b'Mortgage Industry Information, Opinions & TipsDRE Audits and You: Part 1What Triggers It, What Happens NextY ou receive the call from a DRE auditorreason just from the questions that are askedone-day visit, and can actually take many days or a letter from a Special Investigator,or the files that are chosen.If the audit resultsover several weeks or even months.I recall and after your heart rate returns toin an accusation, your attorney will find outone Northern California audit that started in something that approximates normal, youthrough the discovery phase.But, at the endAugust and ended in December (well, it was start wondering:Why me?What causedof the day, it really doesnt matter where itthe same year, fortunately!).At the hearing in this?Now what? came from . you still have to go throughfront of the Administrative Law Judge (ALJ) the process! many months later and after the accusation There are several things that can cause awas filed, the attorney for the broker who DRE audit or a visit/letter from a SpecialIf the Department determines that a Specialwas the subject of this audit cross-examined Investigator.The most likely is a complaintInvestigator should take a look at yourthe DRE auditor on the stand and said Sir, from a member of the public.That publicoperations prior to or instead of sending inyou were in my clients office from August to consists of borrowers, past employees,an auditor, the visit is referred to as a BrokerDecember.You listed 13 items that he did competitors, lenders, investors, appraisersOffice Survey.The Special Investigator (orwrong.Surely, during that time, you found . you get the picture here:anyone whoInvestigators, since sometimes up to fourhundreds of things that he was doing right. knows you or knows about your company.will come together!) will visit your office, askWhere are those listed?Without missing a Another trigger can come from the factquestions about your operation, and reviewbeat, the auditor said I wasnt there to find that your threshold reports (quarterly ortransaction files, salesperson contracts andwhat he was doing right, I was there to find annual) are filed late, filed incorrectly, ortrust account information (not a full-blownwhat he was doing wrong.Ouch.include negatives or suspicious lookingaudit, more like a simple review to look for activities.When the reports are reviewedirregularities).The Special Investigator willThe auditor checks salesperson and broker-by the Mortgage Loan Activities section andlikely ask for specific information about aassociate contracts, commission agreements, potential problems are found (or their lettersparticular transaction and may ask for yoursupervision policies and procedures, to you regarding incomplete or absent filingsaffidavit explaining the circumstances oftransaction files, bank signature cards, bank are ignored), you can expect a call from thethe transaction.An office visit such as thisstatements, bank reconciliations, and asks auditor to follow.In my experience, theis usually a few hours at most.This can endquestion after question about your company, chance of getting a random audit withoutin a Corrective Action Letter (CAL), a Cite andits ownership and business practices.a triggering complaint is unlikely. Fine or even lead to an accusation, but it can also end in the Special Investigator shakingIn future columns, I will go into each part of Of course, you want to know Who ratted meyour hand and thanking you for your timethe audit process in more detail.Stay tuned.out?You may never know.The auditor oftenand cooperation and thats the end of that.has no idea where the complaint originatedPam Strickland is a compliance consultant and, if he or she does know, they dont haveIf, however, the appointment is made by anwho helps DRE brokers prepare for and to tell you.Sometimes you will instinctivelyauditor, you should expect a complete routinesurvive DRE audits and office surveys.She know, and other times you will discover theor investigative audit.This is hardly ever acan be reached at pam@pamstrickland.com. Page 32Spring 2020Points of Interest'