PWBA Finds Too Many Auditors Missing the Mark ..(3/97)

In March 1997, the Office of the Chief Accountant (DOL- PWBA) issued its findings on audit quality, having analyzed 262 audit reports attached to Form 5500 filings (for years beginning in 1992) to see if audit quality had improved since the 1989 report on deficiencies found by the Labor Department's Office of the Inspector General.

PWBA's conclusion: no significant improvement.

PWBA found that 19% of plan audits in 1992 failed to comply with professional standards, and 33% of the auditors reports fail to comply with ERISA's reporting and disclosure requirements.

Among the factors that PWBA suggests as affecting the quality of the audits:

• the amount of audit work done by the CPA firm, as a percentage of its entire practice,
• whether the CPAs understood the uniqueness of employee benefit plans
• the adequacy of CPAs training and experience in plan audits
• whether the CPA had established quality review and internal controls
• the perception of the plan administrator and CPA of the importance of plan audits, beyond fulfilling regulatory requirements.

With regard to the first factor, PWBA said:

"... for the audits we reviewed which contained significant deficiencies, the audit of the employee benefit plan frequently represented the only ERISA audit the firm performed. In some cases it also represented the firm's only audit engagement."

JTC Comments:

Findings of audit deficiencies are not new. In 1989 The Labor IG blamed problems on limited understanding of employee benefit plans, and in 1992 the General Accounting Office performed a follow up study with similar finding, and concluded that the problems demonstrated that some auditors lacked industry knowledge and were not aware of ERISA requirements.

The AICPA has taken steps to improve audit quality, by publicizing DOL's finding, by expanding the available training opportunities, by publishing annual industry audit alerts, and by requiring that each firm's outside Peer Review include at least one employee benefit audit, if a CPA firm performs any such audits. (You can ask to see your CPA's last "Peer Review" letter).

I work hard to maintain the quality of my employee plan audits, with extensive training, audit programs, disclosure checklists, and other procedures specifically tailored to employee benefit plans. I maintain a library of ERISA related publications, and I spend a great deal of time staying current on new issues. I've been a member of the International Foundation of Employee Benefit Plans for over 10 years; chairman of the Nassau Chapter NYSSCPA Employee Benefits Committee, and I have lectured frequently on employee benefit matters. (I wrote the textbook for the CPA course, "Preparing Form 5500".) I understand the industry because, for more than 20 years, I've spent 80% of my time on employee benefit fund audits. For my last 3 Peer Reviews, the reviewing firm didn't include just one employee plan audit in their testing, they looked at 6 or more employee benefit plan audits.

ERISA audit quality is critical. And key factors in a quality audit are experience and training. Many general practitioners, large or small, simply can not develop an expertise in employee benefit plans if they only audit one or two plans.

DOL Rates Audit Quality "Needs Improvement"