A recent U.S. Department of Labor, Employee Benefits Security Administration report, detailing deficiencies of employee-benefit plan audits, shows a need for greater communication in the accounting profession, says one New York accountant who specializes in such audits.

According to the report, more than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefits plans, and 61 percent of those audits complied with proper standards. However, the remaining 39 percent of audits contained major deficiencies, which put $653 billion, and 22.5 million plan participants and beneficiaries at risk.

The report, entitled “Assessing the Quality of Employee Benefit Plan Audits,” found the most deficiencies came from CPAs who audit just a few plans, with a 76 percent deficiency rate. The firms performing the most audits had a deficiency rate of 12 percent.

“There needs to be a lot of outreach from a lot of different parties,” says Adam Lilling, a partner at Lilling & Company, LLP in Great Neck (Long Island). Lilling specializes in auditing employee benefit plans. His firm audits between 50 and 60 benefit plans annually.

While a deficient audit doesn’t necessarily mean there is something wrong with the employee-benefit plan, it can add up to a costly headache for both the auditors and the plan sponsor, Lilling says. Accountants found to perform deficient audits could potentially lose their license. Plan sponsors will be notified of a deficient audit and have 45 days to have a new audit conducted. Those who fail face a fine of up to $1,100 a day until a new audit is completed.

That’s why it’s important for organizations like the New York State Society of Certified Public Accountants (NYSSCPA) to reach out to members across the state to ensure they know proper procedures for these types of audits, he notes. Lilling chairs the NYSSCPA Employee Benefits Committee.

Only plan sponsors with more than 100 participants are required to have an annual audit done, Lilling says. What often happens is that the person at the business who oversees the benefit plan often reaches out to the company’s accounting firm to ask for the audit. Often, that firm doesn’t specialize in such audits, but agrees to do it as a courtesy to its client, Lilling says. The problems arise when those firms aren’t savvy about the ins and outs of these audits and fail to meet the required standards. The process is much more complicated than a financial-statement audit, he notes, and needs to include steps such as a review of the company’s census and timely remittance of plan contributions.

“If a census is wrong, the plan won’t be operated the way it should,” Lilling says. It’s not uncommon for the census, a document that governs entry into and exit from the plan along with a listing of company employees and their information, to contain typos and other simple mistakes. A typo in the year of hire, for example, could mean that an employee might be denied entry into the plan when he/she is in fact, eligible. 

To help resolve the issue of deficient audits, Lilling supports reaching out to those providers to let them know their audits are falling short and direct them to resources like the American Institute of CPAs and its Employee Benefit Plan Audit Quality Center

(http://www.aicpa.org/interestareas/employeebenefitplanauditquality/Pages/EBPAQhomepage.aspx) for information. Plan sponsors can also visit the site to find a member firm qualified to conduct their plan audits.

Along with increased outreach, Lilling also supports improved peer reviews to help spot problems, along with more education for plan sponsors on finding a qualified auditor and what the audit should include.

The U.S. Department of Labor has proposed amending the Employee Retirement Income Security Act of 1974 (ERISA) to amend the definition of “qualified public accountant” to add requirements and qualifications to ensure quality plan audits, and to repeal the current limited-scope audit exemption currently in place. The exemption means that accountants don’t need to render an opinion on the plan’s financial statements. Removing the exemption would most likely motivate auditors to adhere to professional standards to ensure their opinion can stand up to scrutiny.

“The high rate of audit deficiencies documented in this study are unacceptable and do not reflect the core tenets that the CPA profession holds dear: accuracy, transparency, and accountability,” NYSSCPA President Scott Adair said in a news release the organization issued May 28 to respond to the Department of Labor (DOL) report. “The New York State Society of CPAs is committed to working with the DOL, the American Institute of Certified Public Accountants, and the New York State Board for Public Accountancy to develop educational and practice monitoring solutions that result in significant improvement to employee benefit plan audits.”

