If you have recently received a notice from the U.S. Department of Labor (DOL), titled “Tips for Selecting and Monitoring a Plan Auditor,” do not be alarmed. It does not mean that you are being audited by the DOL and it does not mean that you have done anything wrong. These notices are addressed to the Plan Administrator and specifically name the plan, but they are not an investigation or enforcement action. They do not require action on your part and they do not indicate that your plan is at special risk of an investigation or enforcement action. Instead, these notices are part of the DOL’s ongoing outreach efforts with respect to audit quality.
In May 2015, the DOL released a report titled, “Assessing the Quality of Employee Benefit Plan Audits,” which found that almost 40% of plan audits had “major deficiencies.” The report makes a number of recommendations, including increasing DOL outreach and enforcement related to audit standards. The recent notice sent to Plan Administrators, providing tips for selecting and monitoring plan auditors, was part of that DOL outreach. The notice also references the DOL’s pamphlet, “Selecting an Auditor for Your Employee Benefit Plan.”
The notice encourages, but does not require, Plan Administrators to consider the following factors in selecting an auditor:
- The number of employee benefit plans the CPA audits each year, including the types of plans;
- The extent of specific annual training the CPA receives in auditing plans;
- The status of the CPA’s license with the applicable state board of accountancy;
- Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPA’s for investigation; and
- Whether or not the CPA’s employee benefit plan audit work has recently been peer reviewed by another CPA and, if so, whether the review resulted in negative findings.
Although the notice does not direct the Plan Administrator to take any action, a sensible follow-up (if you received the notice) would be to forward it to your auditor with a request for a response. Your auditor should be able to provide a written response that you can use to document the reasonableness of your auditor selection in satisfaction of your fiduciary duties under ERISA. Even if you did not receive the notice, you can follow-up on the DOL recommendations by reaching out to your auditor about the DOL findings and its tips for selecting an auditor. If your auditor does not respond, or if you are not satisfied with the response from your auditor for any reason, you should consider selecting a different auditor for the plan.
If you are considering engaging an auditor for your employee benefit plan(s), it may make sense to include the information identified by the DOL in your requests for proposal to prospective auditors. You should document the information you receive from prospective auditors, as part of your selection process.