Have you arranged for your surprise audit?
Next year when your organization is filling out Form ADV Part 1 for the Securities and Exchange Commission (SEC), you will have to disclose the name of the accounting firm that conducted your surprise audit. Under recent rule amendments, you now have to have an independent public accountant verify the client funds and securities in your custody once during each calendar year.
The only exceptions are if your custody of the funds is limited solely to deducting advisory fees from clients’ accounts or you operate a pooled investment vehicle which is already subject to an annual audit.
“These new rules will apply additional safeguards where safeguards are needed most — that is, where the risk of fraud is heightened by the degree of control the advisor has over the client’s assets.”
Chair of the SEC
Your response to the new “surprise audit” requirement
You can depend on Plante Moran to help you effectively and efficiently respond to the newly required surprise audit. The firm has a team that focuses on serving the needs of the financial services industry and includes professionals who specialize in regulatory compliance, trust audits, and internal control audits.
In addition to a surprise audit or examination, you may need an internal control report if you have custody of client funds that are held by a “related person,” such as a trust department. The report must be done by an independent accountant who is registered with and subject to regular inspection by the Public Company Accounting Oversight Board (PCAOB) and it must be available for the SEC upon request.
If you need a written internal control report, you can rely on the internal audit specialists on Plante Moran’s financial services team. They are accustomed to meeting PCAOB standards for the fieldwork, quality control, and reporting necessary for internal control reports. If you have heard of SAS 70 reviews, this process is very similar.
Explaining the “surprise”
Traditionally regulatory agencies send examiners to “surprise” organizations. So how do you arrange for your own “surprise” audit? You enter into an agreement with Plante & Moran stating that it will verify your clients’ funds and securities “at a time chosen by the Plante Moran team without prior notice or announcement” to you.
You can depend on the team to deliver the results of its surprise audit to the SEC within the required 120 days after the verification. If the team finds material deficiencies, it must report them to the SEC within a day of discovery.
Making compliance a plus
Your clients will appreciate that you use recognized specialists like those on the Plante Moran team to verify their funds and securities. In similar regulatory compliance situations, we have clients who use a solid opinion from Plante & Moran to follow the law and to assure their clients they have taken extraordinary efforts to safeguard their information and their finances.