You may have some anxiety after hearing stories about companies that went through difficult audits and later suffered from bad press. Now, you are wondering if auditors will come knocking on your door.
The Embarrassing Reason Most Companies Are Not Ready for an AuditAudits are important. They are sudden. They are urgent. Is that why audits make people uneasy? Or is it because we know that other companies are still failing compliance audits? Perhaps it is both, but the fact is, most organizations feel anxious about audits because they are unprepared and fearful. Luckily, if you understand what causes all the anxiety, you are in a better position to do something about it. Many companies are unprepared for a compliance audit for the following reasons:
- Dazed & Confused. With so many laws, regulations, policies, and procedures—not to mention the growing number of different regulators in both the government and private sector— staying audit-ready can seem like a difficult task.
- Sometimes companies misclassify their independent contractors. Some companies do it on purpose to avoid taxes, insurance costs, and payroll deductions. Some do it by mistake. In either case, the practice is illegal. According to Staffing Industry Analysts, companies misclassify 46% of all contractors. You must be careful and correctly classify your workers. When it comes to managing contingent workers, doing anything less puts your company at risk.
- Poor record keeping. It is difficult for an audit to end well when you have no proof of how you operate your business. Without proper records or a Vendor Compliance System to comply, you are in a vulnerable position. If you want to ensure your company is meeting objectives, you need accurate records. Good record keeping will also help when regulatory agencies, courts, or external auditors call.
- Fear and inaction. The word “audit” is enough to strike terror in the hearts of many people, but sticking your head in the sand is never a good idea. As you can imagine, doing “nothing” leaves you at the mercy of the auditors.
Your Organization Could Be Next. Here’s How to Prepare.If you want to get your house in order, follow these tips:
- Get a handle on your ICs. Correctly classifying independent contractors must be a priority. The penalties for not doing so can be severe. If you are not sure whether an individual is an employee or contractor, take the IRS 20 Point Test. Learn how to mitigate security and compliance risks for your extended workforce.
- Get prepared. When it comes to compliance audits, the old saying, “an ounce of prevention is worth a pound of cure” rings true. Pre-audit preparation is the easiest way to guarantee a smoother process when it is time to for a real audit. Your organization should conduct an internal audit to prepare for the real thing.
- Get help. Use available tools and resources to get compliant. These include compliance training, electronic contract management software, and risk and compliance tools. You may even want to request an external or third party risk assessment. Select a technology partner who has passed financial, security, and confidentiality examinations.
- Get it all in writing.It is important that you document everything your company does. You need a paper trail so you can show compliance (or attempts at compliance) in the event of an audit. This includes a comprehensive written compliance program.
- Get people in place. Establish an audit response team. Your team needs subject matter experts who can gather documents and deal with inquiries for an audit as fast as possible.