Employee Benefit Plans by wuyunyi


									 Employee Benefit Plans

 Michael E. Auerbach, CPA
 James W. Brackens, Jr., CPA
 Randy S. Watson, CPA

Michael E. Auerbach, CPA

 As the Chief, Division of Accounting Services, Employee Benefits
 Security Administration, Mr. Auerbach's responsibilities include
 providing ERISA related accounting and auditing technical expertise
 within the Employee Benefits Security Administration. He is also
 the liaison with the American Institute of Certified Public
 Accountants (AICPA), the Financial Accounting Standards Board
 (FASB) and other professional organizations.

 Mr. Auerbach is a certified public accountant and earned his B.S. in
 accounting from the University of Maryland.

   American Institute of CPAs

James W. Brackens, Jr., CPA
Jim currently serves as VP – Firm Quality & Practice Monitoring of the AICPA where
he provides strategic and tactical direction for the AICPA’s Peer Review Program and
the Employee Benefit Plan and Governmental Audit Quality Centers. Prior to joining
the Institute in December 2006, Jim was associated with international and local
public accounting firms, including managing his own firm in Richmond, VA for 17
years where he served closely-held businesses and not-for-profit organizations and
also performed more than 300 peer reviews.

He is a member of the AICPA and the Virginia and North Carolina Societies of CPAs
and is licensed in Virginia and North Carolina. Jim has served in various volunteer
leadership positions for both the AICPA and the VSCPA, including Peer Review
Committee Chair and Vice-Chair; member of the Board of Directors of the Virginia
Society; and member of the AICPA’s Professional Ethics Executive Committee.

He is a frequent presenter at accounting and auditing conferences and authored the
VSCPA’s CPE course, Ethics: Your License Depends on It!, from 2004 through 2006.
Jim received his bachelor’s degree in accounting from Virginia Tech.

     American Institute of CPAs

Randy S. Watson, CPA

 Randy Watson has been a partner with Yanari Watson McGaughey P.C. for over 32
 years. He is located in Denver, Colorado and is the Partner in Charge of the audit
 department as well as the Employee Benefit Plan Audit Designated Partner. He has
 extensive experience with ERISA audits, financial planning and peer reviews.
 Randy is a Certified Public Accountant and is a member of the American Institute of
 Certified Public Accountants (AICPA) and the Colorado Society of Certified Public
 Accountants. He just recently completed his three year term serving on the AICPA
 Employee Benefit Plan Audit Quality Center Executive Committee. He is still serving
 on the AICPA Peer Review Board Oversight Task Force, as well as the Colorado
 Society of CPA’s Peer Review Board. He is a former chairman and has served on
 this board since 1997.
 In addition, Randy served on the PCPS Peer Review Committee and the AICPA Peer
 Review Board and has performed over 500 peer reviews in his career. He has been
 performing peer reviews since 1980 and his firm has been peer reviewed since that
 time as well.
 Bachelor of Science degree in Accounting from the University of Denver, graduating
 cum laude.
     American Institute of CPAs

         Department of Labor Update



 EBSA Audit Quality Activities
 How the Program Works
 What It Means to You
 What EBSA Has Found
  • Audit quality statistics
  • Specific audit deficiencies

   American Institute of CPAs

  Audit Universe
  Employee Benefit Plan Audits

                                                              29 Firms/22,400 audits
                                          Firm Inspections

  39 Firms/5,300                         100-199 EBP audits
  audits                                 Mini Inspections
                                                                            115 Firms/7,735
                                    50-99 EBP Audits                        audits
                               Augmented Workpaper Reviews
10,000+                                  25-49 EBP audits
                               Augmented Workpaper Reviews
                                       24 or less EBP audits
                               Augmented Workpaper Reviews
          American Institute of CPAs

  Audit Quality Initiatives

           CPA Firm Inspection Program


           Workpaper reviews

          American Institute of CPAs

CPA Firm Inspection Program

 Review EBP practice of firms that perform
 significant number of plan audits or that audit
 significant amount of plan assets
 Similar to PCAOB Inspections
 Review policies and procedures
 Review audit workpapers of selected audit

