1. AUDITING PENSION PLANS: TOP
10 MOST COMMON AUDIT FINDNGS
and OVERVIEW OF DOL INITATIVES
AFFECTING PLAN AUDITS
Concurrent session 16
Allen P. Deleon, CPA – DeLeon & Stang, CPAS &
Advisors
Ian Dingwall, CPA - Chief Accountant
DOL
Employee Benefits Security Administration

2. 401k Plan Auditing Concerns and Issues
Allen P. DeLeon, CPA
Founding Partner, Deleon &
Stang, CPAs and Advisors
Member of the AICPA Credit
Union Conference Planning
Committee and the AICPA
Benefit Plan Audit Quality
Center
Chair, Maryland Association
of CPAs
Contact information:
• 301-948-9825
• allen@deleonandstang.com
• @allendeleon
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3. BASIC OVERVIEW OF A 401k PLAN AUDIT
A 401k plan is a type of defined contribution plan, which
means that the participants account balance equals his
plan benefits.
A “qualified” plan established by employers to which
eligible employees may make “salary deferral”
contributions on a post-tax and/or pre-tax basis.
“Qualified” means meets the standards set forth in
section 401, paragraph (k) of the Internal Revenue code.
“Salary deferral” is money that is deducted from your
paycheck before taxes are withdrawn. Some plans do
allow you to contribute money on an after-tax basis as
well.

4. FEATURES OF A 401k PLAN
Participant data Salary deferral
• Eligibility Employer match
• Auto enrollment
Roth contributions
Contributions Testing 415 (c) limits
Contribution limits ADP/ACP testing limits
• Increasing limits EGTRRA
Timeliness & reporting
• Catch up contributions
• Rollover
Vesting & forfeiture
Eligible compensation
Portability
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5. FEATURES OF A 401k PLAN (CONTINUED)
Investments Other
• Elections (participant • Participant loans
directed vs. non-participant • PII
directed) • PT’s
• Frequency of changes to • Expenses and new
elections reporting
• Types of investments
• Valuation methods (daily
valuation)
Benefit Payments
• Distributions
• Timing
• Rollover
• Reporting
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6. WHAT IS DIFFERENT ABOUT 401k PLANS
Employee contributions can vary, up to the
maximum allowed by law ($16,500 for 2012)
Employee contributions are made pre-tax
Many employers will match a portion of employee
contributions
Investment earnings are tax deferred until withdrawn
at retirement age.
An excise tax penalty is imposed if distributions are
taken from the plan prior to retirement age (591/2)

7. HOW THE PROCESS WORKS

8. KEY PLAYERS AND ROLES
Plan Sponsor – employer and decides on plan
features
Plan Administrator – responsible for operation of the
plan. Can be employer or third party
Custodian/Trustee- Hold plan assets in trust
Record-keeper- maintain participant accounts,
prepares 5500 etc..
Oversight Agencies-
• Department of Labor (DOL)
• Internal Revenue Service (IRS)

9. INITIAL OR FIRST TIME 401k PLAN AUDIT TIPS
Engagement letter
Communicate with predecessor auditor and
review work papers
What type is audit is required? Full or limited
scope?
Who are the service providers
• Trustee
• Record keeper
• Sponsor

10. INITIAL OR FIRST TIME 401k PLAN AUDIT TIPS
(continued)
Risk assessment and get a feel for the
quality of records and what SOC reports are
available
Read plan document and amendments and
understand the plan
Opening balances:
• What procedures need to be performed?
• Participant data

11. MOST COMMON EBP PLAN AUDITING
MISTAKES
< 100 participants? Is an audit necessary?
Full scope audit vs. limited scope audit? What is the
difference?
Too much reliance on SOC reports
Contributions based on correct plan definition of
compensation?
Supplemental schedules:
• Delinquent participant contributions
• Assets held
• 5% reportable contributions

12. Limited Scope vs. Full Scope
Audit Procedures Limited Scope Full Scope
Confirm assets directly with custodian X
Agree the certified investment information to X
the Plan’s financial statements
Year-end market value testing and leveling X
Investment transaction testing X
Test investment income allocation to X X
participants
Determine that the Plan’s financial statement X X
and disclosures are in compliance with GAAP

