Being audited can be an unpleasant experience. If your company is a busy firm, it is the last thing you need. It can cause headaches and stress for everyone involved. With the SEC hiring more auditors for 2016, how can you prepare yourself for a potential audit?
Types of Audit Examinations
Generally speaking, your company could be subjected to 3 different types of audit examinations: audits of advisers that are high risk, sweep exams, and cause exams.
Audits of advisers that are considered high risk are typically done every third year. When these are done, they could be preceded by an exam to determine if the firm is high risk. The firm is considered high risk if it is big enough that the amount of investors could be adversely affected, if it has employees with previous disciplinary history, if it has poor compliance or supervision controls, if it participates in activities that could lead to heightened compliance risks, or if it is affiliated with a broker-dealer and was discovered to have problems during its last examination.
A sweep exam is done to inspect a compliance issue that has been determined as a risk in more than one firm by the SEC. To determine who is at risk of a sweep audit, the SEC finds areas of recurring non-compliance, or faults based on an internal risk assessment process or routine risk-based exams.
A cause exam can begin with a report by an individual who is reporting past, current, or even imminent law violations. This type of exam can also be triggered by an SEC exam or media report that determines there is a cause for concern.
We know that being examined by an audit can be tedious, however there are tool that can help. eFileCabinet offers a compliance auditing tool that is not only affordable, it also offers full capabilities and is customizable by a Corporate Administrator to designate employees certain access. An administrator will have the opportunity to approve an audit without a disruption to the business.
It’s not pleasant to think of being audited, but being prepared is the key to having a successful outcome. Generally speaking, there are 3 ways to be prepared for an examination: a high-degree knowledge of the rules and regulations that are applicable to the firm, a focused compliance program with a tailored risk assessment, and a system of periodic self-scrutiny to ensure that employees are adhering to policies and procedures.
Make examination preparation easy with eFileCabinet’s audit trail tool. When you have an audit trail in place, you are able to see who is accessing files and what they are doing with those files. It keeps a chronological track of things that happen in your company’s DMS. Not only is it smart, but government entities such as HIPAA and FINRA require companies to keep track of this information.
The Exam Process
The exam process begins with the firm receiving an SEC letter. This letter will not list the reason why there is a need for an exam and does not make the auditing public information. If a firm is under a routine or higher risk exam, the letter will state there is an SEC examination and will ask for documentation from the firm. That documentation will most likely include an organized diagram demonstrating the advisor and all ownership, control affiliates and relationships, a list of employees which includes names and titles, a copy of the newest financial statements from the company, a list of private funds that are advised, a copy of offering documents belonging to private funds, and many other requirements.
The letter will state that documents should cover the past 2 years and need to be given to the SEC within 2 weeks. The CCO will be responsible for putting together and preparing this letter. After the letter is received, an interview will be conducted with a member of management. In this interview, the SEC gets to know the firm and gets an impression of the adherence and depth of compliance to procedures, policies, and transparency.
After documents are reviewed and the onsite interview is conducted, examiners will complete the examination within 120 days. If a problem is found, the SEC examiner may refer the issue to the Office of Enforcement for further action.
If you find yourself unprepared for an audit, eFileCabinet can help. With our easy search tools and filing system, you can find the documents that are needed quickly and accurately, which helps your company achieve the transparency it needs.
Our DMS file system is designed to help your company prepare itself for a potential audit. We provide document controls that support compliance to regulatory requirements like FINRA, SEC, and HIPAA. Our DMS storage solution is created with industry-specific specifications and standards in mind.
No one wants to be audited, but it can happen to any firm. Be prepared for SEC by using eFileCabinet for your DMS storage solutions.