   American Institute of CPAs

What To Expect From Us

 Correspondence to the firm’s managing partner
 Visit to conduct a “top-side” review
 Select audit engagements for review
 Analyze results
 Detailed and ongoing communication

   American Institute of CPAs

EBP Audit Best Practices

 Commitment to Quality
  • Executive Level
  • Firm-wide

 Importance of EBP Audit Practice
  • Focal point within firm
  • Realistic audit fees
  • Comprehensive EBP specific resources

 Internal Inspection Programs
 Use of Internal Experts

   American Institute of CPAs

CPA Firm Mini-Inspections

 Focus on CPA firms that perform between 100-199
 plan audits
 No initial onsite visit
 Questionnaire to CPA firm
 Assess overall firm structure and control
 Select a sample of audit engagements for detailed

   American Institute of CPAs

Firms Performing 100+ Audits
(Results of DOL Reviews)
                                                  CPA Firm Reviews Performed: 14
                                                  CPA Firm Reviews Scheduled:      6
                                                  Mini-Inspections Completed:     20

                                                  What We Find

                                                  Audit quality improved in top two strata


                             100-199 EBP audits

     American Institute of CPAs

 Augmented Workpaper Reviews

   Focus is on firms performing a small number of EBP
    • Target plans with assets >$10 M audited by firms with < 40 EBP

   OCA reviews WPs of selected audit areas
   Scope of review may be expanded
   Reviews performed in-house

     American Institute of CPAs

What To Expect From Us

  Inquiry letter to plan administrator
  Review of audit workpapers
  Statement of Preliminary Findings
  Rejection of plan filing
  Assessment of civil penalties
  Referral to AICPA/state regulators

    American Institute of CPAs

Firms Performing 50-99 EBP Audits
(Results of DOL Reviews)
                                  Total Reviews Performed:   97
                                      Acceptable:       79 (81%)
                                      Deficient:        18 (19%)
                                  Major Deficiencies
                                  Participant Data (61%)
                                  Contributions Receivable (56%)
                                  Party-in-Interest Transactions (22%)
                                  Benefit Payments (11%)
                                  Investments (17%)

            50 to 99 EBP audits
            Workpaper Reviews

    American Institute of CPAs

Firms Performing 25-49 EBP Audits
(Results of DOL Reviews)
                                   Total Reviews Performed:    294
                                       Acceptable:        214 (72%)
                                       Deficient:          80 (28%)
                                   Major Deficiencies
                                   Participant Data (58%)
                                   Contributions Receivable (28%)
                                   Party-in-Interest Transactions (25%)
                                   Benefit Payments (24%)
                                   Investments (30%)

             25 to 49 EBP audits
     Augmented Workpaper Reviews

     American Institute of CPAs

 Firms Performing Less Than 25 Audits
 (Results of DOL Reviews)

                                   Total Reviews Performed:     1,333
                                        Acceptable:      858 (64%)
                                        Deficient:       475 (36%)
                                   Major Deficiencies
                                   Participant Data (64%)
                                   Party-in-Interest Transactions (39%)
                                   Benefit Payments (35%)
                                   Investments (36%)
                                   Planning and Supervision (18%)

        24 or less EBP audits
    Augmented Workpaper Reviews
     American Institute of CPAs

Audit Deficiencies

  1,946 Workpaper Reviews Performed
  • 1,324 – No Deficiencies
  •   622 – Contain Deficiencies
     - 199 – 1 Deficiency
     - 148 – 2 Deficiencies
     - 95 – 3 Deficiencies
     - 62 – 4 Deficiencies
     - 46 – 5 Deficiencies
     - 72 – 6+ Deficiencies

   American Institute of CPAs

Participant Data

What’s Wrong:
 No audit work performed or no audit documentation
 of testing participant data
 Testing of payroll data insufficient
 No testing of participant eligibility or forfeitures
 No testing of investment income allocation to
 Inadequate or missing disclosures

   American Institute of CPAs

Participant Data

Doing It Right:
  GAAS requires to test allocation of total net assets to
  participant accounts
  Obtaining confirmations from participants
  Obtaining payroll data
  Defining eligibility requirements
  Obtaining forfeiture information
  Testing allocation of investment income to participant

    American Institute of CPAs


What’s Wrong:
  No audit work performed or no audit documentation
  Failure to test end of year market values
  Failure to obtain proper certification for limited scope audit
  Inadequate or missing disclosures related to investments.
  Failure to document the evaluation of investment contracts for
  benefit responsiveness.
  Failure to evaluate the guaranteed investment contract for
  benefit responsiveness.

