Director's Oversight Review

The unprecedented damage to the reputation of the mutual fund industry has heightened the concerns of mutual fund trustees, board members and management teams throughout the country. While new SEC reforms are being advanced and adopted, their magnitude, complexity and costs have yet to be fully determined. They are, however, requiring significantly greater attention by mutual fund boards and management to the inherent business risks and operational processes currently employed in the conduct of the business.

The adoption of new Rule 38a-1 by the SEC requires that a fund oversee not only its own compliance programs but also those of its advisor, underwriter, administrator and transfer agent. Moreover, provisions contained in the most recent congressional bills significantly raise the prospects of individual investor and governmental lawsuits against directors. Although many organizations have written policies and procedures, the SEC is requiring significantly more documentation. As a consequence the rules affecting Director's responsibilities have placed a significantly greater burden in the evaluation and control of the compliance activities and inherent risks associated with fund and advisor investment activities. In many fund complexes independent directors, compliance and audit chairs are retaining experts to bolster a best practice environment in consonance with the on-going work of their fund counsel and other compliance specialists.

ICC provides independent advice and guidance on business, operational, and process risk and the controls necessary to manage them. Our Director's Oversight Review SM service has been designed to identify and document the suitability of current internal business processes, operational controls and reporting necessary to meet the new compliance and certification support requirements. This unique service has been developed to assess a firm's current state of operational and technological readiness as well as the adequacy and effectiveness of its reporting, compliance, risk and control processes.

The rapidly changing environment will require investment complexes to revise processes required to meet the new regulatory and governance guidelines. Moreover, they will require management teams to reevaluate the functional complexity of their technical infrastructures. ICC's approach examines existing operational and business processes, identifies gaps and the risks that each represents and recommends solutions necessary to mitigate and manage the required changes.

Our approach and methodology is based on the globally accepted COSO standard and is designed to address the policy, process and procedural risks associated with the business of investment management. This framework underpins our evaluation of risks inherent in the various activities within the investment management business.

The assessment consists of a thorough examination of:

• The firm's control environment
• A risk assessment of the "AS IS" business environment including the adequacy, recency and quality of its supporting documentation
• Existence, suitability and adequacy of control mechanisms
• Information and communication channels and effectiveness
• Information technology and monitoring processes

Deliverables

• The Director's Oversight Review provides a robust, timely and accurate review of the processes, activities and risks associated with the investment management process concluding with the following:
• Board report and presentation of findings
• Control process gap and impact analysis
• Business risk assessment
• Recommendations
• Risk mitigation and management action plan

Client Benefits

• Independent, objective evaluation of business and operational processes as a supplement to that provided by the firm's legal and audit communities
• Functional expertise that transcends traditional accounting, compliance and technical disciplines across the organization
• Risk management and control orientation which emphasizes the identification, measurement and adequacy of current business and operational processes with the objective of managing control gaps and their likely impacts