After identifying numerous issues with custody of investors’ funds, the SEC issued a risk alert underscoring existing rules.

An SEC review of recent examinations of investment advisers where significant deficiencies were detected showed custody-related issues in about one-third of the firms examined, resulting in the alert by the SEC’s Office of Compliance Inspections and Examinations (OCIE).

The SEC found that some advisers:

  • Did not recognize that they have custody, such as in situations where the adviser serves as a trustee and is authorized to write or sign checks for clients, or to make withdrawals from a client’s account as part of bill-paying services.
  • Did not meet the custody rule’s surprise examination requirements. Investment advisers who have custody of client assets must enter into a written agreement with an independent public accountant to examine those assets on a surprise basis every year, according to an SEC Investor Bulletin issued along with the risk alert.
  • Did not satisfy the custody rule’s qualified custodian requirements. For example, they may have mingled client, proprietary, and employee assets into a single account, or lacked a reasonable basis to believe that a qualified custodian is sending quarterly account statements to the client.

The risk alert is available at


News quiz: College debt, stolen identities, and retirement planning

See how much you know about these developments and others in the Journal of Accountancy news quiz.


Preventing and detecting fraud at not-for-profits

Organizations in all industries must deal with the potential for fraud to occur, and design controls to prevent and detect it. Environment, policies, and controls can help organizations steer clear of problems.


The dangers of dabbling

To meet evolving marketplace needs, CPAs often look to diversify their service offerings. Firms can mitigate the risk of experiencing competency-related professional liability claims by implementing these basic steps.