5 Simple Steps to Prepare for an Audit
Source: Jennifer Woods Burke is the president and founder of CompliGuide LLC, a retained compliance consulting firm offering consulting services and products to financial services firms in the United States.
1. Use an Audit Protocol<br><br>
"I have seen exams spiral out of control when employees do not understand what is expected of them and what they should definitely not do," said Jennifer Woods Burke, president and founder of CompliGuide LLC, a Palisades, N.Y.-based compliance consulting firm.
An audit protocol sets expectations and establishes limitations.
"Whether this is the firm's first audit or the last audit did not go well, it is important that employees are trained on the process and that guidelines are implemented and followed throughout the audit process," she added.
2. Organize Like a Lawyer<br><br>
"A bit of planning in the beginning can eliminate hours of time searching for documents which may or may not have been produced," Woods Burke said. "Most copiers provide firms with the ability to index the documents and this simple tool can prevent duplication of documents and futile searches through the production." She adds that "streamlining the process makes it simpler and minimizes the possibility of mistakes."
3. Benchmark in the Community<br><br>
"Ideally, on a quarterly or bi-annual basis firms should speak with like-sized firms and compliance consultants to see what is happening on the street with the regulators," Woods Burke recommends. "If a trend emerges, then the firm knows that it has to focus internal resources on that area in preparation for an exam."
4. Train the Regulator<br><br>
"It is not a secret that the SEC has made significant changes internally to have experts in various fields and disciplines," Woods Burke said. "But that does not mean that the regulator walking through your door knows what you need him/her to know."
"Often, my clients will provide the regulator with a crash course in a particular aspect of the business or in a procedure so they understand it completely. One of the worst things that a firm can do is fail to provide enough good information - the regulatory assumption is likely to be that there is no system or that it is inadequate when that may not be the case," she adds.
"Regulators are people too, and firms that provide the regulator with the opportunity to ask questions and air concerns demonstrate that the firm is fully engaged in the process and willing to cooperate with the regulator."
5. Strategize<br><br>
If you know that you have an email problem, spend the time and money with an expert to fix it before it becomes a regulatory problem.
Too often firms hesitate to bring outsiders in on the belief that they can't afford the time or resources.
"Most items can be fixed quickly and cost effectively, but a regulatory problem cannot," Woods Burke said. "In addition to the costs involved to defend or settle, a regulatory issue can damage relationships with clients, recruits and also compromise internal morale."
Also firms should budget for an audit by an external auditor.
"A firm is limited by its experiences and the experiences of its staff," she said. "Consequently, firm personnel may miss an issue which would be glaring to someone else. A fresh set of eyes can shore up holes in process that are often missed."
Also see:
5 Financial Advisors Caught in the SEC's Crosshairs
5 Top Practice Management Tips for Advisors
10 Mind Tricks That Keep Your Clients in the Red