Effective Chapter 13 Trustee Audits

This article originally appeared in the ABI Journal, Vol. XLV, No. 7, July 2026.

A recent ABI Journal article offered several suggestions to fix an allegedly broken process for the independent audits of chapter 13 trustee operations.[Footnote 1] The authors questioned the basis for imposing audit costs on chapter 13 trustees, characterized the audit process as expensive and inefficient, and posited that audit costs negatively impact distributions to creditors and are unfairly imposed on chapter 13 debtors.  

The U.S. Trustee Program (USTP) provides this response to dispel misconceptions about the chapter 13 trustee audit process, which has served the bankruptcy system well for decades. 

As a critical and necessary component of chapter 13 case administration, independent audits by certified public accountants (CPAs) promote efficiency and integrity for the benefit of all bankruptcy stakeholders.  They are an actual, necessary and appropriate expense of standing trustee operations and a cost-effective oversight tool for safeguarding estate funds.  In other words, audits are not conducted solely for the benefit of trustees.  The costs have no appreciable effect on creditor disbursements or on debtors, considering the average cost per trustee audit is less than $12,000, compared with the billions of dollars that chapter 13 trustees collect and disburse to creditors each year. 

Nevertheless, the USTP agrees that audits should be as effective and efficient as possible.  To that end, the USTP values feedback and collaboration with the chapter 13 trustees, which have yielded several important process improvements over time. 

Audits Are Integral to Case Administration 

Since its inception, the USTP has had a statutory mandate to appoint and supervise trustees—which remains a top priority today.  Annual audits are a critical and necessary component of the USTP’s chapter 13 trustee oversight and supervision of case administration. Indeed, they are required in connection with the closing of chapter 13 cases, as confirmed by the USTP’s memorandum of understanding with the Administrative Office of the U.S. Courts.[Footnote 2] The MOU specifically requires the USTP to review the trustee’s administration of chapter 13 cases based in part on annual audits of standing trustees by independent CPA firms.  The MOU also requires that audits include an in-depth review of selected chapter 13 cases for the accuracy of receipts and disbursements, and that “internal controls and procedures will also be scrutinized.”  The audits cannot be limited to audits of “financial records,” as the article’s authors advocate.   

Audits Are Cost-Effective

The USTP issued new chapter 13 trustee audit contracts in 2024.  In doing so, it ran a competitive bidding process, selected the firms and set the audit terms after careful review of the bids to ensure that the audits remain independent, price-competitive and adequately staffed.  When reviewing bids, the USTP evaluated the soundness of the firm’s understanding of the statement of work, the experience and qualifications of the firm and its staff, the firm’s strategy for managing the contract and meeting deadlines, and the firm’s past performance. 

As the article correctly notes, the average cost per audit in FY 2025, including travel costs, was about $12,000.  Currently, nine CPA firms conduct chapter 13 trustee audits with fixed-price agreements: a set audit fee, plus actual, capped travel costs for any in-person fieldwork.  For each year, the audit fees are fixed per contract regardless of the number of auditors employed or time spent by each CPA firm. 

The article also quoted a $10.8 million cost of chapter 13 trustee audits.  To be clear, that figure represents the estimated total cost for all trustee audits over the entire five-year cycle of the current audit contracts.  Under those contracts, trust operations incurred a total of about $1.9 million in costs for 164 audits in Fiscal Year (FY) 2025.   

From a percentage standpoint, annual audit costs are infinitesimal compared with the billions of dollars that trustees collect and disburse each year (0.04 percent of $4.4 billion in total distributions in FY 2025).  Audit costs are also a tiny percentage of trust operation expenses, representing only 0.64 percent of those expenses in FY 2025.[Footnote 3] By comparison, trust operations spent about $2.5 million, or about 0.84 percent of their total operating expenses, on bank charges. 

