Administration and Audits

[Guest Melissa Winslow]

I work for a CPA firm that administers defined contribution plans. We have a plan that is now subject to an ERISA audit.

The firm is considering the use of its audit department for the engagement.

The independence rules of the AIPCA permit CPAs to audit plans for which they provide participant recordkeeping services as long as they comply with certain stated requirements.

However, it appears the DOL has the opposite opinion. An accounting firm handling the recordkeeping may not perform the plan's audit (DOL Reg 2509.75-9).

I have been unsuccessful in finding examples of where the DOL has imposed penalties in this situation.

Has anyone had/know of the DOL's actual reaction in this situation?

Any comments would be appreciated.

[R. Butler]

We checked into this issue previously. We were advised by our attorneys that we could not perform audits on clients for which we serve as TPA. They cited the DOL regs.

I makes sense when you think about it. You'd really be auditing your own work.

[Guest Melissa Winslow]

I agree. However, I may need to convince others of this.

[Guest Ray Williams]

Has anyone in your firm read a newspaper or watched TV in the last several months? I would think that the demise of Arthur Anderson would convince any CPA firm that it needs to avoid any appearance of a conflict of interest. Auditing the firms on work is clearly a conflict in the eyes of the DOL and (I would suspect) virtually everyone other than your firm.

[R. Butler]

The ERISA Outline Book states the same conclusion. The book does cite DOL's Interpretive Bulletin 75-9.

Good luck

[Guest b2kates]

Remember, form 5500 and the audit report are filed with the DOL today.

In the current environment, I do not think DOL will be very forgiving.

[Archimage]

Melissa, you did not state whether or not you are a CPA. You could possibly be reprimanded (maybe lose license) if you perform the audit work knowing that it is wrong. Even if you are a CPA performing recordkeeping functions I would make sure your observations regarding the legalities went into the audit workpapers.

[mbozek]

Isnt the common sense reason for the DOL reg that a CPA firm which performs an audit for a plan in which it acts as a recordkeeper cannot be impartial because of the danger of the loss of fees for recordkeeping. What I dont understand is why in the post Enron/AA era tha the AICPA still allows such dual relationship. Can you please describe your firm's exit strategy if it decides to continue to represent the plan in the audit? e.g., negotiate with the DOL and what about the effect this representation would have on the plan that the DOL will review?

[Guest b2kates]

I will give you a horror story from my days of seminar presentation. A firm was attending my audit of plans CPE program; because the DOL issued an order prohibiting them from any audits until they knew the rules.

[Guest PAL100759]

Well, I agree that it doesn't make sense for the same firm to be TPA and auditor but is it actually (legally) wrong?

When PWC bought Kwasha, did they stop auditing any plans that they were now recordkeeper for? I am aware of at least one larger plan that PWC was actively pursuing/proposing to do the audit even though they were the recordkeeper. (Perhaps that's why they sold Unifi!)

PAL

[BeckyMiller]

This continues to be uncertain territory. The AICPA is attempting to grapple with the issues. The DOL wants to protect the P's and B's. I have anecdotal evidence on one situation of a Big 5 firm doing both where the DOL was more frustrated by the absence of real audit procedures than the fact that the CPA firm did both.

If you look at the Interpretive Bulletin, it says that the CPA firm may not "maintain the records" of the plan. So, many CPA firms argue that they are not "maintaining" records, but merely providing clerical or technical assistance. For this reason, we strongly suggest that any CPA firms participant accounting department make sure that the client is responsible for maintaining copies of all relevant documents, actively participates in all decisions and interpretations of the plan, etc.

Note, that the Interpretive Bulletin does say that a CPA firm is independent when its actuaries perform the actuarial calculations for the defined benefit plan under audit. To me, this is more risky than doing participant accounting services on a defined contribution plan.

In other words, the government's guidance is not entirely clear.

Personally, I would hate to see CPA firms going out of this business. With their focus on technical issues and detail, they tend to do a really good job on the participant accounting. I think, however, that if you are going to be aggressive in this area you need to do 2 things.

1. Really audit the plan, applying all skepticism to the work of your own people, even greater than what you might apply to an outside firm.

2. Realize that if the DOL finally announces a firm position on this matter, your firm is probably going to be the entity at risk for any penalties for an incomplete Form 5500 filing due to an unacceptable audit.