Employee Benefits

The Department of Labor's Office of Inspector General revealed in November 1989 that it had uncovered major deficiencies in audits of private employee benefit plans, raising concerns about how well American workers are being protected. More than one-third of the 25 plan audits GAO reviewed had weaknesses so serious that their reliability and usefulness were questionable. In some cases, the auditors failed to adequately test investments amounting to millions of dollars or to test the appropriateness of millions of dollars in payments to insurance companies. To protect the interests of plan participants, legislation is needed to (1) eliminate limited scope audits, (2) require reports by plan administrators and auditors on internal controls, (3) require reporting by auditors of fraud and serious Employee Retirement Income Security Act (ERISA) violations, and (4) require peer review of auditors conducting plan audits.

GAO reported that: (1) the Employee Retirement Income Security Act of 1974 (ERISA) requires annual audits of employee benefit plans with over 100 participants; (2) the Labor study concluded that 64 of 279 randomly selected plan audits violated at least one generally accepted auditing standard; (3) Labor referred 14 audits to the American Institute of Certified Public Accountants (AICPA) for what it believed was egregious disregard of professional standards; (4) 9 of the 25 plan audits that GAO reviewed had severe violations of auditing standards that seriously diminished the audit reports' reliability and usefulness; (5) insufficient planning and supervision, inadequate evidence of testing, inadequate reporting, and auditors' lack of knowledge about specialized procedures for auditing employee benefit plans contributed to plan audit problems; and (6) AICPA independently investigated and upheld most of Labor's findings, and has publicized audit problems and expanded guidance to improve the quality of such audits. GAO also reported that ERISA: (1) does not require plan administrators or auditors to report on internal controls; (2) allows plan administrators to exclude the examination of certain investments and assets from plan audits; (3) does not require auditors to promptly disclose discovery of fraud or serious fiduciary breaches to Labor or plan participants; (4) does not require auditors to participate in peer review programs; and (5) does not require that plan audit reports be addressed to plan participants.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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