13. MOST COMMON EBP PLAN AUDITING
MISTAKES
No or limited fraud assessment – Examples of EBP
Fraud
• Eligibility – person entered into the HR system and enrolled into
the plan who never actually began work
• Fictious employee who then took out 401k plan loans
• Participant who faked his death to get money out of the plan
• HR employee who handled both plan contributions and payroll
and reconciled payroll bank account diverted money to personal
accounts
• HR director made changes to employer contributions before
submitting file to TPA

14. MOST COMMON EBP PLAN AUDITING
MISTAKES
No or limited fraud assessment – Examples of EBP
Fraud (continued)
• HR employee manually processed participant statements to hide
loans
• Employee said car loan was for home purchase to get longer
amortization period
• Plan administrator used forfeiture account to pay personal credit
card expenses.
• Plan administrator paid himself by setting up a fake vendor and
paying himself and approving invoices.

15. Questions?????

16. DOL Initiatives Affecting Your EBP Audits
Ian Dingwall, CPA
Chief Accountant
DOL
Employee Benefits
Security
Administration
The views expressed are those of the speaker and do not
necessarily represent the official position of the Department

17. Overview of DOL Initiatives Affecting
Employee Benefit Plan (EBP) Audits
DOL Current Focus
EBSA Audit Quality Initiatives
Fraud in EBPs
Regulatory Initiatives

18. What is EBSA’s Current Focus?
High Risk Audit Engagements
Multi-employer Plans
• Defined Benefit Pension Plans
• Defined Contribution Pension Plans
Single Employer Defined Benefit Pension Plans
Health and Welfare Plans
ESOPs
403(b) Plans
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19. ESOPs
Over 50% of audits contained deficiencies
Common audit deficiencies include:
• Failure to identify valuation of employer stock in the
risk assessment
• Review of the work of the appraiser (full scope audits)
• Testing the release of shares from the suspense
account
• Testing benefit payments
• Obtaining and reviewing documentation of stock
purchases
• Party-In-Interest = inadequate or no audit work
performed 19

20. 403(b) Plan Audits
Review of 84 sets of 2009 403(b) plan audit
work papers
Firms of all sizes
Opinions varied and included
• Clean limited-scope
• FAB language
• Recordkeeping language
Work on opening balances varied greatly
What will OCA deem rejectable?
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21. Reporting Compliance Initiatives
• Electronic Communication
w/Filers
• Schedule C Compliance
• Reporting of Funded Welfare
Plans
• Missing IQPA Reports
• Collaboration w/IRS & PBGC
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22. EBSA Audit Quality Initiatives
Firm Inspections
Mini Inspections
Small Practice Reviews

23. 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 work papers of selected audit
engagements

24. 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
environment
Select a sample of audit engagements for detailed
review

25. Small Practice Reviews
Focus is on firms performing a small number of EBP
audits
EBSA Office of Chief Accountant reviews
workpapers of selected audit areas
Scope of review may be expanded
Reviews performed in-house

26. 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

27. Audit Deficiencies Found in
Workpaper Reviews
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

28. 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

29. Fraud in EBP
“Sandhogs” Union Local 147
• $40 million embezzlement by fund administrator
DOL Criminal Enforcement Cases
• News releases at
http://www.dol.gov/ebsa/newsroom/criminal/main.html
DOL’s expectations and auditor’s responsibilities

30. DOL Regulatory Initiatives
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31. Informed Decision Making and Excessive
Fees – The Three Legged Stool
Disclosures by plans to participants of certain plan
and investment-related information – Interim Final
10/20/10
Disclosures to plan fiduciaries to assist in assessing
408(b)(2) reasonableness of compensation and
potential conflicts of interest – Interim Final 7/16/10
Disclosures to public and government on
electronically filed Form 5500 Annual Report
including indirect compensation – Form 5500,
Schedule C
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32. Fee & Expense Disclosures – Plan to
Participant (ERISA §404)
Effective – plan years beginning on or after 11/1/11
Requires fiduciaries to:
Give workers quarterly statements of plan fees &
expenses deducted from their accounts
Give workers core information about investments
available under the plan
Use standardized methodologies when calculating
and disclosing expense and return information
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33. Fee & Expense Disclosures – Plan to
Participant (ERISA §404) (continued)
Centerpiece – a requirement to provide investment-
related advice in a format that permits workers to
comparison shop among investment options
DOL has developed a model chart for complying with
this requirement
The reg., model chart, and fact sheet may be viewed
at www.dol.gov/ebsa
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34. Fee & Expense Disclosures – Service
Providers to Plans (ERISA §408(b)(2))
Brings new transparency to the process of selecting
and monitoring of plan service providers
Establishes comprehensive disclosures from
service providers concerning services, fees, and
potential conflicts of interest
Applies to plan contracts or arrangements for
services in existence on or after 7/1/12, extended
from 7/16/11, 1/1/12 and 4/1/2012
Applies to covered service contracts ≥ $1,000

