DOL Update. Employee Benefit Plans Audit Conference May 6, 2013

Transcription

1 Employee Benefit Plans Audit Conference May 6, 2013 MACPA DOL Update Michael E. Auerbach, CPA Chief, Division of Accounting Services Employee Benefits Security Administration The views expressed are those of the speaker and do not necessarily represent the official position of the Department

2 2 Overview ERISA Plan Audit Universe EBSA Audit Quality Initiatives New Initiatives Reporting Compliance Initiatives Regulatory Update DOL Resources

3 3 ERISA Plan Audit Universe 80,000 Plan Audits 9,242 CPA firms performing audits $5.5 trillion in plan assets subject to audit

4 4 More than 100 EBP Audits 94 CPA firms (less than 1% of firms) 30,000 audits (38% of audits) $4.2 trillion in plan assets audited (76% of assets audited) 4

5 5 Less than 100 EBP Audits 9,148 CPA firms 50,000 audits $1.3 trillion in plan assets audited (24% of assets audited) 5

6 6 Firms Auditing <100 Plans 9,148 CPA Firms 1 or 2 Audits 3-5 Audits 6-24 Audits

7 ERISA Universe Maryland (2010 Form 5500 Database) 1,795 = Total Number of Plans 346 = Total Number of CPA Firms $141B = Total Plan Assets Audited

8 8 OCA s Audit Quality Inspection Efforts Firm Inspections Mini Inspections Small Practice Inspections 8

9 9 Where Have We Been? Firm Inspections of all firms with > 200 EBP audits Mini Inspections of all firms with EBP audits Inspection of over 3,400 sets of workpapers performed by other firms Results largely satisfactory in firm and mini inspections 9

10 10 Employee Benefit Plan Audits What Audit Areas Have the Most Deficiencies? Participant Data Investments Contributions Plan Obligations Benefit Payments Party-In-Interest Transactions 10

11 11 EBP Audit Best Practices Commitment to quality at all levels Dedicated EBP leadership Pre-issuance review process for new EBP partners Rigorous internal inspection process Extensive EBP-specific training Critical thinking throughout engagements Thorough, explanatory documentation

12 12 EBP Audit Best Practices Specialization of firm in the EBP industry Consistent application of firm tools by audit teams Significant, hands on leadership by firm s senior partners

13 13 Areas of Weakness Noted Formulaic, check-the-box mentality Documentation not in conformity with SAS 103 No work with respect to admin expenses Insufficient work performed when specialists were utilized Inadequate evaluation of internal controls Failure to adequately assess risk of loss due to fraud

14 14 Areas of Weakness Noted Failure to challenge clients regarding potential delinquent participant contributions Over-reliance on work performed by others, e.g. SAS 70/SOC 1 reports Insular thinking by firm leaders regarding policies and methodologies Inadequate review of original audit work Walkthroughs rather than internal control reviews

15 15 Referrals of the Most Egregious Work AICPA Ethics Division More than 700 referrals AICPA s focus is on rehabilitating the practitioner EBSA receives status updates of referrals State Boards of Public Accountancy Nearly 100 referrals Referrals made when AICPA has no jurisdiction Resources vary widely among states to handle referrals

16 16 Recidivism Prior Referrals to AICPA Ethics Division/State Boards Project to Determine If Practitioner s Current Audit Work Has Improved: 104 = Reviews completed 56 = Acceptable 48 = Deficiencies 9 cases = one deficiency 12 cases = two deficiencies 7 cases = three deficiencies 10 cases = four deficiencies 10 cases = six or more deficiencies

17 17 What About Maryland CPAs 73 = Completed workpaper reviews 64% = Acceptable 36% = GAAS/GAAP Deficiencies 6 = referrals to the AICPA s Ethics Division 1 = referrals to state licensing board 45% = Member of EBPAQC

18 18 New Initiatives Peer Review Are CPAs complying with state peer review licensing requirements Sample of practitioners in states with peer review requirement Provide evidence that an acceptable peer review was performed Audit Quality Study Statistically based, nationwide, study Provide status of audit quality Sample will probably be stratified based upon CPA firm population

19 19 Reporting Compliance Initiatives Increased Electronic Communication w/filers Targeting Common Filing Errors Missing IQPA Reports Increased Analytical Review of Form 5500 Outreach Component Focus on Why, not just What

20 20 Regulatory Update Plans to Participants ERISA 404 Service Providers to Plans - ERISA 408(b)(2) Form 5500 Schedule C Sunshine is the Best Disinfectant

21 Fee & Expense Disclosures Plan to Participant (ERISA 404) Fiduciaries required to: Give workers quarterly statements of plan administrative fees & expenses deducted from their accounts Give workers core information about investments available under the plan Effective for plan years beginning on or after November 1, 2011 Use standardized methodologies when calculating and disclosing expense and return information

22 ERISA 404 Disclosures Initial Implementation Dates 22 August 30, 2012 First annual disclosure of planlevel & investmentlevel information November 14, 2012 First quarterly statements to plan participants

23 Fee & Expense Disclosures Service Providers to Plans (ERISA 408(b)(2)) 23 Brings new transparency to the process of selecting and monitoring of plan service providers Establishes comprehensive disclosures from service providers concerning services, fees, and potential conflicts of interest Applies to contracts $1,000 Prior contracts must be brought into compliance by 7/1/12. Effective for existing and new contracts entered into on or after July 1, 2012

24 Class Exemption from the Prohibited Transaction Provisions of ERISA 24 For responsible fiduciaries that enter into contracts without knowing that a CSP has failed to comply with the disclosure requirements Fiduciaries must notify the DOL of the disclosure failure The notice may be filed online at: 24

25 25 ERISA 408(b)(2) Disclosures Consequences of Non-Compliance Contract or arrangement will not be reasonable and violates 408(b)(2) a prohibited transaction Responsible Plan Fiduciary violates 406(a)(1)(c) by participating in the prohibited transaction Service provider is a disqualified person under IRS PT rules. Subject to excise taxes under IRC Code

26 26 DOL Resources For DOL publications, FAQs, copies of the Form 5500, instructions, and related schedules EBSA Office of the Chief Accountant EBSA Office of Regulations and Interpretations For questions about ERISA reporting, filing or other regulatory requirements DOL EFAST Help Center For questions regarding the Form 5500 or related schedules

27 27 Conclusion Long standing audit quality issues Audit quality has improved at CPA firms that perform the largest number of plan audits is still problematic at CPA firms that perform only a limited number of plan audits State licensing boards should consider additional educational/experience requirements for plan auditors

28 And Now it s Your Turn 28