The USTP Streamlined the Audit Process

The chapter 13 trustee audit has two components: an audit of the standing trustee’s annual report of receipts, disbursements and expenses, and a report on “Prescribed Procedures.”  The Prescribed Procedures consist of 54 separate review elements regarding the trustee’s internal controls and compliance with the USTP’s Handbook for Chapter 13 Standing Trustees.  The Prescribed Procedures primarily focus on the adequacy of the trustee’s internal controls in managing the various aspects of the trust operation, including banking and bonding; receipts, disbursements and expenses; recordkeeping and reporting; case monitoring and administration; and computer systems. 

Before 2020, audits were conducted at standing trustees’ offices. In response to the COVID pandemic, the USTP modified the process so that all audits could be conducted remotely, beginning with FY 2020 audits and until abatement of health and safety directives. Based on this experience and in consultation with the National Association of Chapter Thirteen Trustees (NACTT), the USTP implemented new streamlined audits in 2024 under the new contracts.  The audits have been reduced in scope, with fewer tested elements and less in-person fieldwork starting in the second contract year.  The streamlined audit procedures improve efficiency and effectiveness by leveraging the audit firm’s experience in auditing the trustee in prior years to undertake risk-based assessments to determine which elements must be reviewed every year, such as procedures that trustees have not materially changed from year to year. Reducing in-person fieldwork also naturally reduces travel costs.  Mindful of the financial impact, the USTP implemented a new procedure for waiving in-person fieldwork for small trust operations, on a case-by-case basis, beginning in the second contract year.  For the final year, the USTP will determine whether all or a portion of the fieldwork may be performed remotely for all trustees.[Footnote 4]

Beyond streamlining, the USTP’s oversight of the audit process also extends to ensuring that audits remain a cost-effective and valuable trustee oversight tool.  The USTP strongly agrees with the authors that audit firms must have the requisite competence and skill to perform their important work.  Auditors must strictly adhere to the statement of work.  They must also be familiar with USTP policies and have sufficient skill, education and experience to perform trustee audits.  Each year, the USTP determines whether to renew the contract for each firm, conditioned upon the firm’s certification that there have been no material changes to the number, experience or skill level of the audit staff, among other certifications.  Should any firm fail to meet expectations, renewal for subsequent years of the contract may be denied.   

The USTP shares trustees’ concerns about auditors’ inexperience leading to repetitive and onerous document requests that could fall outside the scope of the statement of work.  The USTP regularly solicits trustee feedback during the audit process and acts when necessary to address concerns.  And trustee feedback plays heavily in any USTP decision to decline exercising contract options for subsequent years and award subsequent audits to a replacement CPA firm. 

Trustee Audits Are an Appropriate Expense of Trust Operations  

Trust operations are funded by a percentage fee collected from debtor plan disbursements.[Footnote 5] The USTP fixes the percentage fee annually based on the maximum allowable amount of statutory compensation and the actual, necessary expenses of the trust operation.[Footnote 6]  Standing trustee compensation and expenses are not subject to review and allowance as administrative expenses under section 330(a) of the Bankruptcy Code.[Footnote 7]  They are reviewed and approved by the United States Trustee.[Footnote 8]

The cost of chapter 13 trustee audits is an appropriate expense of the trust operations.[Footnote 9] The audits promote efficiency, accountability and integrity, and they strengthen internal controls of trust operations, for the benefit of all stakeholders.  Maintaining strong internal trustee controls is essential for safeguarding trust operation funds and preventing their misappropriation or dissipation.  Experience has demonstrated that weaknesses in trustee internal controls are a fertile area for loss of estate funds, whether by inadvertence, mismanagement, fraud or embezzlement. 

Audits are an important oversight tool and have resulted in correction of material weaknesses in trustee operations and the USTP’s identification of other serious trustee performance deficiencies.  This includes when auditors discovered a pervasive misuse of trust assets for the operation of a personal business and several other instances of diversion of estate funds by  trustees or their employees.  Those discoveries prompted serious consequences, including replacing the trustee and criminal prosecution in some cases.  Holding trustees accountable and safeguarding trust operations is an actual and necessary expense of trust operations. 

