A company isn’t created out of thin air: it takes time, patience, perseverance, and a lot of drive. For many firms, this ambition can lead to them crossing certain legal boundaries.
In a bid to discourage such potentially destructive practices, certain rules have been put in place. Organizations need to adhere to these rules of the country and industry of operation.
Failing to abide by the regulations may result in punishment in the form of fines or being put behind bars – or at the very least some critical damage to a company’s reputation.
Compliance refers to the different ways of ensuring that everything that happens within an organization is in adherence to the regulations of the industry.
In most enterprises, compliance professionals put an internal structure in place to ensure that everything within the organization is in alignment with the company’s ethics and values.
For any organization, the scope of compliance can be broadly categorized as that of internal and external compliance.
Internal And External Compliance
Regulatory compliance or external compliance are the proactive measures that a company takes to ensure that its actions are in alignment with the government laws.
For companies operating in more than one geographical location, the association of corporate counsel lays down the ground rules of operation.
This is done after taking into account the relevant guidelines of the different governments of the places the business will function in.
The external compliance regulations often come under the purview of federal laws, and non-complications may even lead to you being behind bars or your business having to shut down.
Hiring a third-party business to initiate an audit exercise on your business is an example of adhering to external compliance policies.
However, merely adhering to the government guidelines will not suffice in most cases and businesses have their internal compliance structure.
This is done to ensure that a minimum quality standard is maintained and that every employee of the organization is maintaining a set code of conduct.
An ethical compliance code mandatory for all employees is an excellent example of internal compliance.
The Audit Charter Of An Organization
Internal compliance is a much more demanding form of compliance adherence. Here, the organization establishes the expectations and comes up with a roadmap for its risk management practices.
As there are no set guidelines from any external authority, the organization needs to define its expectations from individual team members.
Setting expectations is a challenging exercise; having it too high makes it unattainable. Similarly, setting the expectation bar too low will affect the overall quality of service and take a toll on the organization’s reputation.
To ensure that the internal compliance aligns with the organization’s overall goals, one needs to have an audit charter.
The audit charter intends to outline the authority and responsibility of the audit team. This formal document clearly defines the purpose and position of an audit within the organization.
Without this blueprint, the governing bodies of business will find it difficult to navigate through the internal audit compliance process.
The audit charter is prepared by someone with a corporate compliance certification and is reviewed by the organization’s management on an annual basis. Ideally, it should contain the following parts.
This section should define how the internal compliance audit will enhance the organizational value and offer objective assurance. The purpose of a risk-based assessment should be clearly outlined in this section.
Adherence To Protocols
Most larger organizations conduct internal audits that are in adherence to the international professional standards.
The charter should explain how the core principles of internal auditing are used to uphold the code of ethics of the company in question.
To avoid miscommunication at the later stages of the audit, the charter needs to spell out its role within the organization. Mentioning the authority and scope of work is an essential move in this regard.
Independence And Objectivity
Any internal audit should be carried out in an unbiased manner, and there should not be any direct operational responsibility.
The charter should spell out the type of reports that will be prepared for the risk management, control processes, and overall preparedness of the organization.
The internal audit should own complete responsibility for the entire compliance structure of the organization.
This would include coming up with written policies defining the standard code of conduct and having procedures for ensuring their implementation.
While some organizations may choose to have a compliance officer, others may have a voluntary compliance committee to see to the overall workflow.
The internal compliance team needs to conduct training sessions for the employees and educate them on the compliance policies in place.
New employees need a comprehensive primer on the organization’s ethics and policies upon joining the organization. The committee needs to have disciplinary guidelines in place and publicize them within the firm.
If offenses are detected despite such stringent measures in place, the organization must take corrective action and nip the problem in the bud.
It is the team’s responsibility to come up with an effective communication line that leaves no room for any miscommunication.
While the charter does not delve into the details, it is a good practice to have the basic roles and responsibilities clearly outlined in the charter.
This will be especially useful when a team conducts the internal compliance audit, and you need to guarantee that each party is on the same page about what is expected of them.
Quality Assurance And Improvement Program
Internal compliance aims to ensure that no employee hinders from the basic ethical and quality expectations as established by the management.
This last section of the charter should define the scope of improvement and report the same to the governing body.
The entire company’s well-being, safety, and security are contingent upon how well they adhere to internal and external compliance.
Depending on the organization in question, such internal audits are conducted every quarter or year.
With such proactive measures on quality management, an organization stays true to its roots, which helps it succeed in the competitive world of business.