    American Institute of CPAs


Doing It Right:
  Test valuations confirmed by Trustee
  Obtaining Common Collective Trust Funds (CCT) unit
  Understanding the nature of investments
  Assessing proper disclosure and supplemental schedules
  Following up on inconsistencies on the custodian reports
  and supplemental schedules

    American Institute of CPAs


What’s Wrong:
  No audit work performed or no audit documentation
  No audit program
  Insufficient testing on contributing employers for multi-
  employer plans
  Failure to test payroll internal controls
  Failure to test employee elective deferrals
  Inappropriate reliance on SAS 70
  Timeliness of participant contributions not tested

    American Institute of CPAs


 Doing It Right:
 Documentation of testing internal controls for payroll
 Establishing payroll register is reliable
 Testing authorization of elective deferrals
 Defining compensation
 No paper trail
 Obtaining confirmation responses
 What information are you trying to confirm
 Alternative procedures to confirmations

   American Institute of CPAs

Benefit Payments

What’s Wrong:

 No audit documentation or no audit work performed
 Failure to test participant eligibility to receive benefit
 Inappropriate reliance on SAS 70
 Failure to test approval of benefit payments

   American Institute of CPAs

Benefit Payments

Doing It Right:

  Eligibility to receive benefit
  When are distributions permitted
  Obtaining confirmation responses
  Viewing canceled checks or verification of proper

    American Institute of CPAs

Related Parties/Prohibited Transactions

What’s Wrong:

  No audit documentation or no audit work performed
  No related parties noted in workpapers

    American Institute of CPAs

Related Parties/Prohibited Transactions

Doing It Right:

  Identifying related parties
  Definition of prohibited transactions
  Financial statement disclosure and supplemental
  Affect on auditor’s opinion

    American Institute of CPAs

Audit Quality

How Do We Reach Our “Customers”

  Increased involvement with the Peer Review
  • Better understand the process
  • Work on improving the process
  Work with state CPA societies
  • Increase training opportunities
  • Reach practitioners performing fewest number of EBP audits

    American Institute of CPAs

                             Case Studies

American Institute of CPAs

         Employee Benefit Plan
       Audit Quality Center Update

American Institute of CPAs

EBPAQC Membership
 1,955 firm members
   • 166 new member firms in past year (8.9 % increase)
     - net of mergers and terminations
   • 100% of firms that perform over 100 ERISA audits
     are members (82 firms)
   • 592 (30%) member firms perform 5 or less ERISA
  Member firms audit over 75% of all ERISA plans

    American Institute of CPAs

Member Resources/Benefits
 EAlerts
   • 43 EAlerts issued in the past year
 Live Forum webinars
   • Hosted 10 webinar events
   • CPE option
   • Very popular

    American Institute of CPAs

    Member-to-member Discussion Forum

                                      •   7 forums
                                      •   Over 2,600 online participants
                                      •   1,600 topics posted
                                      •   Valuable resource for smaller
         American Institute of CPAs

    Online Resource Centers

• 12 Resource Centers
• Tools, primers and
    other resources
• Plan Sponsor
    resource center

         American Institute of CPAs

  Plan Advisories
     Monitoring Outsourced Recordkeeping and Reporting
     Internal Controls
     Plan Investments
     New- Understanding Auditor Communications

    American Institute of CPAs

Current Activities

 Initial year 403(b) retirement plan audits
 Focus on EBP fraud
 Plan asset fair value issues – complex hard-to-value
 Form 5500 electronic filing (DOL EFAST2)
 AICPA testimony before ERISA Advisory Council

