With Employee Benefit Plan Audits, the Numbers and the Risk Are Big

$696.3 million. That’s a big number. It represents the money the Employee Benefits Security Administration (EBSA) restored to plans for FY 2015. How did they do it? By conducting almost 2,500 civil investigations, with over 67% of them resulting in monetary results or other corrective action. It also includes amounts restored in connection with the informal resolution of over 200,000 individual complaints.

275. That’s not a very big number. It happens to be the number of criminal investigations closed in FY 2015 by EBSA, which led to the indictment of 61 individuals – including plan officials, corporate officers, and service providers – for offenses related to employee benefit plans.

That small number looks a lot bigger when you realize it could include you. It looks even bigger when you consider that under the Sarbanes-Oxley Act, ERISA violations by individuals can result in fines up to $100,000 and jail terms up to 10 years, while companies may face up to $500,000 in fines.

So why am I telling you all of this? Because it is preventable, and because too many accounting firms continue to make errors, putting their clients – YOU – at risk.

In 2015, EBSA published a report detailing their assessment of the quality of over 81,000 CPA-prepared audits of employee benefit plans. The results were frightening:

  • 61% fully complied with professional auditing standards or had minor deficiencies
  • 39% contained major deficiencies that would lead to rejection of Form 5500 filing

Nearly four in ten were so bad they would have been rejected. That means roughly 32,000 plans, as well as the corporate officers responsible for them, were open to possible civil and criminal liability. According to the report, those out-of-compliance plans represent $653 billion and 22.5 million plan participants and beneficiaries.

But there is some good news. By working with a CPA firm that has a robust employee benefits practice, you can greatly reduce your exposure, because the study also found:

  • CPA firms performing the fewest EBP audits = 76% deficiency rate
  • CPA firms performing the most EBP audits = 12% deficiency rate
  • Members of the AICPA Employee Benefit Plan Audit Quality Center tended to produce audits with fewer deficiencies
  • Members of the AICPA Employee Benefit Plan Audit Quality Center have fewer audits with multiple deficiencies
  • As the level of employee benefit plan-specific training increased, the percentage of deficient audits decreased

Regulations are constantly changing, and many people still have not firmly grasped all the implications of Sarbanes-Oxley. What is easy to grasp, however, is the exposure of individuals and companies if they fail to comply with all applicable regulations.  Care should be taken by the plan administrator to select a CPA who possesses the requisite knowledge of plan audit requirements and expertise to perform the audit in accordance with professional auditing standards.

Selecting a qualified CPA is a critical responsibility in safeguarding your plan’s assets and ensuring compliance with ERISA’s reporting and fiduciary requirements.  If you do not already know, ask how many other employee benefit plans your CPA firm audits on an annual basis, including the types of plans. Also ask if they are members of the AICPA Employee Benefit Plan Audit Quality Center and inquire about the extent of the specific annual training your CPA firm receives in auditing employee benefit plans.

If you do not get satisfactory answers to those questions, it may be time to explore your options. The numbers facing you are too big – and the potential consequences too significant – to ignore the risk.