In 2015, the U.S. Department of Labor Employee Benefits Security Administration published a report about the quality of employee benefit plan audits performed by CPA firms. The report concluded that CPA firms with “smaller employee benefit plan audit practices tended to have the most deficiencies” among all Form 5500 filings. They also concluded that peer review and practice monitoring efforts did not sufficiently improve audit quality among these firms.
This increase in audit deficiencies has led to review and recommendations to improve the quality of EBP audits. The Department of Labor, Department of Treasury, Internal Revenue Service and the Pension Benefit Guaranty Corporation — with regular commentary from the AICPA — have also proposed higher penalties for plan sponsors that submit late or deficient Form 5500 filings.
This is, of course, a simple summary of efforts by the DOL and other agencies and organizations to improve EBP audit standards. The overriding goal is to ensure proper administration of employee benefit plans so that employees receive the benefits they are entitled to at retirement. This is a worthy goal.
EBP auditors are valuable partners in this goal. However, as plan administration, audit standards and government scrutiny have intensified, EBP audits may lose their luster as a viable service offering for smaller CPA firms.
When we examined the practical value for Rudler, PSC to continue to offer and conduct EBP audits as a formal practice in the future, we considered all the pros and cons. Because we already perform dozens of clean audits a year, the value to clients was still high due to our experience and knowledge. For CPA firms that only perform an occasional audit or less than five a year, however, the following are the major pros and cons to consider.
At the end of the day, it may be more valuable to refer EBP audits to Rudler — in an arrangement where your firm keeps the primary client relationship — while avoiding the compliance risks inherent in these engagements. Read more to see if this arrangement could be right for you.
Pro: Client service
When you are building a relationship with a client, you want to offer a variety of services that fit their needs as they grow. Clients that grow large enough to require an EBP audit will first turn to their CPA for guidance. Public accounting firms have viewed this additional service as a way to retain loyal clients. The challenge is whether an audit team is equipped to fully understand and stay updated on EBP audit standards if they only perform a few each year. If the DOL rejects and/or assesses penalties on a deficient Form 5500 filing, this may tarnish your firm’s reputation with a valued client.
Con: Commoditized fees
Employers view EBP audits as a “necessary evil.” They rarely distinguish between the quality of auditors, mainly leaning toward the lowest fee. Without efficient processes and dedicated, knowledgeable staff, firms can spend far more time on these engagements than they are able to bill.
Pro: Off-season work
Performing EBP audits as off-season work is appealing, but don’t assume this work will require a large staff capacity in the off-season. If paperwork is in order and the client is available for questions, an efficient audit shouldn’t take more than a month to complete. Also, if future automation speeds up audit prep by collecting client information and organizing it, clients will expect turnaround even faster.
Con: High competition
EBP audits were once a great option for small to mid-sized firms to pursue because large CPA firms avoided them. Since the Recession, firms of all sizes are trying to attract and keep these required engagements. In a given market, you could have small and mid-sized firms as well as the Big Four CPA firms as competition.
Pro: Distinction as EBP Auditors
As the number of firms offering EBP audits decreases — which will likely happen due to revised professional audit standards — it may seem beneficial to be among a smaller pool of competing attest practices. Let us qualify this consideration by saying that only firms that are already performing dozens of EBP audits a year will likely have a chance at meeting future standards.
Con: Potential penalties for deficiencies
We have not even addressed the potential for severe penalties for plan sponsors that don’t meet DOL filing deadlines and parameters. This includes penalties of $50 up to $1,100 assessed for each day of noncompliance (due to incomplete or late Form 5500 filings). Imagine your client’s response to such penalties if the audit report is late or the Form 5500 is otherwise incomplete. There is no longer a buffer on the filing deadline. There is only a potential reduction in penalties through the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP).
Con: Costs of training and certifications
Continuing education has always been intensive in the EBP audit world, and that training does not come cheaply. Education must factor into already tight margins for these audits.
Outsourcing or referring EBP audits to Rudler, PSC can provide seamless, proven results with a dedicated team performing dozens of EBP audits each year. You can sustain loyalty with growing clients while avoiding the risks and costs of maintaining your own EBP audit practice. We are willing to sign an agreement not to solicit other services from your clients, plus, we can negotiate a fee for your EBP audit client referrals. If you are ready to look at this alternative, contact us.
Rudler, PSC has performed audits across a variety of benefit plans for more than a decade. We have a dedicated team and membership in the AICPA Employee Benefit Plan Audit Quality Center. Ongoing training ensures that our auditors monitor legislative changes and other information vital to proper plan administration, filing deadlines and compliance.