DOL Recommends Repeal of Limited Scope Audits
The U.S. Department of Labor’s (DOL) Office of Inspector General (OIG) recently conducted an audit of the DOL’s Employee Benefits Security Administration’s (EBSA) oversight of ERISA plan audits. ERISA requires most employee benefits plans to use an independent qualified public accountant to perform an annual audit of the plan’s financial statements in accordance with generally accepted auditing standards. EBSA is the government agency responsible for ensuring these audits meet ERISA requirements. ERISA currently allows limited scope audits, which means that the plan auditor does not need to audit plan assets held and certified by certain financial institutions. Qualifying institutions include banks, trust companies, or similar institutions, and insurance carriers regulated by a state or federal agency. While investment companies and brokerage firms generally are not eligible, some of these institutions have established separate trust companies that qualify for the limited scope audit exemption.
The OIG report expressed concern that because the plan auditor does not test asset information certified by the financial institution and disclaims an opinion on the plan’s financial statements, there are not sufficient assurances to plan participants and beneficiaries on the reliability of the plan’s financial statements. The report found that the percentage of plans electing limited scope audits grew from 46 percent in 1987 to 70 percent in 2010. The report also found that the value of assets excluded from plan audits grew from $520 billion (43 percent) in 1989 to $3.3 trillion (58 percent) in 2010. While the OIG made several recommendations to EBSA for improving audit quality, the main recommendation was for EBSA to seek repeal of the limited scope audit exemption.
For more information about ERISA plan audits, please contact your Trust Fund counsel.
By Kristina M. Zinnen