The Department of Labor has released findings from a review of auditors of employer-sponsored retirement plans, and the news isn’t good.

The Employee Benefits Security Administration’s study “reveals serious issues with the current system,” according to a release from the Department.

Of the 7,300 CPAs that audit more than 81,000 benefit plans, the EBSA found that 39 percent of audits contained “major deficiencies,” putting $653 billion and 22.5 million plan participants at risk, according to the report.

“The existing patchwork of regulations and rules needs to be overhauled and a meaningful enforcement mechanism needs to be created,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi, in a statement.

“The department is proposing, among other measures, legislation that will fix these problems,” she added.

Specifically, the report calls on Congress to amend the Employee Retirement Income Security Act’s definition of “qualified public accountant” to include additional qualifications specific to the requirements of plan audits. The Secretary of Labor would be given authorization to issue guidance for those new qualifications.

The EBSA is also asking Congress to repeal the so-called limited-scope audit exemption in ERISA.

ERISA requires annual independent audits of retirement plans. For qualifying plans, the limited-scope option allows auditors to rely on investment information obtained by third-party record keepers.

The primary relief in the limited-scope option is that auditors do not review the plan investments, meaning they don’t assess the value of the plan’s investments or whatever revenue-sharing agreements may exist. 

Also, auditors don’t have to issue a formal opinion of a plan’s financials, as they do in a full audit.

The EBSA report is asking Congress to repeal that relief, requiring all auditors to issue formal opinion assessments of all plans’ financials. That would incentivize auditors to more rigorously adhere to professional standards that “can withstand scrutiny,” according to the EBSA.

“The limited scope audit exemption undermines this incentive by limiting auditors’ obligations to stand behind the plans’ financial statements,” according to the report.

The study found a direct correlation with the increase in non-compliant audits and an increase in the number of limited-scope audits.

The percentage of limited-scope audits, relative to the overall audit population, has increased from 48 percent in 2001 to 83 percent in 2013.

The study also revealed substantial disparity in the quality of small and large CPA firm audits.

CPAs who only performed one or two plan audits annually had a 76 percent deficiency rate, whereas firms providing the most audits only had a 12 percent deficiency rate.