Finding failures: the problem with employee benefit plan audits.

• Author: Hein, Marcia
• Position: Audit practice

The Department of Labor I las been highly critical of employee benefit plan audit quality as a result of its oversight reviews of plan audits. In recognition or the higher risk and significant public interest, the AICPA has established an Audit Quality Center devoted to employee benefit plan audits, and the AICPA Peer Review Program requires that at least one employee benefit plan audit be selected in a firm's peer review.

Yet, the DOL and the peer review program continue to report audit failures. More disconcerting, a recent comparison of auditors listed on Form 5500 with peer review records resulted in more than 1.500 firms that hadn't listed EBP audits on their last peer review engagement listings. The peer review program has found that a majority of these firms omitted employee benefit plan audits from the engagement listings submitted to their peer reviewer. Replacement reviews are currently in process for these firms.

So, even with all the evidencr that employee benefit plan audits have the highest level of inherent risk, there are two myths surrounding this area. Think or them as the auditors version of the tooth fairy legend.

MYTH No. 1: There Are No Risks Associated with Employee Benefit Plan Audits

Along with the normal audit risks that apply there are additional it id ustry specific procedures that must be performed. Without a significant amount of study of the rules related to employee benefit plan audits and the plan document itself, material procedures may be overlooked.

In addition, each type of employee benefit plan carries unique risks. An auditor may be an expert in defined contribution plans. but if the auditor doesn't understand the requirement to present data on accumulated plan benefits and the changes in accumulated plan benefits. and doesn't consider the implications of auditing the actuarial data in a defined benefit plan, then the likelihood of a successful defined benefit plan audit is remote.

Auditors should review their quality cuntrol policies and procedures before accepting an employee benefit plan audit:

* Do firm personnel have the necessary competence and capabilities to serve this client? If not, can it be obtained quickly?

* Does the firm have the time to devote to this project, including any time needed to research the requirements of the industry?

* Does the engagement meet the firm's standards from an economic standpoint? Consider the following:

* Frequency that the sponsor changes auditors;

* Fee sensitivity of the sponsor; and

* Whether the proposed fee make sense when considering the costs of obtaining and conducting the engagement.

If the auditor cannot answer these questions with a "yes," then perhaps the firm should not accept the engagement.

MYTH No. 2: This...