The MOU further confirms that audit costs constitute an actual and necessary expense of the administration and closing of chapter 13 cases.  The MOU specifically recognizes that these audit costs are an appropriate expense that trust operations should absorb given the trust operations’ volume of cases and substantial disbursements each year.[Footnote 10] At an average cost of $12,000 per trustee, the audit costs have minimal impact on the percentage fee collected from the debtors or disbursements paid to creditors in the cases that the trustee administers.

Conclusion 

The USTP has regularly consulted trustees and the NACTT on ways to improve audits.  The USTP closely consulted with NACTT in 2024 regarding the implementation of the new streamlined audit process, including the reduction of in-person fieldwork over the five-year contract cycle, as well as a new procedure for waiving in-person fieldwork for smaller trust operations on a case-by-case basis.  The USTP also made changes to the statement of work at NACTT’s specific request.[Footnote 11] In addition, the USTP solicits trustee comments and feedback each year about the conduct of the audits, and the USTP made adjustments in response to trustee input to improve the process. 

The USTP looks forward to continued engagement and dialogue with trustees on ways to make audits—a critical and necessary component of chapter 13 case administration—as efficient and effective as possible. 

Footnotes:

[1]  “Show Me the Money: The Chapter 13 Trustee Audit Process,” ABI Journal (March 2026).

[2]  Amended Memorandum of Understanding Between the Executive Office for United States Trustees and the Administrative Office of the United States Courts Regarding Case Closing and Post Confirmation Chapter 11 Monitoring (MOU) (April 1, 1999), available at https://www.justice.gov/ust/rules-and-federal-register-notices/memorandum-understanding-regarding-case-closing (last visited April 1, 2026) (“With regard to chapter 12 and 13 case closings, the United States Trustee’s review will be based on the supervision of the standing trustee through reporting requirements, budget approvals and onsite visits as well as an annual audit by an independent certified public accounting (CPA) firm.”).

[3]  About $296 million in operating expenses, compared with $1.9 million in audit costs.

[4] All chapter 7 trustee audits are conducted at the trustee’s office.

[5]  28 U.S.C. § 586(e)(2).  

[6]  Id. § 586(e)(1)

[7]  11 U.S.C. § 326(b).  

[8]  28 U.S.C. § 586(e)(1). 

[9]  The USTP disagrees with the authors’ suggestion that, in addition to funding chapter 7 trustee audits, the USTP should fund chapter 13 audits instead of chapter 13 trust operations.  USTP funding of chapter 7 trustee audits reflects structural and practical differences between chapter 7 and chapter 13 trustees.  In chapter 13, standing trustees receive a set annual compensation amount plus actual and necessary expenses approved by the USTP, all of which are paid from the percentage fees the trustees collect from all cases without further court approval.  See 28 U.S.C. § 586(e).  Unlike their chapter 13 counterparts, because most chapter 7 cases are “no asset” cases, chapter 7 trustees’ compensation is limited to the “no asset” fee paid from the filing fee and practically audit fees (or any of the trustee’s expenses) would not be paid in those cases.  In asset cases, chapter 7 trustees would have to undertake the additional task of obtaining court review and allowance of the audit costs as administrative expenses in each of those cases.  See 11 U.S.C. § 330.  In other words, given the importance of trustee audits in performing its oversight responsibilities and consistent with the statutory framework, the USTP ensures that the costs of trustee audit are fully funded in both chapter 7 and chapter 13 cases.

[10]   MOU, supra note 5, at ¶ IV.C (“If the standing chapter 12 and 13 trustee caseload or cash flow falls below the threshold amount for the hiring of an independent CPA, an annual review will be conducted by the United States Trustee’s office or other office of the Department of Justice.”).

[11]  For example, at the NACTT’s request, the USTP modified the statement of work in 2024 to simplify the review step concerning the trustee’s filing of final reports in cases that are converted to chapter 7.