Be Aware of Compliance Audits: Employers Paid Out More Than $400 Million in Fiscal Year 2015

The risk of being audited. Every company has to deal with it, and smart organizations know how to take steps to diminish that risk. But even the best-prepared business leaders are wrong if they think that getting their tax practices in order will eliminate that risk entirely. That’s because audits aren’t just for taxes: In fact, if government auditors show up at your office door, they might not be from the IRS at all, but from EBSA.

What is EBSA? It’s the Labor Department’s Employee Benefits Security Administration, and it assists participants, beneficiaries, and plan sponsors about rights and obligations under employee benefit laws. It also helps individuals obtain retirement and health benefits that have been improperly denied.

In FY 2015 alone, EBSA reported, its benefits advisors resolved more than 200,000 participant inquiries or complaints related to employee benefit plans. In the process, it recovered over $400 million in benefits for participants that had been improperly denied.

EBSA also investigates potential violations of the criminal provisions of the Employee Retirement Income Security Act and its regulations that relate to employee benefit plans. In FY ’15, EBSA closed 275 criminal investigations, which led to the indictment of 61 individuals—including plan officials, corporate officers, and service providers—for employee benefit plan offenses.

The critical step that employers and other benefit plan sponsors must take to avoid an EBSA inquiry or fine is to do some auditing of their own, usually in the form of an annual audit of their employee benefit plans. Generally, employee benefit plans with 100 or more participants must have an audit as part of their responsibility to file an annual return/report on Form 5500.

Plan administrators are required to enlist an independent qualified public accountant to audit the plan's financial statements and other records and to issue an opinion regarding the documents. A “qualified public accountant” is defined as a public accountant certified or licensed by a state regulatory authority or by DOL.

But be cautious, for these audits can carry risks of their own. Last May, EBSA recommended an overhaul of auditing standards for employee benefit plans, after its own disconcerting report found that more than one out of every three audits performed by CPAs contained major deficiencies. The report said this put $653 billion and 22.5 million plan participants and beneficiaries at risk.

EBSA found that most of these non-compliant audits came from small firms inexperienced in the ways of ERISA-covered employee benefit plans and Form 5500 filings. CPAs who performed the fewest yearly audits had a 76 percent deficiency rate, while firms with the highest amount of audits had only a 12 percent deficiency rate.

The good news? Employers and plan sponsors can get ahead of EBSA’s audit compliance recommendations by evaluating the quality of the CPA auditors, by reviewing their own employee benefit plan documents internally, and by reaching out to EBSA to ensure compliance with employee benefit plan laws. In FY ’15, EBSA said its benefits advisors responded to more than 10,000 compliance-related inquiries submitted directly from employers, plan sponsors and practitioners.

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