Shrunken Compliance, Internal Audit Staff / ICAP, 5 RRs Settle SEC Charges for Displaying Fictitious Trades and Misleading Customers

Compliance and internal audit were not spared layoffs. According to a poll by Deloitte Financial Advisory Services, 27% of executives reported reductions in these areas in the past 18 months, despite the fact that compliance experts and internal auditors were heavily recruited just a few years ago, in the wake of the Sarbanes-Oxley Act.

As reported by CFO Magazine, for compliance staffers left behind, the role becomes more daunting. Particularly as companies cut travel budgets, the ability to do thorough site visits is limited, says Francis. "How does internal audit now execute their responsibilities?" she asks. "How can they be more strategic in their review and monitoring? There are lots of challenges facing the remaining personnel." More than ever, close coordination among internal audit, legal, and compliance personnel "is critical," she says.

Despite the reduction in compliance personnel, 50% of respondents to the Deloitte survey, who included CFOs, CEOs, board members, and middle managers in finance and risk management, said their compliance and ethics programs are strong. Another 36% said they are adequate. Many public companies and some private companies invested significantly in their compliance programs after the passage of Sarbox in 2002, notes Francis, and they may now feel confident that those programs are effective even with a reduced staff. But that confidence may not always be justified. "What seems to be slipping is the actual testing or review or active monitoring of transactions or behaviors," she points out. "That's the risk."

Meanwhile on Dec. 18 the SEC and the U.S. subsidiary of the world's largest inter-dealer broker, U.K.-based ICAP plc,settled fraud charges that alleged deceptive activity and material misrepresentations to customers concerning its trading activities. ICAP agreed to settle the SEC's charges by, among other things, paying $25 million in disgorgement and penalties. SEC additionally charged five ICAP brokers for aiding and abetting the firm's fraudulent conduct and two senior executives for failing reasonably to supervise the brokers. The individuals have each agreed to pay penalties to settle the SEC's charges.

Link to SEC ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS vs ICAP and Ronald A. Purpora, Gregory F. Murphy, Peter M. Agola, Ronald Boccio, Kevin Cunningham, Donald E. Hoffman, Jr., and Anthony Parisi