The Importance Of Compliance Audits
Contracts are the legal foundation of transactions between modern business. They define the scope and details of a deal made between a company and its vendors or contractors. These legal documents are usually made up of hundreds of pages filled with clauses that address all the different aspects of the exchange between two entities. Compliance audits conducted by lawyers, Chartered Accountants and other professionals are the only way to make sure that neither party is violating a complex written agreement.
What Kind of Companies Care About Compliance Audits?
Companies that do business with the government departments are also subject to compliance audits to ensure that they are not violating corruption laws or other regulations. Since local and federal governments often hold their contractors to a higher degree of economic and environmental responsibility, maintaining compliance can be a challenging without vigilant oversight.
While they are a big deal for companies that work with the government, all businesses that sign big contract deals should be familiar with compliance audits. Even if a business has an internal auditing or monitoring department, it's a good idea to hire an outside accounting firm to double-check their work. It may seem counterproductive to audit your own company, but it's always better to find and address a problem rather than pretend it doesn't exist.
How do Compliance Audits Work?
Basically, the auditing team looks at all of the rules and requirements laid out in a contract to determine the obligations of all parties involved. They then go through and check invoices, receipts and other documents to make sure they line up to the expected standards. Compliance audits are usually focused on the financial aspects of the transaction, which is why all records should be fully completed and carefully preserved as they are received.
This process can seem complicated and expensive to some business managers, but it is actually not as bad as it may seem. There are professional legal and accounting firms that specialize in compliance auditing, so they know how to analyze material quickly to identify areas of concern. A company's internal monitoring department can also be improved in the wake of an independent audit as they observe the practices used by outside professionals.
Don't Ignore the Problem, Find and Fix It
Companies can lose a lot of money over time if their vendors, contractors or other business partners are dishonest about their expenses. Maintaining strict standards for invoicing by requiring proof of expenditures and other records helps protect against this kind of waste. Compliance audits are the best way to dig through all of the documentation to identify sources of corruption, misuse of funds or potential legal pitfalls.