WP&BC Portland

Spring Seminar May 1, 2013

Marcus J. Aron, CPA Office of the Chief Accountant

Employee Benefits Security Administration

DOL Update

The views expressed are those of the speaker and do not necessarily represent the official position of the Department

What Should We Talk About?

• ERISA Plan Audit Universe

• EBSA Audit Quality Initiatives

• New Initiatives

• Reporting Compliance Initiatives

• Regulatory Update

• DOL Resources

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ERISA Plan Audit Universe

• 80,000 Plan Audits

• 9,242 CPA firms

performing audits

• $5.5 trillion in plan

assets subject to

audit

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More than 100 EBP Audits

• 94 CPA firms (less

than 1% of firms)

• 30,000 audits (38% of

audits)

• $4.2 trillion in plan

assets audited (76% of

assets audited)

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Less than 100 EBP Audits

• 9,148 CPA firms

• 50,000 audits

• $1.3 trillion in plan

assets audited (24% of

assets audited)

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9,148 CPA Firms

1 or 2 Audits

3 - 5 Audits

6 - 24 Audits

25 - 49

50 - 99

Firms Auditing <100 Plans

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OCA’s Audit Quality Inspection Efforts

• Firm Inspections

• Mini Inspections

• Small Practice

Inspections

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Where Have We Been?

• Firm Inspections of all firms with > 200 EBP audits

• Mini Inspections of all firms with 100 – 200 EBP audits

• Inspection of over 2,500 sets of workpapers performed by

other firms

• Results largely satisfactory in firm and mini inspections

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Employee Benefit Plan Audits

• We Continue to Identify Unacceptable Work in Areas Unique to Benefit Plans

• Participant Data

• Investments

• Contributions

• Plan Obligations

• Benefit Payments

• Party-In-Interest Transactions

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• Commitment to quality at all levels

• Dedicated EBP leadership

• Pre-issuance review process for new EBP partners

• Rigorous internal inspection process

• Extensive EBP-specific training

EBP Audit Best Practices

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• Critical thinking throughout engagements

• Thorough, explanatory documentation

• Specialization of firm in the EBP industry

• Consistent application of firm tools by audit teams

• Significant, hands on leadership by firm’s senior partners

EBP Audit Best Practices (Continued)

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• Formulaic, check-the-box mentality

• Documentation not in conformity with SAS 103 (clarified in

AU-C 230)

• No work with respect to admin expenses

• Insufficient work performed when specialists were utilized

• Inadequate evaluation of internal controls

• Failure to adequately assess risk of loss due to fraud

Areas of Weakness Noted

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• Failure to challenge clients regarding potential delinquent

participant contributions

• Over-reliance on work performed by others, e.g. SAS

70/SOC 1 reports

• Insular thinking by firm leaders regarding policies and

methodologies

• Inadequate review of original audit work

• Walkthroughs rather than internal control reviews

Areas of Weakness Noted

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Referrals of the Most Egregious Work

• AICPA Ethics Division

• More than 700 referrals

• AICPA’s focus is on rehabilitating the practitioner

• EBSA receives status updates of referrals

• State Boards of Public Accountancy

• Nearly 100 referrals

• Referrals made when AICPA has no jurisdiction

• Resources vary widely among states to handle referrals

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Recidivism – Review of Current Work of CPAs

Referred to AICPA Ethics Division/State Boards

• 112 = Cases opened

• 104 = Reviews completed

• 56 = Acceptable

• 48 = Deficiencies

• 9 cases = one deficiency

• 12 cases = two deficiencies

• 7 cases = three deficiencies

• 10 cases = four deficiencies

• 10 cases = six or more deficiencies

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New Initiatives

Peer Review

• Are CPAs complying with state peer review licensing

requirements?

• Sample of practitioners in states with peer review requirement

• Provide evidence that an acceptable peer review was performed

Audit Quality Study

• Statistically based, nationwide, study

• Provide status of audit quality

• Sample will probably be stratified based upon CPA firm population

• Plans to Participants –

ERISA §404

• Service Providers to Plans -

ERISA§408(b)(2)

“Sunshine is the Best Disinfectant”

Regulatory Update

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Fee & Expense Disclosures – Plan to Participant

(ERISA § 404)

Fiduciaries required to:

• Give workers quarterly statements of plan administrative fees & expenses deducted from their accounts

• Give workers core information about investments available under the plan

• Use standardized methodologies when calculating and disclosing expense and return information

Effective for plan years beginning on or after

November 1, 2011

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ERISA § 404 Disclosures – Initial Implementation

Dates

• August 30, 2012

• November 14, 2012

• First annual

disclosure of “plan-

level” & “investment-

level” information

• First quarterly

statements to plan

participants

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Fee & Expense Disclosures – Service Providers to

Plans (ERISA § 408(b)(2))

• Brings new transparency to the process of selecting and monitoring of plan service providers

• Establishes comprehensive disclosures from service providers concerning services, fees, and potential conflicts of interest

• Applies to contracts ≥ $1,000

• Prior contracts must be brought into compliance by 7/1/12.

Effective for existing and new contracts entered into on or after

July 1, 2012

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ERISA § 408(b)(2) Disclosures – Clarification

of the Meaning of “Reasonable Arrangement”

• All required disclosures must be in writing

(no prescribed format)

• Imposes new service provider disclosure

obligations reasonably in advance of the plan

entering into a service arrangement

ERISA § 408(b)(2) Disclosures

Consequences of Non-Compliance

• Contract or arrangement will not be “reasonable” and

violates 408(b)(2) – a prohibited transaction

• Responsible Plan Fiduciary violates 406(a)(1)(c) by

participating in the prohibited transaction

• Service provider is a “disqualified person” under IRS PT

rules. Subject to excise taxes under IRC Code § 4975

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DOL Resources

• www.dol.gov/ebsa

• For DOL publications, FAQs, copies of the Form 5500, instructions,

and related schedules

• EBSA Office of the Chief Accountant 202-693-8360

• EBSA Office of Regulations and Interpretations 202-693-8500

• For questions about ERISA reporting, filing or other regulatory

requirements

• DOL EFAST Help Center 1-866-463-3278

• For questions regarding the Form 5500 or related schedules

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Conclusion

• Long standing audit quality issues

• Audit quality

• has improved at CPA firms that perform the largest number of plan

audits

• is still problematic at CPA firms that perform only a limited number

of plan audits

• State licensing boards should consider additional

educational/experience requirements for plan auditors

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And Now it’s Your Turn…

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