I need an audit of my company’s retirement plan. How do I select a quality EBP audit firm? What should I look for?
A quality audit firm should satisfy the six following criteria:
- Performs more than 25 employee benefit plan (EBP) audits each year
- Doesn’t give you the lowest quote
- Is an active member of the AICPA’s Employee Benefit Plan Quality Audit Center
- Undergoes regular peer reviews and passes
- Assigns licensed CPAs to perform the audit
- Adheres to quality control and independence rules
Click any of the criteria listed above to jump to that item.
Why it’s important to hire a good audit firm
Before we dive into the specifics, we want to stress the importance of hiring a good firm to audit your company’s retirement plan. Due to an increase in bad audits, the Department of Labor (DOL) is scrutinizing benefit plan audits and enforcing strategies to address audit deficiencies. As the plan administrator, part of your fiduciary responsibility is hiring a plan auditor. If you’ve made mistakes as the plan administrator and your audit firm doesn’t catch them, the DOL may reject your plan filings and assess penalties on you. Not the audit firm. Not your company. You. The plan administrator.
Therefore, it’s critical that you hire a good audit firm that can help you find errors, fix them, and avoid paying any fines. If you’re a plan administrator and new to the plan audit process, this will be a helpful hiring guide for you. If you have a lot of experience with plan audits, we hope this post will reinforce your recommendation to a supervisor or executive. Who knows – maybe you’ll learn something new too!
Here are six criteria to look for and key questions to ask when selecting a quality EBP audit firm.
This is the most important criteria to use when evaluating a potential plan auditor. It addresses the audit firm’s experience. A 2014 study by the DOL, “Assessing the Quality of Employee Benefit Plan Audits” reveals that the size of a firm’s EBP audit practice directly correlates to the quality of audit work performed.
The following table, included in the DOL’s study, shows firms that audit few plans annually tend to perform audits with major deficiencies. A major deficiency means generally accepted auditing standards aren’t followed and the overall audit quality is negatively affected.
|No. of plans audited annually||No. of audits reviewed by the DOL||Audits with deficiencies|
This table makes it clear. The smaller a firm’s employee benefit plan audit practice, the greater the rate of audit deficiencies. If you select a firm that audits more than 25 plans annually, the audits with deficiencies rate drops substantially, ranging from 12 to 41.5% compared to 67.4 to 75.8%.
Here’s the takeaway – you don’t want your plan to be the only plan a CPA firm audits. It’s risky. Benefit plan audits are more complex than standard audits. Your audit team should be familiar with DOL and ERISA guidance in addition to auditing standards and accounting principles. They may not have the experience, training, or knowledge if they audit a handful of benefit plans each year.
To illustrate this point, a quality EBP audit firm will know that any contributions made out of an employee’s payroll must be remitted in a timely manner and tested. If this doesn’t happen and your auditor doesn’t catch it, you could face big fines.
In addition to knowing how many plans the firm audits, you’ll want to know the types of plans they audit. Do they audit a diverse mix? Do they specialize in certain plans? Do they audit one or two types of plans and are unfamiliar with others? It’s best to choose an audit firm that audits a blend of plan types and has plenty of experience with yours.
Also, it’s ideal for the firm to have both a standard audit practice and a practice dedicated to employee benefit plan audits.
Questions to ask: How many benefit plans do you audit annually? What types of retirement plans do you audit? What’s your breakdown of audits by benefit plan type? How does auditing the financial statement of an employee benefit plan differ from other audits?
If there’s one takeaway from this post, it’s this: DO NOT HIRE THE LOWEST-PRICED FIRM. DO NOT SHOP FOR A DEAL.
Why? As part of the DOL’s investigation into audit quality, they’ve found low-cost auditors perform low-quality audits. If you’ve hired an audit firm for their cheap fees, the firm may lack the necessary knowledge and experience to perform a strong audit. If this is the case, your selection could be viewed as negligence of your fiduciary responsibility.
How do you know who is too cheap? Search for audit firms that satisfy the items on this list. Then, select three qualified audit firms and ask each one for a quote. This should give you an idea of the price range in your market. If any firm’s quote is substantially lower than the others, it’s a big red flag.
When you ask for a quote, you should also gain an understanding of the firm’s service offerings, capacity, and customer service. What services do they offer? What outcomes or deliverables can you expect? What’s their approach to service? What will they do to help you be a great plan administrator? In these conversations, are they educating you and helping to ensure you satisfy your fiduciary responsibilities?
Now, audit firms need information from you to provide an accurate quote. Make sure to share the same information with all prospective audit firms to receive comparable quotes. The top three pieces of information you should provide are:
- Type of audit needed – limited scope or full scope
- Plan type
- Type of investments held by the plan and any respective custodians
This is a brief list. Reference pages 13-15 of this AICPA resource for additional information you could provide.
