An upcoming audit often causes sleepless nights for even the most capable professionals. With an increase of SEC exams, it’s not a question of if your firm will be audited but when. Be proactive and start to prepare now to feel confident that you’re fully ready for your next exam.

The Audit Process

Usually, firms receive a two-week notice before an exam. But, there are cases when an examiner shows up unexpectedly. It is important to remember that audits will vary based on whether the exam is being conducted by a state or the SEC, and in the case of the former, which state is conducting the audit. 

Before an on-site visit, the examiner will request several different documents. Have copies of these documents ready for when the auditor arrives. They may request an interview to explain their visit with the Chief Compliance Officer (CCO). Expect a follow-up interview once the audit is complete to discuss any of their findings. Remember to file a “Freedom of Information Act (FOIA) Confidential Treatment Request”. An FOIA will protect confidential information from becoming public.

5 Ways to Prepare Now

  1. Document Everything: Keep a paper trail for all transactions. If you were out of compliance, document it. Explain the problem, measures taken to fix it, and a plan to follow for the future. Show that a culture of compliance is important to your firm.
  2. Understand Your Role in the Audit: While the Chief Compliance Officer will be the primary role responding to an exam, everyone is responsible for compliance. Do not wait until an audit to review RIA guidelines or to maintain your personal compliance obligations. CCOs should stay up to date with regulations, policies, and compliance manuals. If you need a crash-course on RIA expectations, the SEC has guidelines.
  3. Schedule Self-Audits Periodically: Self-audit your company. Establish a schedule and expose your employees to an audit atmosphere. Designate a space where the examiner can work. Prepare your employees by having mock-interviews, reviewing documents, and defining policies and procedures.
  4. Be Honest: This goes without saying, but do not lie. Fully answer every question an examiner asks. But, do not reveal any information they do not ask for. Audits may be intimidating, but you can be thorough without oversharing. The more information you give, the deeper the auditor will need to dig to verify it.
  5. Create a Culture of Compliance: Audits shouldn’t be a burden, especially when firms have a culture of compliance. Compliance is not a one-time action, but an ongoing commitment to process and integrity. An active compliance culture shows you’re acknowledging that the rules are there to protect yourself and your clients.

While this is not a comprehensive checklist, start with these simple steps. If you are worried about audit preparation, let us help you. Using software like SmartRIA will keep you audit-ready. Our easy-to-use platform alerts you when discrepancies arise, helping you stay ahead of risks. Ready to learn more? Schedule a demo today and see how SmartRIA can streamline your compliance today.

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