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Risk-Based Audit Selection

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21 diapositives · 402 Views · Oct 12, 2014

Session 5: The NFA Audit Process Panelists: Roxanne Bennett, Price Asset Management Jennifer Sunu, NFA Matt Pendell, NFA. Risk-Based Audit Selection. Concerns noted during a review of the firm’s promotional materials, disclosure documents and/or financial statements

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Risk-Based Audit Selection
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  1. Session 5:The NFA Audit ProcessPanelists:Roxanne Bennett, Price Asset ManagementJennifer Sunu, NFAMatt Pendell, NFA

  2. Risk-Based Audit Selection • Concerns noted during a review of the firm’s promotional materials, disclosure documents and/or financial statements • Funds under management or degree of leverage • Customer complaints • Referrals NFA receives from other agencies • Time since registration or last audit

  3. Self-Examination Checklist • First step toward a successful NFA audit • General operations checklist • Supplemental checklists for FCMs, IBs, CPOs and CTAs • Signed attestation required • If you have questions, contact NFA at 1-800-621-3570

  4. Other Available Resources • Publication: NFA Regulatory Requirements for FCMs, IBs, CPOs and CTAs • NFA Podcast (10 minutes) and Web Seminar (one hour): “Preparing for an NFA Audit” • NFA Podcast (10 minutes): “Registration Issues – Principals, APs and Branch Offices • Appendices to Self-Exam Checklist: AML, ethics training, privacy policy, disaster recovery

  5. NFA Audit Process • Pre-exam • Planning Interview • Initial Record Request • Fieldwork • Opening and Exit Interviews • Document Review/Testing • Additional Record Requests • Completion of Audit • Report • Corrective Action

  6. Areas of Focus

  7. Areas of Focus • Registration of APs, Principals, Other Firms • Promotional Material • Disclosure and Performance Reporting • Account Opening • Trading • Supervision • Handling of Pool Funds • Financial Reporting

  8. CPO Audits: New Areas of Focus • FAS 157 Hierarchy • Valuation Policies • - Reasonableness • - Conflicts of Interest • - Disclosure • - Exception Reports

  9. CPO Audits: New Areas of Focus • Side Letters/Preferred Redemptions • - Compliance with Lock-Up or Gate Provisions • - Disclosure • - Just and Equitable Principles

  10. CPO Audits: New Areas of Focus • Side Pocket Investments • - Reasonableness of the Classification • - Valuation • Strategy Promotion • - Due Diligence Process • - Multi-Advisor • - Fund-of-Funds

  11. Common Audit Deficiencies

  12. Registration • Unlisted principals • Unregistered Associated Persons • Failing to update registration records • Bylaw 1101

  13. Bylaw 1101: Due Diligence • Does the account appear to require registration? • If not, why not (exemption, offshore) • If yes, why and is it registered? • Is the pool operator an NFA member?

  14. Bylaw 1101: Where to look • BASIC • Part 4 Exemption Look-Up in ORS and BASIC • Ask firm for copy of exemption • In all cases, document findings

  15. Disclosure Documents • Operations inconsistent with disclosure • Fees • Redemptions • Trading Strategy • All required performance not disclosed • Performance capsule information inaccurate • Number of accounts • Total assets under management

  16. Bunched Orders • CTA must conduct a quarterly review of accounts to ensure that bunched orders are allocated in a non-preferential manner

  17. Pool Financial Reporting • Incomplete account statements • Information only included for the individual pool participant • Statements must include information for the pool in its entirety • Statements do not properly itemize all required information • Additions/Withdrawals • NAV per unit

  18. Pool Financial Reporting • Required information beneath the oath on each account statement: • The name of the individual signing the account statement • The capacity in which he or she is signing • The name of the commodity pool operator for whom he or she is signing • The name of the commodity pool for which the statement is being distributed

  19. Performance • No supporting worksheets • Inappropriate use of composite performance capsules • Details covered during Session 2

  20. Other Items • Distribute a privacy policy to its customers upon establishing the relationship and on an annual basis. • Attend ethics training within the time period established in firm’s procedures • Review/test disaster recovery plan at least annually • Complete Self-Exam Checklist annually

  21. Session 5:The NFA Audit ProcessPanelists:Roxanne Bennett, Price Asset ManagementJennifer Sunu, NFAMatt Pendell, NFA