On this week’s episode we are rejoined by Core Compliance’s CEO Michelle Jacko to continue our discussion on conflicts of interest.
CCO Buzz: Hello, welcome back and a Happy Belated Hanukah! We can’t believe that Hanukkah has come and passed, we are 11 days until Christmas, and only 18 days until 2019. We’ve had quite a year here at the CCO Buzz and have a lot to celebrate – Like continuing our conversation on conflicts of interest with Core Compliance’s CEO Michelle Jacko.
So, let’s not delay and jump right in...
Michelle Jacko: A third area to consider is gifts and entertainment. Consider whether the conflict of giving a gift or providing entertainment is perceived to be a bribery for doing business with your firm or an individual. A lot of times what we see are individuals who show failure to adhere to the firm’s gift reporting policy. They may not think that taking someone to a sporting event is a gift/entertainment or require preclearance. It depends on the facts and circumstances which should be evaluated by compliance.
We also see situations where there’s inadequate supervision or potential conflicts. Such as failure to conduct email surveillance – where by the gift/entertainment could have been detected. Or failure to timely assess employee reports. So, for example, while gifts and entertainment are being reported the firm is still unaware of the aggregation of gifts and entertainment to a client by multiple departments or employees.
So, for example, if your policy states that you will not provide a gift/entertainment exceeding a $150 or $250 for a client per year – that aggregation of multiple departments giving those gifts have not been considered; they’re only looking at that point of what the gift is and what the value is.
Finally, the fourth conflict that we commonly see are political contributions, whereby you have a conflict of “pay-to-play.” As you are aware the SEC in states have adopted laws to prevent “pay-to-play,” whereby the goal is to promote transparency and fairness in the government decision-making process and avoid undue influence. Contributions generally include gifts or subscriptions, loans, advanced deposits of monies, or anything of value being in connection to that election that of state or federal or local election.
In general, firms don’t prohibit the political contribution, but rather have maximum limits for state and local elections. So, for example, the individual can contribute up to $250 for a candidate. Often times, where we see the conflict is that the firm and its employees cannot make political contributions for the purpose of obtaining or retaining advisory contracts. So, in order to mitigate that conflict the firms would require preclearance prior to the employee making a political contribution and require quarterly certifications by that employee that no political contributions have been made outside of the scope of the firm’s policy.
Common deficiencies include firms that fail to supervise political contributions, firms that fail to sufficient internal controls – such as strong policies in this area, or failure to consider a “look-back” provision for the prior two years. So, for example, if you have a new employee that’s onboarding that happens to make a political contribution in excess of what the state or local limits are and you accept a government contract in that regard, the firm must provide advisory services free of charge for the next two years; if you violate that policy.
So, at this time of year, it’s a good time to evaluate your conflicts to ensure that they are mitigated or eliminated, and of course to disclose them appropriately in the Forms ADV and other client disclosure documents. For more information about considerations related to conflicts of interest, we invite you to contact us at (619) 278-0020 or at email@example.com. Thank you.
CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn or Twitter @CoreCLS. Thank you and we hope you tune into next week’s episode of the CCO Buzz.