July 9, 2009
Please re-consider your proposed action to require surprise audits of Registered Investment Advisors who deduct fees from client accounts. This would impose a considerable cost on our businesses, and it would serve no useful purpose.
Too often, the regulatory apparatus in our country over-reacts to crimes against investors. As I see it, Madoff worked a criminal enterprise against his clients. Madoff had a CPA (albeit a small CPA without the requisite experience and staff) who could have done the surprise audit. Madoff could comply at minimal cost to his criminal enterprise. Madoff’s clients would still be destitute as they are now.
Your proposed audit requirement takes the usual regulatory course of imposing more work and cost on the honest businesses. I recommend you examine your own audit experience with Madoff to determine just what steps you should have taken to uncover his criminal activity. If you didn’t discover his criminality when you examined his business, why would you expect a surprise audit from a CPA to uncover one?
Again, please re-consider your proposed action to require surprise audits.
Myles J. Crowe, CPA, CFP
The Foundry Financial Group, Inc.