RIA Audit Readiness

The best way for RIA firms to prepare for a surprise regulatory audit is through a mock audit RIA Audit Checklist.  A RIA Audit Checklist for State and SEC Registered Investment Advisors (RIAs) allows you to focus on what matters. Both State and SEC RIA firms are subject to surprise examinations at any time and for any reason. Most surprise audits are usually triggered by one of three reasons:

  1. Routine Exams
  2. Formal Complaints
  3. Focused Areas of Risk

Most advisors find out about the audit the morning of the audit, when the regulator conducting the audit is waiting for you at the front door. Hence the term surprise audit/examination.  You may have scheduled back to back client/prospect appointments for the entire day but that does not matter. When the regulators show up they mean business and they want to get right to work right away.

Audit Planning and Preparation

Planning and preparation, using a RIA Audit Checklist, for this inevitable day is very important. Being prepared for an audit will help minimize the negative effects on your business. Being prepared will also minimize the stress on you and your staff. Being properly prepared will allow you the confidence and knowledge on what to expect. This confidence and knowledge will help minimize the negative effects on the business by showing auditors, your staff, clients, and prospects that it is business as usual in the office.

Upon the auditors arrival they should present you with pre-audit information with their authority to conduct the examination under the Investment Advisors Act of 1940 as well as the information the regulators will want to review as part of the audit.

Top 10 Pre-audit Best Practices

Using a “RIA Audit Checklist” is the first place to start your preparation. Here is a list of the “top 10 best pre-audit practices” to follow to help make the audit as painless as possible:

  1. Be friendly and accommodating to the auditor by acknowledging the importance of the audit and supplying the auditor with the following:
    • A clean and private workspace.
    • A copy of the RIA firms Policy and Procedures Manual.
    • Access to the RIA firms files and records.
    • An efficient and effective process for the auditor to ask questions to the Chief Compliance Officer (CCO).
  2. Spend 15-30 minutes educating the auditor of the day to day business procedures.
  3. Inform the staff of the audit and introduce the auditor to members of the staff. Reinforcing the method by which the auditor will direct questions to the staff.
  4. Supply the auditor with a list of staff, documents, and access to the hard & electronic files.
  5. Make sure that the auditor only has access to the information and documents associated with the Investment Advisory business.
  6. Maintain a list of all documents made available to the auditor.
  7. Set a time/appointment to meet with the auditor prior to the conclusion of the audit to review and clarify any outstanding items while he or she is still in the office.
  8. Request a follow up meeting to discuss and clarify any audit findings and deficiencies.
  9. Draft a professional deficiency letter addressing and correcting any findings and deficiencies.
  10. File a “Freedom of Information Act (FOIA) Confidential Treatment Request” immediately after the completion of the audit with the State or SEC. This is to protect confidential information being made public via a FOIA request.

The best way to prepare for an audit is to experience an audit first hand. Aurora offers “Mock RIA Compliance Audits” & “Certificate of Compliance” to firms looking to find and tie up any loose ends prior to the real thing. For more information contact Aurora Compliance Solutions.