There are also a number of other techniques as part of the overall culture of compliance that you can use to prevent/uncover fraud. In no particular order, these techniques include the following:
- Compliance testing;
- Forensic testing;
- Monitoring phone usage;
- Monitoring internet usage;
- Monitoring email usage;
- Education and training;
- Internal audit; and
- Whistleblower hotline.
All broker-dealers and investment advisors should have clearly defined policies pertaining to monitoring the usage of the telephone and electronic media. Having such policies may dissuade someone from using them for improper purposes.
Likewise, when circumstances warrant, you may need to use forensic testing or internal audits. When conducting an internal audit, you should strongly consider employing outside counsel to spearhead that effort.
Although using outside counsel comes at an expense, not using one may have adverse consequences for maintaining the attorney-client privilege. Also, you should strongly consider using a different firm than one under retainer. By doing so, you can better promote the appearance of independence.
Depending upon the results of the review, you may need to make a disclosures to your regulator. At a minimum, take action to address any gaps uncovered by the examination.
Finally, employing a whistleblower hotline is consistent with a culture of compliance. It promotes the reporting of suspicious activity on a confidential basis.
No system is full proof, but put the odds in your favor. By doing more on the front end, you are in a better position to protect the firm from the bad acts of a few.