Department of Labor: Audit Deficiency Referral Project Underway

It is a common goal of the Department of Labor (DOL) and State Boards of Accountancy that CPAs who perform benefit plan audits do so in accordance with professional standards to protect the interest of plan participants and beneficiaries. Representatives of NASBA’s legal team have been working closely with representatives from the Office of the Chief Accountant at the DOL this year regarding their audit deficiency referrals. DOL representatives clarified that the most recent referrals to state boards were the result of two separate DOL initiatives. One was the most recent DOL Audit Quality Study for which the DOL issued a report in November 2023 (the DOL Audit Quality Study). The second was a review of audits submitted in 2021 after SAS 136 went into effect (the 2021 Audits Review). Boards may be receiving referrals that fall in either or both categories and NASBA has made an effort to communicate this information regarding how the two categories differ to avoid confusion in how boards may decide to act on the referrals.

The DOL Audit Quality Study referrals are based on a full review of the audit and referrals were made to the boards if there were five or more deficiencies cited in the Preliminary Findings Report. In these cases, the DOL conducted its typical full review of the audit including a review of the working papers. It is the NASBA legal team’s understanding that eight referrals of this type were made.

In addition, the DOL made 90 referrals from the 2021 Audits Review project. These referrals are based solely on the failure of the audit report to comply with the newly issued SAS 136. These referrals did not include a review of the audit workpapers as the DOL determined that if the incorrect language was cited in the audit opinion, the remainder of the audit would likely contain additional deficiencies as the auditor was not following the most recent audit standards.

NASBA continues to encourage its state boards to take a closer look at the most recent DOL referrals that state a failure to comply with the new SAS 136 language only. It is possible that several of these referrals were not pursued by state boards because of the seemingly insignificance of the departure cited by the DOL. However, a review of the underlying audit and related investigation by the board, may result in findings of other substantial deficiencies that the board would choose to pursue.

As part of NASBA’s continued efforts to facilitate communication between federal agencies and state boards, NASBA invited the DOL to speak at its 2024 Executive Director and State Board Staff Conference and Legal Counsel conferences, both held at the end of March. Board staff had the opportunity to speak directly with the DOL and discuss federal agency enforcement efforts. One of the main topics of conversation was the DOL audit referrals mentioned above. Due to an overwhelming interest in the referrals, NASBA’s Legal Department has begun a review of the listing of every referral the DOL has record of making to state boards since 2016. Each board has now received a personalized detailed list of all referrals reported to be sent by the DOL to their individual board. NASBA is in the process of collecting feedback from the state boards as to whether each referral was received and what discipline might have been assessed. The Enforcement Resources Committee plans to analyze the information and present information that is approved by the boards for public dissemination back to the state boards to aid enforcement efforts.