For years, U.S. Department of Labor Chief Accountant Ian Dingwall has been advising employee benefit plan administrators to avoid using auditors who “dabble” in employee benefit plans. During this period, the DOL has consistently found that approximately one third of the employee benefit plan audits the agency reviews are deficient, and points to the firms that perform fewer than five of these audits as the most common offenders. Building on this public commentary, the DOL has worked vigorously to push out the dabblers, and the American Institute of Certified Public Accountants (AICPA) and a growing number of state boards of accountancy are supporting this effort.
Working with the AICPA, the DOL is focusing on whether plan auditors are complying with peer review requirements. In recent years, the DOL and the AICPA Peer Review Division have compared the auditors in the Form 5500 filings with the firms enrolled in the AICPA peer review program. All of the firms auditing employee benefit plans that did not appear on the peer review enrollment list were referred by the Peer Review Division to the AICPA Professional Ethics Division, resulting in thousands of AICPA inquiry letters being issued to these firms questioning whether they violated AICPA peer review requirements.
Wilson Elser has been contacted by numerous recipients of these letters and we are finding the scenario presented to be remarkably consistent: well-intended solo practitioners who did quality work but did not adhere to the AICPA’s requirements. Although it appears that their clients were well served, the recipients of these letters are generally withdrawing from the clients and agreeing not to take on any new audits in the future.
In early 2013, Mr. Dingwall went directly to the executive directors of the nation’s state boards of accountancy to encourage them to look closely at the employee benefit plan auditors in their states. At least some of the state boards are responding to the DOL’s call for action. Wilson Elser was recently contacted by an East Coast practitioner who is being investigated by the midwestern state where his benefit plan audit client is located. The state is questioning whether he was appropriately licensed to perform the audit. Since nothing remarkable occurred with the plan, it appears that the state board compared the accountant’s auditing plans in the state with those holding either licenses or practice permits. Since the accountant came from a state that did not have reciprocity and he did not obtain a practice permit, he received an inquiry letter from the state board.
Unable to directly regulate which accountants audit employee benefit plans, the DOL has turned to the AICPA and the state boards of accountancy to reduce the number of firms that “dabble” in auditing these plans. The focus thus far has been limited to peer review and licensure, but the DOL is looking to do more. Even though there are fewer firms doing these audits – 7,300 firms doing 82,500 audits in 2014 versus 9,200 firms doing 80,000 audits in 2013 – the percentage of audits the DOL finds deficient remains high. Even if their work is beyond reproach, accountants who perform only a few plan audits a year can expect the DOL to scrutinize their qualifications and licensing to weed out the “dabblers.”