D.E. Scott Investment Management Compliance ServicesD.E. Scott Investment Management Compliance Services

Compliance Assurance Reviews for Hedge Fund Managers

Overview of the Compliance Assurance Review

Our Compliance Assurance Review is designed to provide our clients with a valuable tool in communicating the breadth and depth of their compliance control processes to critical constituencies, including investors, regulators and other interested parties.

By blending highly specialized compliance audit processes with an in-depth understanding of hedge fund management and operational practices, D.E. Scott & Associates (“DE Scott”) has developed an unparalleled review service for hedge fund and other private fund managers.  Our Compliance Assurance Review is designed to rigorously test fund managers’ compliance controls in order to identify problems where they do exist and, where issues do not exist, to provide peace of mind.

The results of each Compliance Assurance Review are: (1) an opinion letter regarding the adequacy and effectiveness of the compliance controls reviewed; and (2) our Compliance Assurance Results Matrix, which provides detailed information regarding the controls that were tested and the results of our testing.

Key Benefits of the Compliance Assurance Review

Peace of Mind:  Our review processes are unparalleled in the industry today and are designed to rigorously test compliance controls.  The end products are designed not only to highlight potential problems but, where problems do not exist, to provide peace of mind.

Due Diligence Report for Investors and Regulators:  Each of our reports includes an opinion letter regarding the adequacy and effectiveness of controls as well as our Compliance Assurance Results Matrix, both of which are designed for use by investors, regulators and others.

Multiple Uses for the Report:  Our report is comprehensive and provides information and testing results for over 120 separate control elements.  Consequently, the report may also serve as your required Annual Review and as a useful tool for tracking ongoing compliance goals.  


The Compliance Assurance Process

We apply a comprehensive approach to each assurance engagement.  Details regarding the Compliance Assurance Process are set forth below: 

Stage One: We start with our Enhanced Document Request List (“DRL”).  We term our DRL as “enhanced” because, along with standard SEC requests, our DRL also includes highly developed requests which target areas of unique risk for hedge fund managers.

Stage Two: Prior to arriving on-site, we conduct detailed reviews of the manager’s compliance policies and procedures, registration documents and certain other organizational information.  This provides us with the foundation upon which we build our initial review plan.

Stage Three: Our onsite process begins with comprehensive interviews of appropriate personnel.  These interviews are designed to provide us with detailed information regarding actual practices and to alert us to any further refinements needed to our review plan.

Stage Four: With our baselines established, we rigorously analyze data and working documents.  Our state of the art review processes include not only direct comparisons of information against disclosed practices, but also include multi-data point and cross-sectional analyses to identify potential issues.

Stage Five: Additional follow-up interviews and document requests are used to further refine and/or confirm our findings.  We take great care in ensuring that our findings are completely defined and accurately portrayed.

Stage Six: We issue a draft report for management review.  The draft stage provides an opportunity for management to provide feedback regarding our findings and to ensure that our understanding of identified practices is accurate. 

Stage Seven: We issue a final report, which includes our opinion letter and our Compliance Assurance Review Results Matrix. 


The Compliance Assurance Report

The end products of our Compliance Assurance Review include the following:

  • An opinion letter indicating, among other things, whether DE Scott believes that the adviser’s controls are reasonably designed to: (1) prevent violations of federal securities laws; (2) detect violations when they do occur; and (3) remedy compliance violations when they are identified; and
  • Our Compliance Assurance Results Matrix, which provides detailed information regarding the control points reviewed, our testing methodologies and the results of our tests.