The College Network says claim is not true   

New York Attorney General Eric Schneiderman announced early this month that he has filed a lawsuit against an Indiana company after upstate New York consumers complained they paid for “ineffective” study guides.

Schneiderman is suing Indianapolis–based The College Network (TCN) and its owner, Gary Eyler, accusing them of inducing “prospective nursing students to pay thousands of dollars for ineffective study guides through false and deceptive business practices.”

Schneiderman’s office cites court papers that include affidavits from three dozen New York state consumers, including some from the Syracuse, Rochester, and Buffalo areas, who said that they were “duped by the company.” 

It’s a claim that TCN says is “not true” in a statement released through Rochester–based law firm Harris Beach PLLC. The statement has the words “not true” listed in bold-face type.

The attorney general’s suit alleges that The College Network “preyed” on as many as 2,000 New York consumers who sought to obtain associate degrees in nursing, Schneiderman’s office contended in a June 4 news release.

TCN used advertising and “high pressure sales tactics” to create the “false impression” that it was offering online nursing degrees and that it was affiliated with Excelsior College, an accredited institution based in Albany that offers such degrees, according to the attorney general’s news release.

Additional details

Court papers indicate TCN targeted licensed practical nurses and paramedics with online advertisements that “created the false impression” that it was affiliated with Excelsior College and offered associate degrees in nursing that consumers could earn “in just 18 months,” Schneiderman’s office said. 

After consumers responded to the online advertisements, TCN dispatched sales representatives, referred to as “program advisors,” to consumers’ homes. The advisors “reinforced” the false impression that The College Network was affiliated with Excelsior College and engaged in “high-pressure sales pitches” to induce consumers to sign up for TCN’s “program.” 

However, the program consisted of “little more” than a series of study guides that many consumers found “difficult to understand” and that, “contrary to the company’s representations, did not prepare them for the required exams they needed to pass in order to get course credit.”

The court papers allege that TCN charged consumers about $500 for each study guide and “required” consumers to purchase upfront guides for every course they would need to earn their degree from Excelsior College. 

In many cases, the total cost of the network’s program exceeded $10,000, which “forced” most consumers to accept the financing that TCN offered, the attorney general alleges. In many cases, TCN “did not disclose” that the loans were being provided by a credit union, not TCN.

The suit also names Tennessee–based Southeast Financial Credit Union, which partnered with TCN to provide financing to consumers and American Credit Exchange, a collection agency that Eyler operates that attempted to collect from consumers who defaulted on their loans.

TCN  statement

TCN provides study guides and learning modules that “numerous professional” educators from colleges and universities nationwide have written. The company has been “successfully” delivering “quality products for our thousands of customers for more than 20 years,” according to the TCN statement.

Schneiderman’s “bloviating” statements are the “real” false advertising in this case, the statement went on to say. The law is “clear” and TCN has done “nothing unlawful,” it said. 

TCN said it sought “multiple independent” opinions from experts in the field of advertising and marketing to review the advertising, and provided the “uncontradicted” findings to Schneiderman “weeks ago.” And, the experts concluded that Schneiderman’s claims are “not supported by fact.” 

For example, Michael Pepe, a professor at Siena College near Albany, said the following in a sworn affidavit.

“The TCN advertising, contracting provisions, promotional and educational materials are consistent with typical industry materials and industry guidelines. The TCN materials are not misleading, improper or deceptive in a material way, and there is sufficient documentary evidence to conclude that TCN was not attempting to mislead the reasonable consumer or act in a deceptive manner,” according to the TCN statement.

TCN also said the conduct of “certain individuals” that Schneiderman employs has left it “shocked.” The conduct became “so egregious” that it reported the actions to the New York State Joint Commission on Public Ethics (JCOPE).

The TCN statement didn’t elaborate on the conduct about which it is complaining.

TCN “looks forward to vigorously defending this case in court” and JCOPE’s “thorough investigation of our ethics complaints” concerning Schneiderman’s office, according to the statement.