Audit Quality in Employee Benefit Plans: Key Findings from the 2023 DOL Study

In the ever-evolving landscape of employee benefit plan (EBP) audits, maintaining the highest standards of quality is paramount. The U.S. Department of Labor (DOL) published the findings of its 2023 Audit Quality Study, offering critical insights into the quality of audit work performed on employee benefit plans (EBPs) covered under the Employee Retirement Income Security Act (ERISA). At Johnson Lambert, we understand the complexities and nuances involved in EBP audits and are dedicated to delivering exceptional audit services. Our expertise ensures compliance with the latest regulatory requirements, and our commitment to excellence positions us as a trusted partner for your EBP audit needs. 

Dive into this  latest study, which reviewed audits for the 2020 filing year, and compared audit quality results side-by-side with the  most recent prior assessment, which was conducted in 2015 and focused on audits from the 2011 filing year.

Key EBP Audit Quality Findings

Compliance Rates

The 2023 study revealed that 30% of the audits (3 out of 10) contained major deficiencies, an improvement from the 2015 study, where 39% of the audits (4 out of 10) were deficient. Despite this progress, the persistence of major deficiencies highlights the ongoing need for improvement in audit practices.

Correlation Between Audit Quality and Number of Audits Performed

The analysis confirmed a strong correlation between the number of EBP audits a CPA firm performs and the quality of those audits. Firms with larger EBP audit practices consistently produced higher-quality audits. 

Plan administrators have a fiduciary responsibility to plan participants and beneficiaries to ensure the safety of plan assets under ERISA. See how Johnson Lambert stacks up in the EBP space:

The 2023 study also identified a significant decrease in the number of CPA firms conducting EBP audits compared to the 2015 study. Approximately 3,000 fewer CPA firms performed EBP audits, with the most notable declines among those auditing 1-5 plans, while the number of firms specializing in high-volume EBP audits (100+) increased. The decrease in number of firms completing 6 audits or less audits is generally viewed as a positive sign for audit quality.

Analysis of Major Deficiencies

While there has been a statistically significant improvement in the overall quality of EBP audits, challenges persist. The top 5 EBP audit areas with deficiencies in the 2023 study include:

The deficiencies are particularly prevalent in areas unique to EBPs such as participant data and contributions. Common deficiencies include:

Contribution Deficiencies

• No/insufficient testing of compliance with compensation provisions
• No/insufficient testing of employee contribution timely remittance
• No recalculation of employer and/or employee contributions

Participant Data Deficiencies

• No/insufficient testing of eligibility/terminations/forfeitures
• No/insufficient testing of payroll and/or eligible compensation
• No/insufficient testing of participant account allocations and/or investment elections

Where Are We Headed?

To address these issues, the DOL recommends a multifaceted approach:

Enforcement Activities

• Focus on smaller CPA firms, especially those handling larger plan assets
• Increase reviews of large CPA firms
• Collaborate with state boards to sanction substandard CPAs
• Work with the AICPA for transparent peer reviews

Outreach and Education

• Partner with state CPA societies for educational programs
• Use the electronic filing acceptance system (EFAST) for immediate feedback on reporting deficiencies
• Operate a help desk for technical inquiries
• Update auditing standards with the AICPA
• Raise awareness through conference speaking and outreach efforts

Johnson Lambert’s Role

Johnson Lambert is committed to upholding the highest standards of audit quality. With extensive expertise in employee benefit plan audits, auditing 75+ annually, we are well-equipped to help you ensure compliance and improve audit outcomes. Our dedicated team provides comprehensive audit services designed to meet the specific needs of your plans and ensure adherence to the latest regulatory requirements.

Key Takeaways

The 2023 DOL Audit Quality Study underscores the importance of continuous improvement in audit practices for employee benefit plans. By understanding the key findings, plan sponsors and administrators can significantly enhance audit quality, ensuring compliance and safeguarding plan assets. Johnson Lambert is here to support you in this endeavor, offering expert guidance and audit services to help you achieve the highest standards of quality and compliance.

To learn more about Johnson Lambert’s EBP audit practice and qualifications, please contact us.