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The Keys to Optimizing Your Branch Audit Program
Debbi Prince Associate Director, National Audit ProgramE-Mail: [email protected]
For eight years Debbi Prince has directed the Audit SolutionsDepartment for National Regulatory Services.
In this capacity, Debbi oversees hiring, training and the overall performance of the auditteam and logistics department. Under her supervision NRS delivers thousands of homeand branch office inspections for Broker-Dealers and Registered Investment Advisers.
Prior to NRS, Debbi managed the audit program for ComplianceMAX Financial. Prior toComplianceMAX she was a regulatory compliance auditor and consultant for Monahan &Roth, LLC. Debbi’s career in securities began in 1989 at First Allied Securities in theOperations and Compliance Departments then a move to Round Hill Securities gave herthe opportunity to relocate to North Carolina where she currently resides. Debbi hasbeen employed with NRS since 2004.
Debbi attended UC Raymond Walters College in Cincinnati with an emphasis on businessdevelopment and held Securities Licenses 7, 24,and 63.
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Tara Stevenson, IACCP®
Manager, National Audit ProgramE-Mail: [email protected]
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Tara Stevenson began her career with National Regulatory Services (NRS) in 2009, in which she has completed over 900 compliance audits nationally. In her current role of Manger of NRS Audit Solutions, she oversees the field audit team and client relationships, ensuring quality control and timely delivery of thousands of compliance audits annually.
In 2013, Tara successfully completed the Investment Adviser Certified Compliance Professional (IACCP) program and with such education she is able to provide sound and practical guidance to Registered Investment Advisors.
Tara graduated from California State University of Long Beach, CA with a Bachelor’s Degree in Business Administration and Marketing, with an emphasis on Finance.
Introduction
Under existing regulations, branch office inspections pose significant obligations of broker-dealer firms. The regulator’s top priority remains with “investor protection”.
It has been said, “An effective risk-based branch office inspection program is an important component of a broker-dealer’s supervisory system and when constructed and implemented reasonably, it can better protect investors and the firm’s own interest.”
Today we will look at ways to “Optimize your Branch Audit Program”.
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FINRA Rule 3110 requires that firms establish effective policies and procedures for the purposes of their branch examination program. Notice to Members 14-10
SEC OCIE Risk Alert provides guidance and signals that broker-dealers must strengthen their branch exam processes. Notice to Members 11-54
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Regulatory Alerts & Bulletins
Broker-Dealers are required to conduct on-site inspections of each office location.
Office of Supervisory Jurisdiction – annually
Supervision of Non-Branch Locations - annually
Non-Supervisory Branch – every three years at minimum
Non-Registered Locations / Office of Convenience – every three years at minimum
Certain Outside Business Activities – other cycle
Re-Audits – other cycle
Newly Registered Offices – other cycle
Various State Requirements - (e.g. Virginia, Washington, New Mexico, Maine,
Indiana, Oklahoma, etc. )
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Inspection Cycle
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Approximately 15% of your annual exams should be successful
unannounced visits.
The result of a prior exam aids in determining if the next visit should be
unannounced.
Risk based and “for-cause”
Random selection
Organize by geographic location
Organize by calendar events/holidays
Unannounced Exams
At what frequency do you conduct unannounced audits each year?
a. never
b. less than 10% unannounced
c. 10% - 20% unannounced
d. over 20% unannounced
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Polling Question
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Review your checklist
Size of the office
Scope of business activity
Products and services offered
Volume of business
Client base
Compliance issues / disciplinary history of RR in the branch
Pre-Audit review
Tailor the Focus
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Senior examiners; one who is seasoned and experienced.
A seasoned examiner is one who is possibly worked for more than one firm. One who has seen an array of branch models from different perspectives.
Review any possible conflict of interest
Able to challenge assumptions when necessary
Senior examiners should periodically shadow other auditors
Avoid examiners who hold a financial interest in the person or branch being
audited.
Staff of Examiners
Pre-Audit Process – be prepared when you get to the office• Consider a formalized pre-audit questionnaire to gather materials in advance• Study the materials provided to improve the integrity of your on site review
On Site Audit – the exam begins when you pull into the parking lot and isn’t completed until the exit interview
• Be observant from the moment you arrive until you leave• Encourage a thorough and challenging inspection process to address the specific office
location’s business model• Begin corrective actions where applicable (e.g. help the branch create mandatory compliance folders)
• Exit Interview/Exit Document
Post Audit – the corrective action process plays an integral part of the overall audit process
• Be sure to follow your corrective actions to completion
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Three Elements of an Audit
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A written record of the inspection must be kept by the firm, and this report must include, among other things, the testing and verification of the firm’s policies and procedures. The corrective action process plays a integral part of the audit process.
Many times this process takes a back seat to other responsibilities of an examiner (i.e. more branch exams, regulatory requests, the all-important time off). Maintaining and organizing all supporting documentation related to each exam along with all comments regarding corrective actions is essential to a successful program.
Corrective Action Process
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An area of focus in 2015 is the time it takes a broker-dealer to deliver responses to regulatory requests.
Do you have the staff?
Do you use technology?
How organized are you?
Reporting
Do you currently use technology to support your audit program?
a. No
b. Yes
c. Partially
d. Does not apply
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Polling Question
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What can undermine a successful audit program?
Staffing • Lack of resources• Turnover• Conflict of interest• Liability & riskBudget• Unannounced• Unexpected travel costs• EquipmentRegulatory PrioritiesSchedulingSufficient Year-End Reporting
Avoid Undermining a Successful Program
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THANK YOU
Debbi PrinceAssociate DirectorNRS, Field Audit Solutions 10089 Willow Creek Rd.San Diego, CA 92131Telephone: +1 828 595 2159Mobile: +1 828 243 8472E-Mail: [email protected]
Tara Stevenson, IACCP®
ManagerNRS, Field Audit Solutions10089 Willow Creek Rd.San Diego, CA 92131Mobile: +1 858 527 9466Office: +1 775 870 9628E-Mail: [email protected]
Oriana DeRoseVP of SalesNRS, Sales29 Brook StreetLakeville, CT. 06039Telephone: +860 596 0955E-Mail: [email protected]
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