DOL Releases 2023 Audit Quality Study

Over the past decade, the Department of Labor (DOL) has expressed growing concern about the quality of employee benefit plan audits. When there are deficiencies or other issues, it means that plan participants may not be receiving the important protections offered by a properly conducted audit. To better understand the issue and identify contributing factors, the DOL has published several plan audit quality reports in 1997, 2004, and 2015. Key details about deficiencies, quality by size of CPA firm, and other important information have been reviewed and analyzed. The findings have been useful to regulators and companies when hiring a new plan auditor.

In November, the agency released the Audit Quality Study – November 2023 to evaluate whether the level and quality of plan audits has increased since the last report. The assessment focuses on benefit plan audits conducted for the 2020 filing year before SAS 136 became effective to permit an equal audit quality baseline with past studies. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

About the Study

The DOL reviewed the Form 5500s, related audit reports, and work papers for the 2020 form year (plan years beginning in 2020). There were 307 plan audits selected and were classified as simple or complex audit types. 401(k) and 403(b) plans were treated as simple whereas ESOP, defined benefit, and health and welfare plans were treated as complex. Review procedures were conducted between December 2021 and October 2022.

Key Study Findings

• Fewer Plan Auditors – The study found there has been a 40% decrease in the number of CPA firms conducting plan audits. In 2011, there were 81,162 plan audits performed by 7,330 firms. In 2020, there were 86,683 plan audits performed by 4,300 firms. The shift can be attributed to the reduction in the number of firms providing 1-2 plan audits, while those with over 100 audits increased 46% over 2011.
• Audit Deficiencies Continue – It was found that CPA firms auditing less than 25 plans had a significantly higher deficiency rate than those reviewing more than 25 plans. At the same time, CPAs auditing less than 100 plans had a higher deficiency rate than those auditing more than 100 plans. On a positive note, the deficiency rate for firms auditing between 6-24 plans sharply decreased over the 2011 study.
• Improvement with Multi Deficiencies – The study also found that there was significant improvement in the percentage of audits with multiple deficiencies. The number of audits with five or more deficiencies decreased from 48% in 2011 to 8% in 2020. Not surprisingly, firms conducting 1-2 plan audits performed 43% of the significantly deficient audits.
• Specific Audit Areas with Deficiencies – It was determined there are certain areas that are more susceptible to audit failures than others. According to the study, the highest deficiency rate was found with participant data (15.6%), contributions received (15.3%), benefit payments (9.4%), internal controls (5.90%), and investments (5.20%). Honorable mentions include compliance with DOL regulations, GAAP/GAAS compliance, and party-in-interest transactions.

Study Conclusions

• Consistent with other studies, the smaller the firm’s benefit plan audit practice the more likely there will be audit deficiencies. Many of the audit areas unique to benefit plans including contributions, benefit payments, and participant data continue to lead the list of deficiencies. Unfortunately, firms do not understand the significance of these areas and fail to implement proper testing procedures.
• Membership in the AICPA’s Employee Benefit Plan Audit Quality Control Center means there is less potential for issues. There was a lower deficiency rate for members versus non-members.

Contact Us

While audit quality issues persist, working with a firm that audits more plans generally leads to a higher quality audit. Concurrently, the ongoing training and updates received from professional associations help to minimize issues. These are essential considerations to make when selecting a benefit plan auditor. If you have questions about the information outlined above or need assistance with your 401k plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.