    American Institute of CPAs

Initial Year 403(b) Retirement Plan Audits
 ERISA- covered plans sponsored by not- for-profits, charities,
  health care entities, and schools
 Over 7,000 new audits for 2009 plan year
 DOL provided some reporting relief (but no audit relief)
 Expect many adverse and disclaimer opinions
 EBPAQC tools
   • “Getting Started” for Plan Sponsors
   • Questions to Expect from Your Auditor
   • “Prepared by Client” List
   • FAQs
 Hosted 2nd EBPAQC 403(b) plan audit webinar on 6/10/2010

      American Institute of CPAs

Focus on EBP Fraud

   Increased EBP fraud risk due to economic climate
   EBPAQC Live Forum webinar on Fraud in EBPs
   EBP Fraud Resource Center
   Tools:
     • EBP fraud examples
     • EBP fraud risk factors
     • DOL criminal enforcement cases

      American Institute of CPAs

Plan Asset Fair Value Issues – Complex Hard-to
  Value Investments

 All plan assets required to be reported at fair value
 Plan investments are increasingly becoming more
  complex and therefore more difficult to determine
  current fair value
   • e.g.- private equity funds, hedge funds, certain
     insurance contracts, real estate funds, venture capital
     funds, commodity funds, and nonmarketable
 FAS ASC 820 (FAS 157) requirements to measure
  and disclose fair values
 EBPAQC Resource Center

     American Institute of CPAs

Form 5500 Electronic Filing (DOL EFAST2)

 All ERISA plans required to electronically file with
   the DOL for 2009
 Over 1 million filings! 60% filed between 10/5 and
 Audit reports also required to be filed electronically
  with Form 5500 (PDF)
 EFAST2 database is searchable online
 Hosted EBPAQC Live Forum webinar (another
  webinar in August)

     American Institute of CPAs

AICPA Testimony to ERISA Advisory Council

 ERISA Advisory Council June 29 hearing
  • Do GAAS and GAAP adequately protect plan participants?
  • Should the DOL Secretary modify audit and financial reporting
     standards for ERISA plans?
  • Should Congress repeal the “limited scope” audit exemption
     allowed under ERISA?
  • 403(b) plan audit implementation and enforcement relief
  • Plan level vs. participant account level assurance?
  • Audit quality concerns
  • Should there be changes to the DOL’s role and authority for
    enforcement mechanisms and penalty structures for plan
    auditors related to deficient plan audits?
   American Institute of CPAs

AICPA Testimony to ERISA Advisory Council

 AICPA recommendations:
  • DOL should:
     - Require all ERISA auditors to participate in a practice
        monitoring (peer review) program
     - Continue to refer deficient audits to AICPA Ethics and state
        boards of accountancy
  • DOL should not:
     - Establish new reporting model different from GAAP for
        ERISA plans (except a regulatory model for certain 403(b)
     - Establish different audit standards for ERISA plans
     - Have new enforcement role and authority over plan auditors

   American Institute of CPAs

AICPA Testimony to DOL Advisory Council

  AICPA recommendations (continued):
   • Congress should repeal the limited scope exemption in ERISA ;
      alternatively DOL should limit circumstances of electing limited
      scope audits (alternative investments).
   • DOL should issue guidance on proper use of limited scope
      certifications and require certifications to be filed with the Form
   • DOL should allow section 403(b) plans that cannot prepare
      GAAP financial statements (because of missing contracts and
      accounts) to use a regulatory basis of reporting or have
      auditors perform agreed-upon procedures.
   • DOL should reevaluate audit requirements for health and
      welfare plans

    American Institute of CPAs

Future Activities
   403(b) audits (review of initial year experience and
     hopefully some DOL changes to the reporting
   Service auditor reports- SSAE 16 replacement of
     SAS 70
   ERISA Advisory Council activities and possible
     DOL pension audit proposal
   Webinar series on basic (introductory level) EBP
   Collaborate with Peer Review on ERISA audit
    quality issues
    American Institute of CPAs

American Institute of CPAs


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