DOL Employee Benefit Plan Audit Inspections

Special attention should be paid to a new consent form now accompanying document requests from the Office of the Chief Accountant (OCA) under the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA). Recent OCA document requests now include a request for the CPA to consent to the release of the CPA’s audit workpapers to other authorities. Many CPAs, believing they are required to sign the consent or not aware of its implications, are signing the consent.

CAMICO is discouraging practitioners from signing the consent. If signed, this consent would permit the DOL to forward the audit workpapers to state licensing boards, the National Association of State Boards of Accountancy (NASBA), the American Institute of Certified Public Accountants (AICPA), and/or the Public Company Accounting Oversight Board (PCAOB). CPAs voluntarily accommodating this request would waive their rights to inspect or approve the workpapers in advance of being alerted to any preliminary DOL findings or the release of the workpapers.

EBSA representatives have stated that providing or withholding the consent has no impact on the DOL audit. Therefore, CAMICO sees no advantage and potentially significant disadvantages to providing this consent. Instead, CAMICO encourages practitioners to express their appreciation for the constructive feedback the EBSA inspection may provide, but respectfully decline to sign the consent before having an opportunity to consider and discuss the OCA inspection results.


Background
The EBSA 2014 Audit Quality Study’s findings (http://www.dol.gov/ebsa/pdf/2014auditreport.pdf) were the worst of the last four such studies – 39% of the 400 audits in the study were found to have generally accepted auditing standards (GAAS) deficiencies. Many CPAs believed the DOL’s Audit Quality Study was flawed. However, a team of peer reviewers engaged by the AICPA to audit ninety (90) “must-select” engagements found 43% had at least one major deficiency. Forty-eight (48) of the 90 audit engagements were ERISA engagements. These inspection results influenced the AICPA’s recent audit quality initiative and may have prompted the DOL to seek these consents. All of the individuals engaged to review the audits were subject matter experts (SMEs), though not necessarily peer reviewers. Most of the SMEs were past or present members of the executive committees of the AICPA’s audit quality centers and/or the expert panels who collaborate on the AICPA audit guides. These experts were engaged to independently review the same “must-select” engagements reviewed by peer reviewers so that the AICPA could evaluate the peer reviewers’ performance (level of expertise). The AICPA Peer Review Board’s 64-page 2015 Annual Report on Oversight can be found at http://www.aicpa.org/interestareas/peerreview/resources/transparency/downloadabledocuments/annrptoversight2015.pdf.

There was no overlap in the engagements selected by the AICPA and DOL. The DOL sample came from audits filed with 2011 submissions to the DOL’s eFast2 system. The 48 ERISA engagements selected as part of AICPA’s oversight process were for later periods. Even if the engagements were for the same year-end, the AICPA would have had no way of knowing whether they were included in the DOL’s study, as the DOL keeps such information confidential.

The AICPA Ethics Technical Standards Department of Labor Subcommittee reviews audits referred to the AICPA by the DOL. This subcommittee can sanction AICPA members found not to have complied with professional standards or regulatory requirements.

It is critical CPAs auditing employee benefit plans possess the experience and qualifications to perform these audits. CAMICO strongly encourages firms practicing in this arena to be active members of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) (http://www.aicpa.org/interestareas/employeebenefitplanauditquality/pages/ebpaqhomepage.aspx). The EBPAQC requires member firms to obtain specific employee benefit plan training, conduct internal inspections of their audit practice, and be peer reviewed. The EBPAQC has an abundance of resources available to its members to help them better perform their EBP audits. However, being a member of the EBPAQC is like a gym membership — you have to use the resources to obtain the benefits.

CAMICO also encourages CPAs performing or interested in performing pension plan audits to acquire and utilize the AICPA’s annually updated Audit Risk Alert and the authoritative Audit & Accounting Guide on Employee Benefit Plans.


Loss Prevention Advice When the DOL Selects Your Audit Workpapers for Inspection

1. Don’t sign the CONSENT FOR DISTRIBUTION OF INFORMATION included within the DOL document request materials.
2. Have a qualified auditor unrelated to the engagement and experienced in employee benefit plan audits assess whether he/she:
        a. understands the nature, timing, and extent of procedures performed;
       b. understands the results of the procedures performed and the evidence obtained;
       c. understands the conclusions reached on significant matters; and
       d. is able to agree or reconcile the accounting records with the audited financial statements. [AU-C 230 requirement]

3. When deemed necessary, add contemporaneously dated explanations to the workpapers to meet AU-C 230 documentation requirements.
4. Consider stamping each page of your workpapers “CONFIDENTIAL.” Doing so reinforces the confidential nature of the workpapers and that consent has not been granted to disseminate the workpapers beyond the OCA.
5. Take care to provide the DOL with all audit documentation within the initial submission of audit workpapers. Many auditors have omitted workpapers thought not to be needed only to receive a critical response indicating their workpapers didn’t meet U.S. generally accepted auditing standards (GAAS).
6. Consider obtaining a power of attorney from the Plan sponsor so that preliminary DOL audit correspondence is sent directly to the CPA firm. The use of a POA expedites the inspection process and reduces the likelihood that OCA preliminary findings (frequently the result of difficulty identifying the location of audit work performed) unnecessarily distress the Plan sponsor.
7. Seek the advice of CAMICO’s Loss Prevention department before sending a written response to the DOL inspection findings. Argumentative/disrespectful communications often prompt disagreeable/harsh responses. So, even when frustrated, control your urge to voice your frustration.

CAMICO recommends written responses to the DOL:
    • be respectful,
    • express an appreciation for the DOL’s constructive feedback,
    • indicate steps the firm will take to improve future EBP audits, and
    • inform the DOL representative of where in the previously provided audit workpapers the representative will be able to locate the audit evidence thought to have been lacking.


Duncan Will is the loss prevention manager and an accounting and auditing specialist for CAMICO. He leverages his more than 30 years of experience in accounting, including public accounting, forensic accounting, consulting, and audit and tax compliance, when working closely with CAMICO loss prevention specialists to manage the department’s efforts to deliver to policyholders the high-touch, high-quality CAMICO experience.

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