DOL Provides Tips About Auditors

The Department of Labor provides a wealth of information for employers, plan administrators and plan sponsors, including tips for selecting an auditor. It can be helpful to know what the DOL is telling prospects and clients about the audit process — and how to select an auditor.

The following material from the Department of Labor’s Employee Benefit Security Administration is intended to assist plan administrators in selecting an auditor and reviewing the audit work and report.

About the Auditor

Is a plan auditor required to be licensed or certified?

Federal law requires that an auditor engaged for an employee benefit plan audit be licensed or certified as a public accountant by a state regulatory authority.

Is a plan auditor required to be independent?

Auditors of employee benefit plans should not have any financial interests in the plan or the plan sponsor that would affect their ability to render an objective, unbiased opinion about the financial condition of the plan.

Should a plan auditor have experience in auditing employee benefit plans?

One of the most common reasons for deficient reports is the failure of the auditor to perform tests in areas unique to employee benefit plan audits. The more training and experience that an auditor has with them, the more familiar the auditor will be with benefit plan practices and operations, as well as the special auditing standards and rules that apply to such plans.

In some instances, a less experienced auditor may be assigned to perform routine audit procedures in order to reduce audit costs. When this happens, you should confirm that an experienced employee benefit plan auditor will review his/her work, as well as perform the more complicated audit procedures.

Should I request references and check licenses?

When engaging an auditor, you may wish to obtain references and discuss the auditor’s work for other employee benefit plan clients. If you have additional questions, you may also wish to verify with the appropriate state regulatory authority that the provider holds a valid, up-to-date license or certificate to perform auditing services.

What You Should Know About the Audit

What is an engagement letter?

In preparation for the audit, the auditor will prepare a contract, referred to as an “engagement letter,” describing the audit work to be performed, the timing of the audit, and fees. This letter also should describe the responsibilities of the auditor and the plan administrator. You should review this letter carefully and resolve any questions with the auditor prior to engagement.

Can I limit what the auditor reviews?

Federal law permits the administrator of an employee benefit plan to limit an audit when plan assets are held by banks or insurance companies and written certifications are provided by the institutions holding those assets.

It may be appropriate for a plan administrator to consult with an accountant, attorney or plan advisor to determine whether limiting the scope of an audit may appropriate.

Will I have to furnish or prepare documents for the auditor?

It is generally the responsibility of the administrator to maintain plan financial and other records. Many of these records will need to be made available to the auditor for review in the course of the plan audit. If a third-party service provider maintains plan records, you will need to arrange for auditor access to these records.

The Audit Report

What happens when the audit is complete?

At the conclusion of the audit, the auditor will issue a report and state an opinion on the plan's financial statements as well as any schedules required to be included as a part of the plan's annual report filing. Auditors will also report on significant problems, if any were found. The auditor may also suggest ways to improve internal controls and plan operations. This is a good time to ask questions about the auditor's work.

What questions should I ask the auditor about his/her work?

Frequently audits are found to be deficient because of the failure of the auditor to conduct tests in areas unique to employee benefit plans. Accordingly, you should make sure that your auditor considered the following areas:

• whether plan assets covered by the audit have been fairly valued;

• whether plan obligations are properly stated and described;

• whether contributions to the plan were timely received;

• whether benefit payments were made in accordance with plan terms;

• if applicable, whether participant accounts are fairly stated;

• whether issues were identified that may impact the plan's tax status; and

• whether any transactions prohibited under ERISA were properly identified.