Michael Auerbach, chief accountant of the Department of Labor's Employee Benefits Security Administration, speaking at the Foundation for Accounting Education's Employee Benefits Conference on June 4, said that his department plans to spend 2020 focusing on nonfilers.

Auerbach said that, last year, his department conducted over 3,200 reporting compliance cases, which mostly involved filings that did not have the required attached auditor's report, including filings from companies that had previously included these reports but suddenly stopped. With this in mind, the department has been paying particular attention to filers with similar issues this year. He advised CPAs to prioritize timeliness as a result.

"Our advice, if you have a client that has a filing deadline coming up, but you don't have the audit report finished, our advice is always file timely, because if you don't, then you run the risk of late filing penalties as well as deficient filing penalties," he said. "So it's always better to file timely, and you can always go back, your client can always go back, and amend the filing to include the missing information, in this case the accountant's report." He added that, ideally, CPAs would be filing both completely and on time.

He called failing to file at all "the most egregious sin" because it demonstrates a lack of good faith and further impedes his department's ability to protect participants and beneficiaries because "we don't know the plan is out there and operating."

Auerbach added that the department also plans to continue its firm inspections this year. He noted that there are 16 CPA firms nationwide that perform more than 750 employee benefit plan audits a year. These 16 firms do about 20 percent of all employee benefit plan audits, encompassing 43 percent of all plan assets. He said the department this year plans to inspect at least a few of these firms, saying it will be a holistic examination of firm practices and procedures. He also said that the department plans to focus on firms that do between 100 to 200 plan audits a year; because there are too many firms in this strata to inspect at once, he said it will concentrate on those that have recently achieved this level. Finally, he said the department will also carry out individually targeted cases; in aggregate, these cases will cover at least $114 billion in assets among 3.4 million plan participants.

He noted that, in the department's years of inspecting firms on their employee benefit plan audits, certain patterns have tended to arise. He acknowledged that it can be disheartening to see these patterns pop up year after year, "but guess what folks? The crappy work we see, the deficiencies we see, generally tend to be the same types."

The biggest one is insufficient documentation, which he said tends to be caused by larger underlying problems in the firm. Another problem inspectors see again and again is over-reliance on service providers such as actuaries and appraisers "where the auditor does nothing but take that information and slap it onto the audit work papers and [doesn't] read the reports or analyze it." Finally, insufficient or even no risk assessment at all, even with enhanced peer review efforts, "pops up as one of the key areas where there is a high deficiency rate."

Similarly, he noted that there are consistent patterns among firms that do very good work on employee benefit plan audits. One is a commitment to employee benefit plan work "from top down" as well as an extensive "audit pedigree" on those sorts of engagements. Another common feature is the presence of employee benefit plan-specific training and affiliation and the maintenance of specialists in employee benefit plan audits. Finally, he said these firms tend to also have a robust internal inspection program as well as a good enough understanding of their own capacities to know when to say no to an engagement.

"That's it folks. That's the way you do quality work," he said.

Auerbach also took the time to discuss where his department stands in terms of the COVID-19 pandemic. In April, coordinating with the IRS, the DOL extended the deadline for Form 5500 filings to July 15. He said if a firm makes use of this extension, it should remember to enter coronavirus or COVID-19 in Part 1 Box D as a description. At the current time, he said, filing deadlines for Forms 5500 that were already due beyond July 15 have not changed, so if a filing is due on, say, July 31, there will not be similar relief.