Updated: Jan 11
As a business owner, there are few things that induce quite as much stress as receiving the dreaded letter from the SEC alerting you to an impending audit. However, whether it’s an audit with cause or simply a routine review, there are a few steps that the firm can take to prepare for the audit and ensure that it goes as smoothly and painlessly as possible.
1. Upper management interview preparation. As part of the general training process the CCO and other top level executives should be prepped in advance for the interview portion of the audit. Executives should review the OCIE exam brochure and SEC Form 1661. Additionally, any executives who may be involved in the SEC audit interview should be familiar with applicable portions of the Freedom of Information & Privacy Acts. To be fully prepared, the firm may want to consider doing mock interviews for upper management.
2. Establishment of a comprehensive compliance manual for all employees. As a standard operating procedure, each firm should have a detailed compliance manual that outlines standard operating procedures. The manual should cover a wide variety of topics including (but not limited to) insider trading, recording keeping, marketing and proxy voting procedures. The manual should be custom tailored to the firm, and all employees should be familiarized with the manual as part of the standard onboarding procedure.
3. Retain a consultant to review the firm’s policies and procedures. Bringing in an outside consultant who specializes in SEC due diligence can help the firm to discover weak points in the compliance procedure before it becomes an active problem during an audit.
4. Determine a strategy for the periodic review of the overall compliance plan. As the legislative landscape changes, it is important to review the plan at least annually in order to make sure that all new changes to the regulatory landscape have been incorporated into the plan.
5. Consider a cloud/paperless solution for recordkeeping and documents. A main pillar of the plan should be the establishment of an offsite, electronic back up plan for all relevant documents. Many firms have incorporated secure cloud networks in order to store documents that are crucial to the overall operation of the firm. Electronic back up is crucial to the business continuity and disaster recovery plan for the firm. Some even hire a 3rd party provider, like Loffa Interactive Group, to prove them with technologically advanced document retention, archival and storage applications. Please visit www.LoffaCorp.com for more information.
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By following these five steps, the firm can help to ensure that the SEC audit runs smoothly. While many firms will discover deficiencies in the process as part of the SEC audit, these steps can also help the firm to respond quickly to any requests from the SEC and promptly correct any deficiencies uncovered during the audit process.