Documentation errors trip up benefits administrators during audits
by Andrea Davis
Too many employee benefit plan audits are deficient, finds a new report from the U.S. Department of Labor, putting up to $653 billion and 22.5 million plan participants and beneficiaries at risk.
More than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefit plans. The Employee Benefit Security Administration’s review found that while 61% of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards, the remaining 39% of the audits contained major deficiencies.
“I can’t say I’m surprised,” says Danielle Capilla, chief compliance officer with United Benefit Advisors. “DOL audits deal with a complicated area of law where there’s a lot of nuance. So it’s very easy for someone to make a mistake that is then compounded over the years.”
Moreover, she says, the Affordable Care Act “further complicated the waters as it relates to the law surrounding benefit plans. It gives plans more areas to make mistakes. It’s kind of low-hanging fruit [for the DOL] to a certain extent.”
Also see: CMS audits of qualified health plans to focus on broker standards
Documentation errors are one of the most common issues face during a DOL audit, says Capilla. “So much documentation is required – some might be one page, some might be binders – and when you have to keep track of that much documentation every year, it’s really easy to misplace one or not have it stored in the right place.
Another common trip-up for employers is the wrap document that accompanies the insurance carrier’s certificate and contains all the ERISA language. “Not having one, or having one that’s poorly crafted and is missing information,” is also an issue Capilla says she sees.
It’s not a matter of if, but when, employers will get notice of a DOL health plan audit, maintains a recent white paper from UBA. In fact, a “DOL audit is so significant that once a company is embroiled in the audit process, that should be their top priority,” says the paper, Don’t Roll the Dice on Department of Labor Audits.
Also see: DOL enforces ACA through plan audits
And while every audit will be different, the process will go much more smoothly if plan sponsors are prepared ahead of time, says Capilla.
“Remain calm and notify everyone who needs to be notified in your company, as well as your attorney, broker and insurance carrier,” she advises. “And make sure the people who are responding to the audit have ample time and ability – that their calendars are cleared – and that they have the bandwidth to jump through all of the hoops necessary. The quicker you can get through it, the better for everyone.”
Capilla also recommends doing an internal audit, which may reveal areas for improvement, and creating an audit action plan. Doing so “will put you in the best seat should the live letter arrive in your inbox.”
Also see: Fear the DOL health plan audit
In addition to increased outreach to CPAs and enforcement of audit standards by EBSA, the DOL report proposes legislative fixes. It recommends that Congress amend the Employee Retirement Income Security Act definition of “qualified public accountant” to include additional requirements and qualifications necessary to ensure the quality of plan audits. Under the proposal, the Secretary of Labor would be authorized to issue regulations concerning the qualification requirements. The American Institute of CPAs said in a statement that its “overarching goal has been – and continues to be – helping individuals and firms perform the highest quality employee benefit plan audits possible. We will work with auditors, plan sponsors, state CPA licensing boards and the Department of Labor to accomplish that.” The DOL report also urges Congress to repeal the ERISA limited-scope audit exemption and give the secretary the authority to define when a limited scope audit would be an acceptable substitute for a full audit. When auditors have to issue a formal and unqualified opinion, they have a powerful incentive to rigorously adhere to professional standards ensuring that their opinion can withstand scrutiny. The limited scope audit exemption undermines this incentive by limiting auditors’ obligations to stand behind the plans’ financial statements.
Also see: 10 mistakes that may trigger an audit of your 401(k) plan
Finally, the report suggests ERISA be amended to give the Secretary of Labor authority to establish accounting principles and audit standards to protect the integrity of employee benefit plans and the benefit security of participants and beneficiaries.
“The existing patchwork of regulations and rules needs to be overhauled and a meaningful enforcement mechanism needs to be created,” says Phyllis C. Borzi, assistant Secretary of Labor for employee benefits security. “The department is proposing, among other measures, legislation that will fix these problems.”