Questions to ask: What‘s your average fee for a benefit plan audit? What services are included in your quote? What is your quote based on? What services do I need?
A quality EBP audit firm should be a member of the AICPA and its Employee Benefit Plan Audit Quality Center (EBPAQC). Member firms voluntarily adhere to higher standards of audit quality in their policies, procedures, and training related to performing benefit plan audits. It’s worth asking potential candidates about the ongoing training that the firm and/or audit team pursue related to employee benefit plan audits.
You might see the firm’s membership with the EBPAQC on their website. If not, the AICPA also has an easy way for you to search for member firms on their website – you can search alphabetically or by state. Find an EBPAQC Member Firm.
In addition to a membership with the AICPA and EBPAQC, the firm should be a member of its state association of CPAs (MICPA in Michigan).
Questions to ask: Are you a member of the AICPA? A member of its Employee Benefit Plan Audit Quality Center? How long have you been a member? What type of training or professional development do you pursue?
Quality EBP audit firms undergo a regular peer review. A peer review is when another audit company assesses the firm’s system of quality control and compliance with it. The peer reviewer will evaluate the firm’s audit and EBP audit practices. Firms can receive one of three ratings – pass, pass with deficiency(ies), or fail.
It’s best if the firm receives a pass rating. If the firm receives another rating, it must issue a response that outlines corrective measures it will enact to prevent future deficiencies. Then, the firm must agree to corrective actions deemed appropriate by the peer review committee.
You have two ways to access a firm’s peer review report and response– ask the firm for a copy or use the AICPA’s public file search.
When inquiring about the peer review, it’s a good time to ask if they’ve been subject to any DOL findings or referrals, or any AICPA or State Society Ethics referrals. These findings or referrals indicate past issues with the firm’s audit practices. You’ll want to know the nature of these incidents and if/how they’ve been addressed.
Questions to ask: When was your most recent peer review? How often are you peer reviewed? Can you provide a copy of your current peer review and response?
Federal law requires auditors engaged to perform an employee benefit plan audit to be licensed or certified as a public accountant. An active license means the accountant is satisfying her continuing education requirements and staying up-to-date on accounting standards and procedures. Plus, it may be helpful to know each auditor’s experience with performing benefit plan audits, if they hold any other accreditations, and their education level.
The accounting firm should also have its own license to perform audit services. You can verify a current license via state websites or by asking the firm for a copy. Looking at an accounting firm in Michigan? Search for their license here.
Questions to ask: Is your firm licensed to perform audits in this state? Is everyone on the audit engagement team a licensed CPA? Are all licenses active?
A one-person audit team will not suffice. Most quality audit firms assign three team members to your plan audit – one to prepare, one to conduct a detailed review, and one to perform a technical review. You don’t need more than three CPAs involved, but less than three means you aren’t getting the level of quality control that a good plan audit requires.
Don’t stress if a newer, less experienced accountant is assigned to your audit. If the firm assigns experienced CPAs to supervise and review the work, you’ll get the quality control you need.
Independence is another important aspect of a quality EBP audit firm. It enables the firm to approach the audit with skepticism. A quality firm must adhere to independence rules set by the DOL and AICPA. Plus, ERISA requires the plan auditor to be independent for the purposes of auditing plan financial information. If the audit firm or any of its employees maintain the financial records for the employee benefit plan, it’s not independent and shouldn’t audit the plan’s financial statements.
Questions to ask: How many CPAs will you assign to my plan audit? What role will each person serve? Do you adhere to independence standards? How?
Our final tip before hiring a firm to audit your benefit plan? Ask for references.
We hope this list will help ease your search for a qualified firm to audit your employee benefit plan. As we stated earlier, it’s the fiduciary responsibility of the plan administrator to hire a quality EBP audit firm. And, it’s a responsibility that you shouldn’t take lightly. If you aren’t sure where to start, ask your professional network for referrals. Search for member firms in your area via the EBPAQC. Conduct a few Google searches!
Besides avoiding DOL scrutiny, a good audit firm should help you become a great plan administrator by finding errors, advising you on how to fix them, and sharing best practices.
If you’re ready to start connecting with audit firms, start with Beene Garter! We’re proud to say we meet all requirements on this list. We audit more than 60 benefit plans annually – of many varieties – and set very high standards for independence, quality control, and efficiency.
- AICPA | The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit
- 2014 study by the DOL | Assessing the Quality of Employee Benefit Plan Audits
- DOL | Selecting An Auditor for Your Employee Benefit Plan
Looking for a firm to audit your employee benefit plan? Let’s talk!