35. ERISA § 404 Disclosures – Initial
Implementation Dates
First disclosure dates follow the
effective date of the 408(b)(2) regulation
Initial annual chart disclosure of “plan
level” & “investment-level” info –
8/30/12
First quarterly statements – 11/14/12
Clients need your pro active help 36

36. Clarification of the Meaning of “Reasonable
Arrangement” in 408(b)(2) Disclosure Rules
All service agreements must be in writing (no
prescribed format)
Impose new service provider disclosure
obligations before or at the time the plan enters a
service agreement

37. 408(b)(2) Disclosure Rules – Covered Service
Providers
Persons who provide services as an ERISA fiduciary
or under the Investment Advisors Act of 1940.
Persons who provide certain recordkeeping or
brokerage services and make available investment
options to be offered by the plan
Persons who receive or may receive indirect
compensation for the following services:
accounting, auditing, actuarial, appraisal, banking,
consulting, custodial, insurance, investment
advisory (plan or participants), legal, recordkeeping,
brokerage, TPA, or valuation

38. 408(b)(2) – Required Disclosures
Service providers are required to disclose (before
the parties enter into an agreement for services):
• All services to be provided under the agreement
• The compensation or fees to be received for each
service
• The manner of receipt of compensation or fees
• Information about conflicts of interest.
Establishes disclosure burden on service provider –
integrated with 2009 Form 5500 Schedule C
Reporting

39. Consequences of Non Disclosure =
Prohibited Transaction
Contract or arrangement will not be “reasonable”
and violates 408(b)(2)
Responsible Plan Fiduciary violates 406(a)(1)(c) by
participating in the prohibited transaction.
Reportable on Schedule G
Service provider is a “disqualified person” under IRS
prohibited transaction rules and is subject to excise
taxes under Code section 4975
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40. Investment Advice
Final rule published in the Federal Register – October 25,
2011
Designed to improve participant access to fiduciary
investment advice
Permits a fiduciary investment adviser who receives
additional fees from investment providers if certain
conditions are met
• Use of a computer model that is certified as unbiased by
an independent expert or
• Through an adviser compensated on a “level-fee” basis,
meaning that the fees do not vary based on investments
selected
May be viewed at http://s.dol.gov/J4
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41. Definition of Fiduciary Project
DOL intends to re-issue proposed rule
The purpose of the reg. is to ensure that potential
conflicts of interest among advisors do not
compromise the quality of investment advice
The proposed reg. would more broadly define
“fiduciary” when a person provides investment
advice
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42. Definition of Fiduciary Project - Continued
Revisions are likely to:
• Be limited to individualized advice directed to specific
parties
• Address concerns about the effect of the reg. on routine
appraisals and arm’s-length commercial transactions
Anticipated exemptions will:
• Address current fee practices of brokers and advisors
• Clarify that longtime exemptions that allow certain
commissions will still apply
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43. Interim Policy on Electronic Disclosures
Technical Release 2011-03
Expands the ability of plans to use electronic disclosure
requirements under DOL’s final participant-level fee disclosure
regulation
Allows plan administrators to furnish information electronically
while ensuring that all employees will benefit from the
regulation’s increased transparency
Includes the use of continuous access websites if certain
conditions and safeguards are met
DOL will not take enforcement action solely based on a plan
administrator’s use of electronic technologies
Please see: www.dol.gov/EBSA/pdf/tr11-03.pdf

44. Guidance for Apprenticeship & Training
Programs – FAB 2012-01
Issued 4/2/12
Provides guidance regarding plans paying
graduation ceremony and advertising expenses
Certain “modest” graduation ceremony and
outreach expenses are permissible
Violations more prevalent where plans lack written
expense policies & internal controls
OLMS has published a list of useful internal controls

45. Reporting Compliance Initiatives
• Electronic Communication
w/Filers
• Schedule C Compliance
• Reporting of Funded Welfare
Plans
• Missing IQPA Reports
• Collaboration w/IRS & PBGC
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46. And Now it’s Your Turn…
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