PLANSPONSOR - December 2017/January 2018 - 46

A Good Auditor
ERISA EXAMINATION
These accountants are crucial
in preventing plan errors
W
e've spent the last couple of columns discussing the
difference between investment advisers and investment
managers and how to select and monitor each
type. Here, we consider the fiduciary obligations when selecting
and monitoring the plan's auditor, as this process raises unique
issues and has been highlighted by the Department of Labor
(DOL) in recent years. Because human resources (HR) is the most
likely department to deal with auditors, it may receive the task of
selecting them; still, the final decision remains a fiduciary one.
Generally, retirement plans with 100 or more participants
must submit an auditor's report prepared by an independent qualified
public accountant with the plan's annual Form 5500 filing.
In 2015, the DOL's Employee Benefits Security Administration
(EBSA) issued a report, " Assessing the Quality of Employee Benefit
Plan Audits, " noting that the fewer plan audits an accounting firm
performed, the higher its percentage of audits with deficiencies.
When an auditor's report is deficient, the plan's Form 5500 may be
rejected or filed improperly, which can result in DOL filing penalties.
Further, an insufficient audit may result in a plan having
ongoing uncorrected errors. A good auditor's review can help
uncover any such issues and enable the sponsor to correct them
before they're discovered by the Internal Revenue System (IRS) or
result in costly corrective measures.
If the auditor misses big issues, this jeopardizes the plan
and its qualified status. Given these risks, it is important that the
committee perform a thorough evaluation of an auditor's qualifications
and monitor performance on a regular basis.
Selecting and Monitoring the Auditor
As for other service providers, the committee should periodically
go through a request for proposals (RFP) process to review the
plan's existing auditor and consider whether a change is appropriate.
Besides the report on audit quality, the DOL has issued a
guide for selecting an auditor, which provides a good overview of
what to consider. In any event, the RFP should present a description
of the plan and any unique issues that apply to it. Information
the committee should consider requesting includes the following:
* What qualifications does the auditor have? To perform the
plan audit for the annual filing, the individual must be licensed or
certified as a public accountant by the applicable state.
* What experience does the auditor have with employee
benefit plans? These present unique issues, and having experience
with the range of them is vital. How many employee benefit plan
audits has the firm performed? How many each year?
* How will audits be staffed? How much Employee
Retirement Income Security Act (ERISA) plan training do the
field auditors who will work on the plan have each year? In our
experience, clients can get frustrated when junior employees new
to the audit world and lacking experience with retirement plans
handle the plan's audit. That also may increase the risk of a deficient
audit unless senior, experienced auditors provide oversight.
Some training each year can be good evidence of an audit firm's
expertise in the plan context.
* What internal processes does the auditor have for purposes
of maintaining quality reviews?
* Will the auditor supply a copy of its peer review report?
Auditors must undergo a peer review process, which may provide
insight as to the quality of the auditor's client reports.
* Is the auditor a member of the AICPA [American Institute
of Certified Public Accountants] Employee Benefit Plan Audit
Quality Center?
* What references does the auditor have?
* What is the auditor's fee? As with other service providers,
least expensive is not always best. The fee should be reasonable
relative to the services-including their quality-provided.
Reviewing the Auditor's Report
The committee should review the RFP responses and consider the
information supplied by the auditor in order to make a prudent
selection. This process should be documented in the committee
minutes. If the process is not documented, it becomes difficult to
prove what was done and to protect the committee.
If the auditor discovers a significant issue on audit, this needs
to be addressed. While a correction may be costly, taking care of
it always costs less for the sponsor than if the IRS discovers it.
However, even when no real errors are found, the auditors may
uncover minor or potential issues that can be addressed through
process change. The sponsor can then take advantage of the auditor's
review to discuss ways to improve records or processes and to
avoid potentially costly errors in the future.
Summer Conley is a partner in the Los Angeles office of
Drinker Biddle & Reath LLP, and Michael Rosenbaum is a
partner in the firm's Chicago office.
46 PLANSPONSOR.com December 2017-January 2018 Art by Joseph Ciardiello
http://www.PLANSPONSOR.com
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