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Senate bill to crack down on fraud would change the way CPAs do pension plan audits.

Senate Bill to Crack Down on Fraud Would Change the Way CPAs Do Pension Plan Audits

Senators Jim M. Jeffords (R-VT.) and Paul Simon (D-Ill.) have introduced legislation intended to curb private pension plan fraud by amending audit requirements under the Employee Retirement Income Security Act of 1974 (ERISA). Among its changes, the Pension Audit Improvement Bill (S 1490) would broaden the scope of the audits and change the way CPAs report violations and qualify to perform ERISA audits.

The Department of Labor and the General Accounting Office were integral players in drafting the legislation. From 1987 to 1989 the DOL issued three reports concerning problems with the independent audits of private pension plans, and the GAO published a report in 1992 recommending several changes in pension plan audits that appear in the Senate bill.

Scope of audits broadens

If enacted, S 1490 would repeal the use of the limited scope audit, subjecting all plan assets to full audits. Under current law, plan administrators can choose a limited scope audit by instructing the independent accountants not to audit assets held by certain government regulated entities, such as banks or insurance companies. The American Institute of CPAs has advocated the elimination of the limited scope audit since 1978.

Randi L. Starr, partner of Deloitte & Touche in Pittsburgh and chair of the AICPA employee benefit plans committee, told the Journal eliminating scope restrictions was something the audit profession strongly supported and was a positive move from the plan participants' perspective. "It is very uncomfortable for auditors anytime they are instructed not to issue an opinion," said Starr. "Under the proposed legislation, auditors would be required to audit plan investments, which are, with few exceptions, the most significant item in a pension plan's financial statements."

New role for CPAs

The bill also would give CPAs a new responsibility for reporting to the secretary of labor. Auditors would be required to report serious ERISA violations, such as theft, embezzlement, bribery or kickbacks, to the plan administrator within five business days after the auditor has reason to believe a violation has occurred. If after five business days the plan administrator failed to notify the DOL of the auditor's report, the auditor would have one business day to furnish the DOL with a copy of the original notification given to the plan administrator. Similar notification requirements would apply to the termination of an engagement. Willful and knowing failure to comply with the notification requirements could subject auditors to fines up to $100,000. The bill also would provide auditors who report plans violating ERISA some protection by requiring pension plans that terminate an accountant to provide the secretary of labor with violation notices up to 18 months earlier than currently required.

"The reporting process for ERISA violations always has been required when filing one of the supplemental schedules that is filed with form 5500, but it has been on a delayed schedule," said Starr. "This bill would require the same information be reported to the DOL on a much more timely basis." Starr said the bill would require the auditor to report to the secretary of labor if the plan administrator committed the violation and there was no one else in the plan structure or management to report to.

New auditor qualifications

Auditors performing ERISA audits would be required to satisfy, every two years, continuing professional education requirements that focus on ERISA audits. "The CPE requirements in the new bill are similar to those for auditors who perform yellow book audits," said Starr, referring to the Government Auditing Standards. "This bill would impose a 16-hour CPE requirement in employee benefit plan matters."

The bill also would require auditors to have an external quality control review during a 3-year period before an engagement for an ERISA audit. ERISA auditors must have an appropriate internal quality control system. "The DOL and the AICPA want to ensure qualified auditors perform ERISA plan audits" said Starr. "These requirements could give some CPAs cause to stop and question if ERISA audits are something they wish to continue doing." Starr said CPAs who perform only a few ERISA audits a year may choose not to continue that service. The education and peer review requirements are subject to change as the bill moves through the legislative process.

The AICPA worked closely with the Department of Labor to strengthen ERISA audits and supports the bill. The bill's peer review and CPE requirements would apply to plan years beginning three years after it was signed into law. Companion legislation has not been introduced in the House.


FDIC Will Govern Resolution Trust Corporation Activities

The Federal Deposit Insurance Corporation announced its plans for the remaining regulations and contracts of the Resolution Trust Corporation (RTC), the agency established in 1989 to manage the assets and liabilities of failed savings and loans institutions. Congress closed the RTC on December 31, 1995, and transferred all the agency's functions to the FDIC.

The FDIC will govern the activities formerly subject to RTC regulation, with the following exceptions:

* Any rights and obligations that arose under the RTC's regulations before December 31, 1995, for RTC-related work will continue in effect.

* The RTC's affordable housing program will continue to operate under the RTC's existing rules.
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Publication:Journal of Accountancy
Date:Mar 1, 1996
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