Performance Perspectives Blog

In defense of quarterly verifications

by | Feb 9, 2011

A recent blog post questioned the value of having quarterly verifications done. Interestingly, we received the following response: “Running the verification on a quarterly schedule can help catch any possible errors sooner, rather than later, potentially minimizing the impact of that error and preventing it from compounding as the firm awaits for the annual verification review.” I found this interesting for a few reasons.

I cannot deny that this could be a benefit; however, I question why errors would be appearing that require the verifier to uncover. The firm should have controls, policies, and procedures in place to ensure the accuracy of their returns. In addition, the annual verification provides confidence that they are following the rules of the Global Investment Performance Standards (GIPS(R)). But other thoughts occurred to me, as well, which I wish to share.

First, given that we have heard that one verifier who promotes quarterly is several quarters behind for many of their clients, if a client is hoping to learn of errors in a timely manner, it appears this might not be possible.

Second, verification tests whether the firm’s processes and procedures are designed to calculate and present performance results in compliance with the standards. It would seem that the annual review should affirm that this is the case; what would cause the firm one or two quarters later to suddenly diverge from their processes and procedures, resulting in errors that require the verifier to discover?

Third, many of our clients previously had quarterly verifications done; they no longer do, suggesting that they prefer annual (because we will do quarterly verifications if they want).

No doubt events can occur during the year which require the firm to have to make decisions which might result in problems, such as the discovery of errors, the creation of new products, acquisitions, or simply questions that arise from within the firm. I would expect that the firm’s verifier would be available to respond to questions and offer guidance; we do. We often get calls and emails throughout the year from our clients, and are happy to offer our opinions and recommendations.

Clearly, if the firm desires to have quarterly done, then the verifier should be happy to accommodate them; we would. We just happen to feel that such frequent visits are disruptive, more costly, and accomplish little, if anything. Yes, it keeps the verification firm’s staff busy throughout the year, but beyond that, where’s the value? We firmly believe that annual is sufficient and the ideal timing for verification.

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