider a plan auditor to be independent if the audit firm or any of its employees also maintain the plan’s financial records.
Request For Proposal (RFP) Process
The American Institute of CPAs provides recommendations on how to put together a comprehensive RFP that can be used to evaluate bidders. Comprehensive RFPs provide detailed explanations of the audit engagement, including its objectives, scope, special considerations, and expected timeline.
Once plan administrators determine unqualified respondents to their RFPs, they should invite the finalists to present and discuss their proposal letters. It’s important to interview prospective auditors to assess relevant experience and training. Also consider asking prospective auditors to provide a copy of their firms’ latest peer review report. A clean peer review report can provide additional assurance that a firm is applying best practices when auditing benefit plans.
When evaluating potential auditors, discuss the auditor’s work for other benefit plan clients and obtain references. Also review the audit team’s continuing professional education records over the last three years to determine whether they possess recent training for employee benefit plan audits.
For More Information
Not every CPA is qualified to audit employee benefit plans. These engagements require specialized training and experience. Contact us to find out more about employee benefit plan audits and how our team can help!