With the current administration aiming to significantly boost the Department of Labor’s (DOL’s) funding for 2022 and over the next 10 years, more DOL audits could be on the horizon for employers. The Employee Benefits Security Administration (EBSA), a DOL agency, is responsible for ensuring the security and integrity of private employee benefits plans throughout the country. And if employers are not prepared, a DOL audit or investigation carries significant risk. Organizations can be identified for audits for several different reasons, including:
- Participant complaints
- Referral from another agency
- Errors or omissions in Form 5500 filings
Typically there isn’t much advance notice when an employee benefit plan is audited. Organizations can’t stop an audit, whether it is random or for a specific reason. If an audit uncovers violations, then corrective action may be required including paying penalties. By ensuring compliance in advance of an audit, organizations can prevent costly fines and save thousands, if not millions, of dollars.
What traits should you look for when interviewing auditors?
There are a variety of professional firms you can choose to work with and it’s important to take the time to connect with each option and determine which best fits your company’s needs. As a general rule, the firm you select should be able to discuss how their policies and procedures provide your company with reasonable assurance that the firm and its personnel comply with relevant ethical requirements. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct establishes the fundamental principles of professional ethics, which include responsibilities, public interest, and integrity, objectivity, due care, scope, and nature of services.
What are “red flags” to look out for?
Generally speaking – accounting, auditing, and DOL rules are not static. While it’s not your job to keep up with accounting, auditing, and regulatory changes, it certainly is the job of the firm you trust with your audit. Missed changes in reporting requirements or upcoming deadlines could mean irrevocable damage to your company. If you get the sense that the firm members you meet with are at all disorganized, or fail to regularly revise firm checklists, programs, and other materials each year to reflect any new accounting, auditing, or regulatory requirements – it’s a major red flag. In fact, the DOL regularly reviews hundreds of audits annually and releases a report describing the most common “major audit deficiencies” for reference. A recent DOL audit quality study found that nearly 40% of plan audits had deficiencies (a copy of this study can be found here).
What’s an important question to ask potential firms you may work with in the future?
You should ask the firm what their criteria are for accepting and taking on new clients. The firm you select should establish policies and procedures for the acceptance and continuance of client relationships and specific engagements. Does the firm consider the integrity of the client? The identity and business reputation of the client’s principal owners, key management, related parties, and those charged with its governance are all important factors. There are real risks associated with providing professional services to a range of clients, and it’s important to know you’ll be in good company. You may learn that the firm is eager to take on any and every client that walks through their door (another red flag). Whatever the response you get, you’ll be able to gather a lot of valuable insight when you ask this simple question, so you can make an informed decision. Additionally, be sure to ask to obtain the auditor’s most recent peer review letter.
Ultimately, while you have a thousand other things on your to-do list, it’s important to find an auditor that maintains consistent teams, demonstrates industry knowledge, and keeps disruption to a minimum. While selecting a qualified audit firm won’t prevent you from having a plan selected for an audit, it can prepare and protect your plan. RBT CPAs, LLP’s audit team has developed guidelines that help us perform audits as efficiently and effectively as possible. We assign experienced staff, so you don’t need to teach new auditors your business every year. We gather industry knowledge from Firm resources and market research, to identify and target issues significant to your business. Finally and perhaps most importantly, we maintain as transparent a presence as possible during fieldwork, to minimize disruption and utilize your employees’ time efficiently. Contact us to set up a primary consultation to learn more about what we can do for you.
