Employee Benefits: Improved Plan Reporting and CPA Audits Can Increase Protection Under ERISA

Highlights

Pursuant to a congressional request, GAO provided information on independent public accountants' audits of employee benefit plans, focusing on: (1) a November 1989 Department of Labor study that criticized such audits; (2) requirements for employee benefit plan audits; (3) scope limitations in such audits; and (4) ways to enhance plan reporting and audits.

Recommendations

Matter for Congressional Consideration

Matter	Status	Comments
Congress should amend ERISA to eliminate the provision that permits plan administrators to direct audit firms to perform limited-scope audits.	Closed – Not Implemented	Proposed legislation to eliminate limited-scope audits has been introduced in the 106th Congress.
Congress should amend ERISA to require plan administrators to report on the effectiveness of plan internal controls and auditors to report on plan administrators' assessments of those controls. Reports prepared by plan administrators should be included in plan annual reports submitted to Labor and should: (1) describe actions taken to establish and maintain an effective system of internal control; (2) contain the plan administrator's assessment of the effectiveness of the plan's internal control structure; (3) identify material control weaknesses that have not been corrected; and (4) contain the signature of the plan administrator.	Closed – Not Implemented	Proposed legislation to amend ERISA has not included provisions to implement this recommendation.
Congress should amend ERISA to require that plan auditors report fraud and serious ERISA violations to Labor promptly after discovery if plan administrators do not do so.	Closed – Not Implemented	Congress has not enacted related legislation.
Congress should amend ERISA to require that plan auditors participate in a peer review program that assesses the quality of at least one plan audit.	Closed – Not Implemented	Congress has not enacted related legislation.
Congress should amend ERISA to require that plan auditors address their reports jointly to plan administrators and participants.	Closed – Not Implemented	Proposed legislation to amend ERISA has not included provisions to implement this recommendation.

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Recommendations for Executive Action

Agency Affected	Recommendation	Status
Department of Labor	Because of the severity of the violations identified in nine audits, the Department of Labor should reconsider the nine audits and refer the auditors to the professional or licensing authorities, if deemed appropriate.	Closed – Implemented Labor referred three of nine firms with severe standards violations to AICPA. One firm no longer audits plans. Five firms performed satisfactory work on subsequent audits.
Other	To further strengthen audits of employee benefit plans, AICPA should change its audit guide to discuss the importance of audits in protecting plan participants.	Closed – Implemented AICPA revised its audit guide and publicized GAO results to its membership in the 1991 industry risk alert.
Other	To further strengthen audits of employee benefit plans, AICPA should change its audit guide to discuss the need for auditors to have specialized industry knowledge needed to successfully perform plan audits.	Closed – Implemented AICPA revised its audit guide and publicized GAO results to its membership in the 1991 industry risk alert.
Other	To further strengthen audits of employee benefit plans, AICPA should change its audit guide to identify and clearly describe requirements for specific schedules and financial statement footnotes. These requirements should include those for statements prepared under the statutory and regulatory methods, as well as generally accepted accounting principles requirements.	Closed – Implemented AICPA revised its audit guide and publicized GAO results to its membership in the 1991 industry risk alert.
Other	AICPA should communicate to its membership the results of: (1) its investigations of the 10 audits referred by Labor, with which AICPA found problems; and (2) future investigations of deficient plan audits.	Closed – Implemented AICPA revised its audit guide and publicized GAO results to its membership in the 1991 industry risk alert. Also, the December 1991 Journal of Accountancy provided information about the investigations of employee benefit plan audits.

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Full Report

Full Report (79 pages)

Office of Public Affairs

Chuck Young

Managing Director

youngc1@gao.gov

(202) 512-4800

Topics

Auditing and Financial Management

AccountantsAccounting proceduresAuditing proceduresAuditing standardsRetirement incomeEmployee benefit plansFinancial recordsFraudInternal controlsInvestigations by federal agenciesReporting requirements