A spot check is a review of the financial status of a randomly chosen brokerage. The spot check is conducted by one of RIBO’s Financial Investigators. Every effort is made to visit a brokerage within a 4-5 year cycle. Since a spot check is often the first contact that many brokers have with a member of RIBO staff, Principal Brokers are encouraged to use the Financial Investigator’s visit as an opportunity to learn more about RIBO and its reporting requirements.
Once a brokerage has been selected, the Principal Broker receives written notification that a spot check will be conducted in approximately two weeks time. Accompanying the notification is an outline of the information normally reviewed during the a spot check allowing the Principal Broker sufficient time to prepare for the spot check. The assigned Financial Investigator will then contact the Principal Broker to schedule a specific date and time.
The spot check begins with a series of questions designed to assist the Financial Investigator in understanding the brokerage’s specific business practices including areas of market specialization and the maintenance of books and records. The Financial Investigator then reviews a minimum of two of the most recent Form 1 Position Report filings and reconciling the figures from these reports with the brokerage’s books and records, and the most current non-filing month-end. An audit trail is then conducted on randomly selected client files in conjunction with the books and records.
While at the brokerage, the Investigator will briefly discuss the findings of the spot check with the Principal Broker. Any areas of non-compliance are explained along with possible solutions and corrective action that can be undertaken. The length of time it takes the Financial Investigator to conduct the spot check depends upon the accessibility and availability of the information at the brokerage.
A formal Summary of Findings is prepared and issued to the Principal Broker upon the Financial Investigator’s return to the RIBO office. Depending on the specific findings and its severity, actions that can result from the spot check can range from a letter of request from the Financial Investigator to a complaint being filed against the brokerage.
For the spot check, Principal Brokers are asked to provide 18 months of the following information to be available for the Financial Investigator to review:
- Balance Sheet
- Income and Expense Statement
- Aged Accounts Receivable Listing
- Bank Statements and corresponding Bank Reconciliations
- Cancelled Cheques (Trust and General Accounts)
- Trust Investment documents
- Insurer Accounts Payable Listing
- Receipts and Disbursement journals
- Prepaid Premium Listing
- Retail Sales Tax Remittance file
- General Ledger
- Most recent externally prepared Financial Statements (including any year-end adjusting entries)
- Working papers prepared by an external accounting sources to complete Position Reports
- Supporting documentation for Shareholder Loans/Advances
- Disclosure of Facts provided to Insureds indicating Potential Conflict(s) of Interest
- Point of Sale Commission Disclosure statement provided to Insureds
- Client Consents for any Unlicensed Insurance used
- Listing of all Markets including Sub-Brokers, Intermediaries, etc.
- Current Errors and Omissions insurance and Fidelity Bond policies
- Continuing Education compliance certificates for the previous two (2) terms of October to September for all licensed individuals
Under certain circumstances, a “Broker Review” may be conducted rather than a routine “Spot Check”. Situations that may lead to a broker review can include:
- A complaint from a member of the public.
- A complaint by an insurer.
- As a follow-up by RIBO for issues found on a prior spot check or filed Form 1 Position Report.