EBSA chief accountant: Hire the right auditor to avoid DOL audits

Effective disclosures under Form 5500 filings help plan fiduciaries deal with the brunt of the Department of Labor’s persistent monitoring and penalties. But the quality of reporting depends entirely on whether benefit managers and plan fiduciaries select qualified auditors and service providers.

Speaking at the International Foundation of Employee Benefit Plans’ 60th Annual Employee Benefits Conference, Ian Dingwall, chief accountant for the DOL’s Employee Benefits Security Administration, said that Form 5500, a disclosure document for plan participants and beneficiaries, is the main focus of EBSA and its office of the chief accountant.

“I’m in the business of making sure all of you [employers and fiduciaries] are timely reporting on the Form 5500 all that is required to be reported on the form 5500,” Dingwall said to IFEBP conference attendees in Boston this week.  He added that plan fiduciaries can avoid the DOL penalties and fees by just hiring the right auditor.

See also: Fiduciary responsibility: 4 areas to watch

“The idea is to avoid this whole process by hiring only good auditors,” Dingwall explained, while noting that this doesn’t necessarily mean that the firm with the cheapest fees is the best for the plan and plan participants. And audit quality can be a big problem, with 32% of audits being deficient in some way, according to DOL statistics.

The plan auditor universe includes over 7,300 certified accounting firms that perform over 82,500 plan audits. But DOL’s chief accountant highlighted that 1% of plan auditors audit 100 or more plans; this equals roughly 42% of all plans, or 91 million participants. Approximately 50% of plan auditors audit only 6% of all plans, highlighting a tight grasp of the market from a select bunch of auditing consultant firms.

Dingwall said that audit firms that tend to “dabble” among employer groups may not be the perfect fit for multiemployer plans, either. The DOL found that of the 238 deficient multiemployer plan audits, 81 had more than five deficiencies found in their audit recap.

“Some of these guys that are out there auditing employee benefit plans [are] what I call dabblers,” explains Dingwall. “They audit one or two plans. They might not know a thing about multiemployer plans, and it’s because it’s a different world.”

See also: Participant count common trip-up with Form 5500

Meanwhile, employers should probably take a hard look at areas such as participant data, where 65% of audits were deficient, Dingwall noted. “Participant data is really important and we find that’s one of the biggest problems we have,” he said.

“If you hire an auditor that is not asking a lot of questions about participants, you’ve got a bad one,” said Dingwall.

According to Ann Kellen, director of finance at Wilson-McShane Corporation, a third-party administrator, the DOL audit process starts primarily with complaints from participants and different service provider violations. Regional and national DOL initiatives also play a hand in enforcement activity, she said.

Gary A. Thayer, of law firm Archer, Byington, Glennon & Levine, agreed that service provider arrangements are becoming more and more of a headache for employers when the DOL begins its audit process. The former investigator for the DOL and EBSA, who now counsels multiemployer benefit plans, told conference attendees that a potential service provider investigation can lead to a full-blown fiduciary audit over time.

“It could take whatever investigation they have on a service provider and they can assess whether or not there is a violation by way of what that service provider may be doing by way of contract or conduct,” Thayer said.  The DOL can also widen “the investigation to fiduciaries,” he added.

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