Internal Audit – What types of audits would have identified issues relevant to the misconduct? Did those audits occur, and what were the findings? What types of relevant audit findings and remediation progress have been reported to management and the board regularly? How have management and the board followed up? How often has internal audit generally conducted assessments in high-risk areas?”

Interestingly, Foreign Corrupt Practices Act (FCPA) compliance follows some of the paths laid out by corporate safety departments some 20-30 years ago when safety became much more high profile in US corporations. The safety committee and safety audits became the mainstays of any company’s best practices in the area of safety. These techniques inform any anti-corruption best practices compliance program under the FCPA, UK Bribery Act, or any other anti-corruption regime. Indeed, audits are delineated explicitly in the 2012 FCPA Guidance to assist in continuously monitoring your compliance regime. Such an audit can be thought of as a systematic, independent, and documented process for obtaining evidence and evaluating it objectively to determine the extent to which the compliance criteria are fulfilled. Three factors are critical for a compliance audit to have a chance for success: (1) an effective audit program that specifies all necessary activities for the audit; (2) having competent auditors in place; and (3) an organization that is committed to being audited. Auditing can take several different forms in an anti-compliance program. Of course, you should audit the compliance program in your organization. A forensic audit can collect and analyze accounting and internal-control evidence in your compliance regime. This information can produce a fact-based report informing the decision-making process in inquiries, investigations, and dispute resolution. The by-products of a forensic audit can include remediation strategies to help a company mitigate and remedy procedural or internal-controls gaps that allowed the underlying issue to occur.

Further, an internal audit can review compliance processes to determine if employees follow prescribed procedures or internal controls. In addition to collecting and analyzing evidence, an auditor’s objective is to attest to the credibility of assertions under examination, such as the material accuracy of financial statements for which the audited company’s management is responsible. One of the functions of such an audit is to determine if further investigation is warranted. Once again, this situation points out the difference between having a paper compliance program and the actual doing of compliance. Even with an appropriate oversight structure, you must do the work in the future. Another area ripe for audit in your compliance program is your third parties. While there is no one specific list of transactions or other items which should be audited when it comes to your third parties, below are some of the areas you may wish to consider reviewing:

• Contracts with third parties to confirm that the appropriate FCPA compliance terms and conditions are in place.
• Determine that actual due diligence took place on the third party.
• Review the compliance training program for any third party, both the substance of the program and attendance records.
• Does the third party have a hotline or any other reporting mechanism for allegations of compliance violations? If so, how are such reports maintained? Review any reports of compliance violations or issues that arose through an anonymous hotline or any other reporting mechanism.
• Does the third party have written employee discipline procedures? If so, have any employees been disciplined for any compliance violations? If yes, review all relevant files relating to any such violations to determine the process used and the outcome reached.
• Review expense reports for employees in high-risk positions or high-risk countries.
• Testing for gifts, travel, and entertainment that were provided to or for foreign governmental officials.
• Review the overall structure of the third party’s compliance program. If the company has a designated compliance officer, to whom, and how does that compliance officer report? How is the third-party vendor’s compliance program designed to identify risks, and what has resulted from any so identified?
• Review a sample of employee commission payments and determine if they follow the internal policy and procedure of the third party.
• Concerning any petty cash activity in foreign locations, review a sample of activity and apply analytical procedures and testing. Analyze the general ledger for high-risk transactions and cash advances and use analytical procedures and testing.

Auditing is a more limited review that targets a specific business component, region, or market sector during a timeframe to uncover and/or evaluate certain risks, particularly as seen in financial records. However, you should not assume that because your company conducts audits that it is effectively monitoring. In other words, the protocol is simple, and everyone understands you need to audit, but try and cut costs or corners and you will pay for it in the long run.

Three Key Takeaways

1. Auditing takes a deep dive into your high-risk compliance areas.
2. Internal audits should test your key FCPA risk areas as a part of their regular auditor rotation.
3. The findings uncovered in an audit must be used in your compliance regime.

The compliance audit is a key component in the continuous improvement of a compliance program. [/tweet_box] For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit this month’s sponsor, Affiliated Monitors, at www.affiliatedmonitors.com.