DOL Audit Report  Signals Deficiencies 

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According to a recent report published by the U.S. Department of Labor (DOL), there are significant deficiencies in audits pertaining to employee benefits plans. In fact, a recent Accounting Today article points out that the report showed major deficiencies were found in nearly 30 percent of benefit plan audits – actually signaling improvement in this area. According to the publication, the most recent Audit Quality Report from the Office of the Chief Accountant of the DOL’s Employee Benefits Security Administration, its first since 2015, found that 70 percent of audits fully complied with professional auditing standards, and 30 percent contained major deficiencies, which represents a drop from the 39 percent with major deficiencies since the last study was conducted.    

The DOL conducted a study examining audits of employee benefit plan financial statements from filing year 2020 in regard to Form 5500, Annual Return/Report of Employee Benefit Plan. It found the leading areas of audit deficiencies were areas unique to EBP auditing, including participant data, contributions received and receivable and benefit payments. 

The report suggests that the DOL has been working with auditors, the American Institute of CPAs (AICPA), the Financial Accounting Standards Board (FASB) and others on improving audits, updating standards, developing and sharing best practices, identifying underperforming auditors, and more. Contributions, benefits payments and participant data testing were noted as primary areas for improvement.  

Regarding the AICPA, the report shows firms that are members of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) performed higher-quality work than nonmember firms. According to a recent Journal of Accountancy (JA) article, the AICPA issued a response to the report. “The latest U.S. Department of Labor report confirms what we’ve seen in the past: Firms that perform the fewest number of EBP audits — less than six a year — have the highest deficiency rates,” the statement read, in part. “Significantly, the report also documents a considerable reduction in the number of firms in that ‘less than six audits a year’ category, driven in part by the AICPA through our Enhancing Audit Quality (EAQ) initiative and AICPA Peer Review Program. From 2015 to 2020, the number of firms that perform a low volume of EBP audits shrank from 5,203 to 2,589, a 50% drop…It’s important to note the quality issues identified by the DOL do not pose a risk to the viability of any EBP plan. That said, audit deficiencies are never acceptable, and we plan to analyze the DOL’s findings and recommendations and incorporate them into our learning products and resources as part of our continuous, data-driven improvements through the EAQ initiative.” According to JA, EBP audits are part of an ongoing initiative by the AICPA aimed at strengthening audit quality.  

The report found that deficiencies were more likely among firms that performed smaller numbers of EBP audits and firms that performed more benefit plan audits tended to perform higher quality work. To review the full report, click here.