Audit Ready Incentive Compensation

The increasing cost of compliance and oversight – in time and money – is something investment services firms face every day. From internal audits that scrutinize our processes to regulatory bodies like FINRA and the SEC that scour over client data. In the past, audits, examinations, and inspections occurred a couple of times a year; however, this is no longer the case. We are now in an era in which continual audits are the norm, and financial services organizations need to be prepared.

Manual processes are a major impediment to achieving audit readiness. Spreadsheets and in-house technology systems are more prone to higher inherent risk. According to Gartner, manual compensation processes are subject to error rates between 3-8% of total incentive payouts. Manual processes cannot effectively and efficiently conduct surveillance and monitoring. A lack of data integrity controls and audit trails within incentive compensation processes expose an organization to risk. Learn how automating incentive compensation will ensure your investment program is audit ready.

FINRA Audit Guide

Maintain Data Integrity

Data quality suffers when its compiled from numerous disparate sources via spreadsheets and only gets worse when transferred from one stage to the next. Data integration technology ensures that your data in good order by aggregating multiple disparate sources and automates the processing of the data. Having all revenue aggregated into one database gives management the ability to set uniform data update rules. With all the data in one centralized place, your firm can expect accuracy and efficiency in your operations. Defining the rules for how branches and financial advisors receive credit for trades is decided, along with customer data update rules, and goes a long way in reducing data quality problems. Integrating all data into a centralized system eliminates the need for downloading files and updating spreadsheets manually. Data integration also facilitates the review and approval of payroll in an organized and expedient fashion. Mistakes and errors are easy to spot and correct, freeing the back-office and accounting teams for other business priorities. Fewer errors and less manual intervention provide increased back-office efficiency and more reliable reporting. 

Produce Comprehensive Audit Trails

In order to meet audit and regulatory compliance, investment firms need a transparent, comprehensive audit trail. By themselves, spreadsheets cannot produce historical audit trails that will sufficiently demonstrate compliance. Automated incentive compensation solutions address the lack of controls and audit trails associated with manual calculations, payments, and adjustments. Having a consistent set of rules and a robust audit engine produces accurate and consistent data empowering a firm to establish a repeatable business process and approval hierarchies. With automated incentive compensation tools, all changes to customer and transaction data are auditable with a detailed audit log of virtually all actions. Audit trails show who (or what automated process) made the change, when, and what the original value was. With automated incentive compensation technology, supervisory policies and procedures are more straightforward to enforce via automated trade surveillance and audit trails. Leveraging these auditable tools will help your firm prepare for the next audit, which ultimately will help simplify the audit process reducing time and costs.

FINRA Audit Guide
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