ERISA Advisory Council Offers Suggestions on the Financial Statement Audit Process

The Advisory Council on Employee Welfare and Pension Benefit Plans has released a report that addresses improving the financial statement audit process.

The report comes after review by the Council of many aspects of the audit process; that included hearing testimony by American Retirement Association Chief Government Affairs Officer Will Hansen and past ASPPA President Stephen Dobrow.

In “Beyond Plan Audit Compliance: Improving the Financial Statement Audit Process,” the Council, also known as the ERISA Advisory Council, examines the role of the plan administrator in the financial statement audit process prescribed under Section 103 of ERISA to determine whether, through additional educational tools or guidance, improvements in the accuracy of financial statements and other indirect benefits could be achieved. The ERISA Advisory Council provides support and advice to the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA).

On June 25, 2019, Hansen and Dobrow offered testimony before the Council concerning benefit plan audits and how they may be improved. Hansen noted that in reviews of audits the it has conducted, the DOL has “consistently found a material number of errors.” Dobrow, who served as ASPPA President in 2009, suggested that the way that audits are viewed — as a necessary evil at best — may change if the DOL took several actions.

The Council examined the regulations and guidance implementing the independent qualified public accountant annual examination of financial statement requirements under Section 103 of ERISA. It intended to determine whether changes could enhance the safety of plan assets, the effectiveness of the plan design, and the efficiency of the plan operations, as well as plan compliance with ERISA, the Internal Revenue Code and other applicable laws. In particular, the Council focused on how effectively the current regulatory environment promotes legal compliance and safeguardws plan assets, and sought ways to improve that environment. 

Recommendations

The Council recommends that the DOL take the following steps.

Make available to plan administrators new educational resources and access to tools and data regarding the uses of financial statement audits, specifically:

Send notices to plan administrators advising them of (1) their responsibilities regarding selecting, retaining and interacting with the independent auditor of the plan’s financial statements, and (2) the tools available to assist them in these responsibilities. 

• Publish a revised brochure regarding the selection, retention and interaction with an independent auditor of the plan’s financial statements, including a best practice checklist.
• Publish a list of the most common deficiencies found in plan audits. 
• Make more information available to plan administrators and their advisors regarding auditors who perform financial statement audits for employee benefit plans, e.g., add features to EFAST2 to allow for searches of filings by auditor. 
• Expand the DOL’s financial statement audit education programs to target plan advisory groups in the DOL’s outreach.  

Send notices to plan administrators advising them of their responsibilities regarding selecting, retaining, and interacting with the independent auditor of the plan’s financial statements, and of the tools available to assist them in these responsibilities.

Publish a revised brochure regarding the selection, retention and interaction with an independent auditor of the plan’s financial statements, including a best practice checklist. 

Reissue an updated and expanded version of its existing brochure now titled “Selecting an Auditor for Your Employee Benefit Plan” to more explicitly cover plan administrator responsibilities beyond merely the selection of the financial statement auditor but to cover the plan administrator’s responsibilities with respect to retaining and communicating with the financial statement auditor as well.

Publish a list of the most common deficiencies found in plan audits and financial statement audits. The Council says that informal survey data it received indicates that plan administrators and their advisors strongly favor the publication of such a list. The Council believes that plan administrators would use the most common deficiencies list as a tool for monitoring the plan’s financial statement auditor’s performance. 

Expand the DOL’s financial statement audit education programs to target plan advisory groups its outreach.  The Council further recommends that the DOL specifically address its educational outreach programs on the plan administrator’s role and responsibilities in the financial statement audit process to the professional plan advisor community.