DOL Update

Michael E. Auerbach, CPAChief, 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

MACPA

Overview

• EBSA Audit Quality Initiatives

• Emerging Issues

• Reporting Compliance Initiatives

• Regulatory Update

• DOL Resources

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Audit Quality Remains Problematic

• Deficiency rates are unacceptable – 32%

• Large variability depending on EBP practice size

• Firms with large EBP practices tend to meet professional standards

• Firms with limited EBP practices have a higher rate of deficient professional work

• Fee pressure continue

• “Dabblers”

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ERISA Plan Audit Universe

82,579 Plan Audits

7,358 CPA firmsperforming audits

$6.3 trillion in plan assets subject to audit

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Tale of Two Worlds

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50% of Plan Auditors:

Audit 1 or 2 plans

6% of all plans audited

2 million participants

1% of Plan Auditors:

Audit 100 or more plans

42% of all plans audited

91 million participants

7,268 CPA Firms

1 or 2 Audits3 - 5 Audits6 - 24 Audits25 - 99

Firms Auditing <100 Plans

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ERISA Universe – Maryland(2012 Form 5500 Database)

Strata Total # of Plans

CPA Firms Plan Assets Audited (in billions)

1-2 Audits 85 66 $ 0.503-5 Audits 92 40 $ 1.06-24 Audits 425 89 $ 15.8025-99 Audits 468 53 $ 42.30100-749 Audits 309 23 $73.10750+ Audits 254 11 $13.40Total 1,633 282 $146.30

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Themes of Deficient Audit Work

• Overreliance• SOC 1 reports

• Work performed by actuaries

• Work performed by appraisers

• Predecessor auditor work

• Lack of skepticism

• Checklist mentality/complacency

• Lack of audit experience – EBP or otherwise

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Referrals of the Most Egregious Work• AICPA Ethics Division

• Over 800 referrals

• AICPA’s focus is on rehabilitating the practitioner

• EBSA receives status updates of referrals

• State Boards of Public Accountancy• Over 100 referrals

• Referrals made when AICPA has no jurisdiction

• Resources vary widely among states to handle referrals

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Disciplinary Referrals

0

10

20

30

40

50

60

70

80

90

FY2010

FY2011

FY2012

FY2013

AICPA ReferralsState Board Referrals

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Recidivism – Prior Referrals to AICPA Ethics Division/State BoardsProject 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

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Audit Quality Study of Firms

• Statistically based, nationwide study

• Provides a current “baseline” of audit quality

• Sample is stratified based upon CPA firm population

• Sample size of 400 plan audits

• Conducted in FY 2014 (Oct 2013 – Sep 2014)

• Workpaper request letters to plan administrators

• Reviews performed in OCA’s offices

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• 2011 Form 5500 filings• 6 strata based on size of EBP

practice• 1-2 plans• 3-5 plans• 6-24 plans• 25-99 plans• 100-749 plans• 750 + plans

• 1 audit in lowest 2 strata, 5 in all others

Statistical Sample of 400 Plan Audits

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Firm QualificationsPeer Review• Are CPAs complying with state peer review licensing

requirements• Practitioners in states with peer review requirement• Provide evidence that an acceptable peer review was

performedLicensure• Are firms properly licensed where they practice• Rules vary by state• NASBA website – auditor mobility

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Compliance Reporting and Case Letters

• One opportunity to submit supporting workpapers

• All formats of WPs are acceptable

• No originals!

• Undocumented work is deficient work

• Possible rejection of Form 5500 filings and referrals to the AICPA and/or state licensing boards

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• Two tiers• Firm level information• Engagement specific

information

• Information will be correlated with audit quality results• Training• Fees• Supervision

Demographic Questionnaire

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Emerging Issues

• Plan’s Internal Control Environment• Lost Participants• Un-cashed Benefit Payment Checks• ERISA Spending Accounts

• Required Communications with Client

• Compliance With New Clarity Audit Standards

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• Assessing Valuation of Hard to Value Assets

• Form 5500-SF Eligibility

• Joint DOL/IRS Enforcement Initiatives

• DFVC Integrity Review

• Schedule C Compliance

Reporting Compliance Initiatives

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• 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• Effective for contracts entered into on or after 7/1/12. Prior contracts must be brought into compliance by 7/1/12.

Fee & Expense Disclosures –Service Providers to Plans (ERISA § 408(b)(2))

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Class Exemption from the Prohibited Transaction Provisions of ERISA

• 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: www.dol.gov/ebsa/regs/feedisclosurefailurenotice.html

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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 § 4975

• Basic correction = service provider making compliant disclosure

• Form 5500, Schedule G report total compensation

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DOL Resources• www.dol.gov/ebsa

• For DOL publications, FAQs, copies of the Form 5500, instructions, and related schedules

• EBSA Office of the Chief Accountant 202-693-8360

• EBSA Office of Regulations and Interpretations 202-693-8500• For questions about ERISA reporting, filing or other regulatory

requirements

• DOL EFAST Help Center 1-866-463-3278• For questions regarding the Form 5500 or related schedules

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And Now it’s Your Turn…

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